The Law of Unintended Consequences and VLTs in Illinois

Expansion in mid-2013 is still the major story in the casino industry.  Expansion into new states or within a state has often been driven by lawmakers looking for new sources of revenue to balance budgets.  But, there have been other reasons for expansion; in true democratic style, gaming sometimes expands by the will of the people and in a less democratic style by the will of the governor.  Ohio, Maryland and Massachusetts are examples of the will of the people. Pennsylvania, New York and Illinois are examples of the will of the governor.

Actually, Ohio can be cited as an example of both the will of the people and that of the governor. . It was the will of the people that led to four casinos in Ohio and it was the will of the governor that created the racinos.  Illinois is a mixture of all three forces, the will of people, the will of the governor and a legislature in search of more revenue; Illinois is a 20-year experiment in expanding gaming.  At the moment, Illinois is poised once again to expand its offerings.  For the last couple of years, there has been a least one bill in the legislature to add more casinos and slot machines at racetracks; it appears the latest version may be approved and signed.

The current move to expand gaming in Illinois is being driven a different force, not one related to the will of the people, the governor or the need for more money.  This time the major champions of expansion are the mayors of cities; leading the list is the mayor of Chicago, Rahm Emanuel.  Emanuel, like his predecessor thinks Chicago should have, own and operate its own casino.  The lawmakers and the governor are bickering over the details of a bill that would be acceptable to all parties; acceptable to the governor, gaming regulators, existing casino industry, racetracks and the mayors.  But while they bicker, a genie has escaped his bottle and is on course to change the nature of the game.

The genie is a VLT; it first appeared in a dream of the governor, Pat Quinn.  When Quinn took office, the previous governor was preparing to enter prison – an old Illinois tradition.  Quinn wanted to get past the tainted image of his office.  And he wanted to jump start the state’s economy with a $31 billion state-wide construction project.  The year was 2009; Illinois and the nation were in the midst of the Great Recession.  In his dream, Quinn would lead Illinois out of the recession and straight to the promised land of recovery and prosperity.  He had more than a dream, he had a plan, but not the money to fund it.  The plan contained the VLT-genie, it was the genie that would deliver the cash.

Quinn thought slot machines (VLTs) could solve the money problem; if he could convince the lawmakers to authorize slot machines in licensed retail establishments where alcoholic was served, in fraternal and veterans establishments and in truck stops he could generate some, if not all, of the 31 billion dollars he needed for his plan.  It was a simple, and I am sure in Quinn’s dream-world, a brilliant plan.

However, it did not turn out to be that simple; first, the legislation gave each community the right to permit or forbid the slot machines; and the gaming commission was in no hurry to set up the regulations and begin the licensing process.  Those factors produced a very slow rollout for Quinn’s dream.  In the beginning many communities opted out and the gaming commission stalled as long as it could.  But, gradually the idea has caught on and now there are 7500 slot machines operating in locations around the state.  If all of the eligible establishments were to have slot machines there could be as many as 75,000 slots outside of casinos and racinos in Illinois.  That is bound to have a major impact on the profitability of the state’s casinos and on the state’s gaming tax revenues.

An article from the Rockford Register Star puts the slots in the context of casino gaming in the state; the Register Star says those 7500 slot machines generate more revenue than all but one casino and they are the equivalent of six riverboats.  Imagine the revenue of 14,000 or of 21,000 slot machines?  That may seem like a lot, but 21,000 is just three times the number existing today and only a third of the total number of slot machines possible under the current law; it is a very conservative estimate of the potential competition casinos in Illinois will face in the next year, two or three.  Of the typical gambler’s disposable income, what will be left over for the casinos?  Probably not much would be my guess.

Ironically, Chicago might win its casino in the state legislature.  But unless Chicago and the surrounding communities prohibit those rogue slot machines, a Chicago casino is likely to be a dismal disappointment.  The governor has yet to get his $31 billion, indeed he appears to have forgotten his original plan, the year 2009 and the recession.  However, he and the state are going to get something else.  They are going to get a classical unintended consequence; shortly Illinois will have far too many slot machines and those slots will be bringing harm to an already struggling industry.  Those slot machines will be great for the small tavern owner – the little guys with $10 or $20 thousand invested; but for the big guys with $200 or $300 million invested it is not going to be great, it will be a disaster.  And of course that will lead to more unintended consequences; less casino revenue, fewer casinos jobs and lower casino tax revenue.  The dream is going to turn into a nightmare and the genie an evil demon for some.  Is it not an axiom, a law of nature; whatever you do, something is going to happen that you did not expect?

There were 7,536 operational gaming machines in the state as of June 20; the equivalent of six riverboat casinos. Ten months in and video gambling shows no sign of slowing down.  The amount of cash being pumped into the machines across Illinois has increased each month since September.  The number of the video slots, and applications to install them, has steadily climbed as more municipalities allow video gambling at bars, restaurants, truck stops and veterans organizations. The video terminals reaped $23 million in May, making them more profitable than nine of the state’s 10 riverboat casinos. Greg Stanley, Rockford Register Star, 6-29-13


1 Response to “The Law of Unintended Consequences and VLTs in Illinois”

  1. 1 Melissa Rinchiuso July 1, 2013 at 4:24 pm

    This last year in my town of less the 70,000 in Illinois I have noticed over four bars that have put in slots and now the once empty parking lots are filled all the time. But you are right now people in town are less likely to drive the two hours to the riverboats.

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