Las Vegas Review-Journal (Sunday)
Some Las Vegas gaming companies are eyeing opportunities in Illinois.
Some see opportunity for Vegas firms as gaming expands in Illinois
NEVADA-BASED casinos and slot machine manufacturers have been preparing for new markets in places like Massachusetts and Japan. Now there’s a growth opportunity nestled in the heart of the Midwest: Illinois.
This month Illinois legislators passed a bill that would dramatically expand its gaming industry, allowing for more gambling machines and up to six new casinos, including one in Chicago.
The 816-page bill also would legalize sports betting, allow slot machines in O’Hare International and Chicago Midway International
airports and permit casino operations inside the state’s horse racing tracks.
Experts say once the bill is signed by Illinois Gov. J.B. Pritzker, it’s sure to open opportunities for gaming companies, including some based in Las Vegas. But with a tax structure that demands far more than Nevada’s, some companies might pass on the chance to move into the Windy City.
The ‘likely winners’
While casino operators may pass up the expansion opportunity, experts agree the bill is a boon for one sector of the gaming industry: slot machine manufacturers.
With more machines allowed in existing properties and new casinos on the horizon, a report by SunTrust Robinson Humphrey analyst Barry Jonas expects anywhere from $79 million to $224 million of earnings from the new unit sales.
“These type of expansion opportunities don’t come along too often anymore,” said Marcus Prater, the executive director of the Association of Gaming Equipment Manufacturers. “As suppliers, we’re certainly pleased.”
Las Vegas is known as the “epicenter for slot companies,” Prater said, meaning at least some local companies are sure to benefit from the expansion.
“We’re excited about it,” said Derik Mooberry, executive vice president and group chief executive of gaming for Las Vegas-based slot machine manufacturer Scientific Games. “It provides a lot of opportunities for us.”
He said Scientific Games is one of the largest suppliers in Illinois, but he wasn’t able to give an estimate of how many machines it has sold there.
With the bill allowing growth in both the traditional casino market and the video gambling market in taverns and bars — as well as allowing slot machines in airports — Mooberry said Scientific Games is set to take part in all aspects of the expansion.
“We’ll be ready,” he said.
Phil O’Shaughnessy, vice president of global communications, trade shows and creative services at slot machine manufacturer IGT, said it also views the expansion as an opportunity. The company already has a presence in the Las Vegas and Reno airports, and O’Shaughnessy is confident it will make moves to place machines inside the Illinois airports.
“I think we’re well-positioned to have an opportunity for more IGT machines,” he said. “We also recognize that the Chicago casinos will need to be established with an operator, and that will take time.”
Jonas’ report estimates that IGT and Scientific Games could capture $20 million to $56 million of the incremental earnings.
The bill allows 30,000 additional gaming machines in the state, but Jonas doubts that many will be necessary.
“A lot of existing operators aren’t going to take up the allocation of new machines,” he said. There will be “15,000 to 20,000, perhaps, assuming all the new casinos get built.”
Casino companies noncommittal
Illinois currently has 10 casinos, none of which are in Chicago. Seven of them are regional properties owned by Nevada-based companies Caesars Entertainment Corp., Boyd Gaming Corp., Penn National Gaming Inc. and Eldorado Resorts Inc.
Jeff Morris, vice president of public affairs and government relations for Penn National, said it is still analyzing the bill and can’t comment on how it would impact the company specifically.
“This is the most massive gaming expansion package we’ve ever seen, all happening in a state that is already saturated from a gaming standpoint,” Morris said via email.
Spokesmen from Boyd Gaming, Caesars, Wynn Resorts Ltd. and Red Rock Resorts Inc. declined to comment on whether the companies were exploring opportunities in Illinois. Caroline Coyle, a spokeswoman for Eldorado, did not return a request for comment. Ron Reese, a Las Vegas Sands Corp. spokesman, said the company is “not currently exploring or considering any opportunities in Illinois.”
Former Nevada Gov. Brian Sandoval, president of global gaming development at MGM Resorts International, said the company is reviewing the bill to determine the opportunities there, with a focus on sports betting.
“Illinois presents a new and dynamic market, and as a leader in gaming and sports betting, we will certainly consider our options there,” Sandoval said via email.
Skepticism around the market
Chris Grove, a managing director at Eilers & Krejcik Gaming, expects casino operators to covet a license in Chicago because of the city’s high volume of visitors. Chicago’s tourism bureau said there were nearly 58 million visitors in 2018. Las Vegas, by comparison, had slightly more than 42 million that year, according to the Las Vegas Convention and Visitors Authority.
“Chicago provides a unique combination of population, significant economic opportunity and a proven interest in gambling, as evidenced by the regional market around Chicago,” Grove said. “I think with the potential of the Chicago market, most, if not all, commercial operators are going to entertain the possibility.”
But Jennifer Roberts, associate director for UNLV’s International Center for Gaming Regulation, said casinos may be reluctant to enter the Illinois market because of costs, location and tax rates.
According to a report from Illinois’ Commission on Government Forecasting and Accountability, casino revenues are taxed on a graduated basis, meaning more revenue corresponds with a higher tax rate. Last year, the effective tax rate for the 10 casinos was 33.8 percent, including state and local wagering and admission taxes.
The Chicago casino is expected to have a 66 percent effective tax rate, according to a SunTrust report, with the proceeds split evenly between the city and the state.
By comparison, Nevada’s tax on gross gaming revenue is between 3.5 percent and 6.75 percent.
Illinois also enforces a 30 percent tax rate on video gambling. That rate is set to rise 3 percentage points July 1 and another 1 percentage point next year through the bill.
According to Jonas’ report, sports betting applicants must pay 5 percent of the adjusted gross revenue from the year prior, capped at $10 million, and gross gaming revenue would be taxed at 15 percent. Online licenses would cost $20 million.
Jonas said Illinois is a difficult market for operators to make a profit, with operators facing a risk of even higher taxes.
“We’re seeing a lot of skepticism around the financial return from operations currently in the market and those not in the market,” he said. “A lot (of operators) are hesitant to add on additional positions, add tables or slot machines, given the returns there.”
Still, Grove believes companies will have a hard time ignoring Illinois if they have any desire to be a serious nationwide player in the sports betting industry.
“It’s one of the most recognized sports hubs in the United States,” he said. “If you’re not in the Illinois market, your ability to compete in connected markets like Indiana and Iowa is compromised.”