Chicago Would Be a Plum Indeed

The opportunities for casino companies to expand into new jurisdictions are dwindling. With the recent expansion in New York, Massachusetts and Maryland, the best potential gaming jurisdictions have been taken. However, there are some opportunities remaining, not as desirable as earlier ones maybe, but still opportunities. Many in are in the south; Georgia, North and South Carolina, Texas, Arkansas, Alabama, Kentucky and Virginia are still waiting for their first legal casinos. Further north there is some legislation pending: Vermont, Rhode Island and Illinois have casino bills in the making. Rhode Island has a million people, Vermont only has 600,000 residents; new casinos in either would have very limited financial potential. Illinois would not be much better. Ranking 3rd in the country with 13 million people, there is more than enough population in the state for a successful casino industry. The issue in Illinois is the gaming that already exists. Illinois has 10 casinos and 20,000 slot machines in bars and restaurants. The slot machines are draining revenue from the casinos and more casinos would further dilute the gaming revenues. It would be difficult for any casino to be profitable under those circumstances.

State and local revenue from video gambling more than doubled last year as the industry continued its lightning fast expansion…state revenue from the machines topped $164.8 million in 2014, up from $75.1 million in 2013…gamblers poured more than $2.4 billion into the machines over the 12-month period…Since the first 61 machines went online in September 2012 at a handful of bars and restaurants, the number of machines and locations has mushroomed to 19,182 machines in 4,675 locations…The gaming board reports that Illinois casinos generated $86.7 million less in 2014 compared to 2013, with casino admissions down 1.4 million. Kurt Erickson, Quad-City Times, 1-27-15

The Casino Queen has cut its hours and laid off employees as gambling revenue continues to decline. Twenty employees, including managers, lost their jobs this month…In addition, the Queen recently reduced its daily hours of operation to 20 from 22. The new closing time is 4 a.m., instead of 6 a.m… the Queen had $8.8 million in revenue in December, down 4.6 percent from December 2013. Affecting the Queen is the proliferation of video gaming, which in 2009 became legal in Illinois in public places outside casinos. Tim Bryant, St. Louis Post-Dispatch, 1-14-15

The proposal in Illinois would authorize five new casinos and slots at racetracks. Casinos would be authorized in Lake County, Rockford, Danville, the south suburbs and one in Chicago. That licensee is in a category by itself. Chicago would be a rare opportunity for some lucky gaming company. Large urban areas are the true prizes in the casino world. New Orleans, St. Louis, Kansas City, Detroit, Philadelphia, Pittsburg, Cincinnati, Cleveland, New York City and Baltimore have casinos; Boston and Washington will have one soon. The distance from the city is very important to the success of a casino. There are Indian casinos near San Francisco, San Diego, Los Angeles, Sacramento, Portland, Seattle and Phoenix, but not in the cities. The closer to the city, the better it is for casino operator. But close is not in and by being near or close by, they are vulnerable to a new casino placed in the city itself. Legalizing casinos in California, Oregon or Washington could lead to at least one casino in each of those cities. Besides those cities Louisville, Atlanta, Houston, Dallas and Miami also do not have casinos.

Times and thinking have changed since South Dakota legalized casinos in Deadwood in 1989. Twenty-five years ago, people were willing to invest in casinos on riverboats, remote mining towns or other locations far away from large populations, but the era has passed. Today, there are not many casino operators or investors interested in locations not near a large urban population. In the last 25 years, the industry has learned that all casinos, except on the Las Vegas Strip, are regional casinos. The customers for regional casinos live near the casino, within an hour’s drive. And after the expansion of the last two decades, customers are likely to have more than one choice within that driving time.

That is why Chicago is so desirable; it is the third largest city in the country. It may be desirable for an operator, but it also presents some challenges. Professor Bill Eadington, of the University of Nevada in Reno, foresaw the risks of urban casinos in the early 1990s. He warned legislators to restrict casinos to more remote locations and keep cities as gambling free zones. Professor Eadington reasoned that if people had to travel a long way to get to a casino they would be protected from financial and emotional damage caused by gambling too frequently. Convenient locations make it easy for a gambler to visit; the racino in Queens, has its own subway stop.

Professor Eadington lost that argument when casinos opened in Detroit, New Orleans and St. Louis. Once the genie was out of the bottle, every new jurisdiction included a city or two – Ohio permitted casinos in four cities. Lobbying on behalf of casino legislation has become very acceptable for municipal governments. The idea of a Chicago casino is very popular, except with the owners, managers and employees of Rivers. The city government definitely supports the idea. Statewide, the bill has a broad-based support from the racetracks and the cities where the casinos would be located. The opponents are the anti-casino people and the people with a vested interest in the existing casinos.

Most candidates running for Chicago mayor say they’d support a city-owned casino. Chicago Mayor Rahm Emanuel and the four candidates trying to unseat him participated in a Tuesday debate hosted by the Chicago Tribune editorial board. It’s the first time all candidates are debating ahead of the Feb. 24 election. Emanuel, Alderman Bob Fioretti, Cook County Commissioner Jesus Garcia and businessman Willie Wilson say a casino would boost revenues. But Emanuel says it wouldn’t solve all of Chicago’s fiscal problems. Garcia says citizens should support if first. Associated Press, 1-27-15

Illinois is no different from any other state; those who support any given piece of legislation are likely to benefit directly from it. Those who oppose it are likely to suffer harm from it, or at least they think it will harm them. That is why the Rivers opposes a casino in Chicago. Currently, the Rivers casino in Des Plains is the closest casino to Chicago. Because of its location, Rivers does over twice the revenue of the next highest grossing casino in the state. When Rivers opened in 2012, it took 30 percent of the business from its major competitor because it was closer to Chicago than its competitor. A casino in Chicago would generate more gaming revenue and profit than Rivers. And in part, it would be at the expense of Rivers. A Chicago casino would take 30 percent or more of the Rivers customers and revenue. It is simply an economic truism; the business closest to the customers makes more money than ones farther away.

Passing legislation to expand gaming in Illinois is not going to be any easier than it was in previous years; a bill to expand gaming is an annual event in the state. It is always opposed by the existing casinos and supported by the communities that would house a casino and the racetracks when slots for the tracks are included in the bill. None of the bills have passed yet, but every year is a new year and economic conditions and public sentiment change. This might be the year a bill passes. If it does, the Chicago license would be very, very valuable. Cities are the only really good opportunities for gaming expansion that remain and Chicago is one of the true plums still on the expansion tree.


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