Runaway greed in Illinois

Existing operators in Illinois are picking themselves up off the floor following an exponential expansion of casino gambling in the Land of Lincoln, achieved in the waning hours of the legislative session. Caesars Entertainment, Penn National Gaming, Boyd Gaming, Eldorado Resorts and Churchill Downs all will take it on the chin from the new law, which Gov. Jay Pritzker (D) is expected to sign. “Possible litigation can be filed as a way to delay, but it likely won’t derail the bill’s eventuality,” writes JP Morgan analyst Joseph Greff. The bill’s components are as follows: a 4,000-position casino in Chicago (1 slot = 1 position, 1 table = 6), five more of 2,000 positions apiece in the Chicago suburbs, 1,200 gaming positions per racetrack, for a total of three racinos, legalized sports betting (both mobile and brick-and-mortar) including sports venues holding 17,000 people or more, slot routes increased from five machines to six per site (the equivalent of six additional casinos), slot routes at airports, increased slot-route bets from $2 to $4 per hand, a higher slot-rate tax rate of 34% and a 15% tax on sports bets.

The lone concession made to pre-existing casinos was that they can come ashore and increase their gaming capacity from 1,200 positions to 2,000 apiece. Given all the new competition, I wonder if the cost/benefit analysis favors staying on the water (even if common sense does not). Greff wrote “we don’t know the magnitude or quality of the gaming capacity; for the Chicago casino, 4,000 is a lot of capacity, but given the effective ~67% gaming tax rate [!], it’s unclear how much investment will be there …” He adds that riverboat revenue growth has been on the decline since the inception of slot routes in 2012, a train of events unlikely to reverse itself. The majority of gambling revenue in Illinois now comes from slot routes, not casinos. (Newcomers, take note.) At least Penn and Boyd will be able to absorb some of the damage thanks to the bill’s expansion of their extant slot routes.

Churchill Downs is both winner and loser, facing more competition at its Des Plaines casino but gaining racino status at Arlington Park. If you don’t qualify for a brick-and-mortar sports-betting license, there’s hope for you too, as three online-only licenses will be made available at $20 million apiece. DraftKings and FanDuel will be required to team up with a casino operator, at least for the initial 18 months, no college betting will be allowed and prop bets will have to be made using official league data. At least “integrity fees” were rebuffed.

“If it was sports wagering only and the bill was drafted in such a way that it’s more reasonable in some aspects, I think we would be on board,” said Tom Swoik, whose Illinois Casino Gaming Association got steamrolled in the vote. He added, “I’m pretty sure we’re going to be against it this year because all the past large expansion bills have ended up costing casinos more revenue in cannibalization than can be made up by sports betting’s 5% hold.” Also getting run over were religious leaders, who wanted the benefits of the Chicago casino to trickle down to the city’s African-American and Latino communities.

* During the Great Recession pension funds that were invested in casino companies got badly burnt. Now Norway‘s premier pension fund, KLP, says it is getting out of gaming investments. While that might seem like a sound fiscal decision, it appears to be on moral grounds, with alcohol investments also stigmatized. KLP unloaded $320 million in ‘sin’ stocks on the market, as though to make its point. Gambling and drinking, join smoking and arms manufacturing among the sectors of which KLP now disapproves. Wynn Resorts was among the stocks dumped. So were companies that make porn. We’ll leave the irony unspoken.