Illinois: Optimism or suicide?

It doesn’t matter to state Rep. Lou Lang (D, right) that Illinois‘ casino revenues are puny compared to those of neighboring Indiana or that St. Louis-area players are defecting in droves. He wants racinos and more casinos, by golly, and won’t stop until he gets them. Never you mind the economic consequences. Sounding like a free-market conservative on cocaine, Lang offers a point of view that one hopes doesn’t sway Gov. Pat Quinn. Per Lang’s reasoning, Starbucks is allowed to proliferate, regardless of who might be driven out of business. Ditto car dealerships. However, Lang’s self-serving analogy trips over its own shoelaces. There’s no law of which S&G is aware that says a state can only have X number of Starbucks and Y amount of Mercedes-Benz showrooms.

Casinos in Illinois, however, are limited by statute. It follows that, when considering any expansion or contraction, the state has to take the economic consequences into effect because it is creating those consequences by its actions. In Lang Land, actions evidently are consequence-free.

If the legislator wants to “keep people in Illinois to spend their money,” we respectfully suggest he consider why they’re not doing so currently. It’s obviously not a supply problem. Before glutting the market, maybe — just maybe — Illinois should rethink its smoking ban or lower the top-tier tax rate that literally has casinos incentivizing players to take their action to sister properties in the Hoosier State. Or how about offering casinos financial incentives to move their facilities onshore, instead of trying to hit them up for $50 million in extra fees?

Naaaaaahhh! More gaming positions. That’ll do it. Fer sure. You’ve got to wonder how past Lang donors like Neil Bluhm and Caesars Entertainment feel about the upside-the-head manner in which their generosity is being repaid. I wonder if he’ll make their Christmas-card list this year?

A more poignant face is put on the issue by the contrasting plights of two Illinois cities. In this corner, we have Elgin, which has already seen revenues from MGM Resorts International‘s Grand Victoria (above) plummet and is looking at fancy new competition in Des Plaines (right) with great trepidation. In the other corner stands Rockford, which is looking forlornly at higher employment rates in the Quad Cities and Peoria (home to Boyd Gaming‘s Par-A-Dice), and asking, “Why can’t we have what they do?” Again, the default argument is that the mere act of opening a casino would stanch the flow of gambling dollars across the state line, into Wisconsin. That’s true to some extent … but probably nowhere near as much as the Rockford city fathers are telling themselves.

What’s an IP worth? Boyd has broken out further numbers on its Imperial Palace Biloxi purchase and it works out to an industry-standard 7X EBITDA (or 7.2X, to be pedantic). The casino generates annual cash flow of $41 million, which Boyd believes it can crank up to $46 million through various synergies and economies of scale — a lower insurance cost, for instance.

The company’s also rolling its $278 million cash-on-the-barrelhead/$10 million charitable commitment/$44 million capex commitment into a $332 million purchase price. By contrast, Las Vegas Sands likes to argue that Sands Bethlehem (whose new hotel is butt-fugly but doing gangbusters business) cost “only” $636 million — by dint of backing out the cost of its casino license and slot machines. The hotel, incidentally, was supposed to look like this. I’d love to see Sands try and open an $800 million casino “integrated resort” without a license or slots. You couldn’t find the ROI with a microscope.

He’s back. Not Lang but Rep. Joe Barton (R-TX), whose bill to legalize Internet poker is to be formally announced today. I haven’t seen any hard-and-fast figure for how much the Web sites would be taxed. However, since the Barton bill calls for federal regulatory oversight, he’s going to have to find a revenue offset that will fund it or else his chances look extremely bleak.

Closer to home, local comedian Sherman Q. Frederick has jumped onto the Gov. Rick Perry (R-TX) bandwagon, cheerfully oblivious to Perry’s extremely adamant anti-gambling stance, probably the most rigid of any governor of any state not called “Utah” (or as I tend to think of it, the Afghanistan of America). If we’re to get a President Perry in 2013, then let’s hope Barton’s bill is voted into law yesterday.

Madonna: So yesterday. At least where casino patrons in Macao are concerned, the Material Girl is old hat. This is the latest exhibit, pardon the pun, of Why Macao Is Not Las Vegas. That’s a lesson U.S.-based casino developers may have absorbed by now but, strangely, the pressure for Strip-like amenities is coming from the central government in Peking, which really ought to understand its own culture better than a James Packer or a Sheldon Adelson would.