Governments, businesses will be winners with video gambling

Governments, businesses will be winners with video gambling

It's a sure bet: There will be a lot of hands in the pot when the state's video-gambling winnings start rolling in.

The first machines are expected to light up this week, the result of a new state law legalizing video gambling and placing a 30 percent tax on the "net revenue" that businesses collect from the machines.

In this case, the "net revenue" refers to how much money players lose.

The odds are good for the state. Eric Noggle, a senior analyst for the Commission on Government Forecasting and Accountability, estimates that the state could stand to collect between $175 million and $325 million annually by the time all the applications have been vetted and the program is fully-implemented.

Local governments have their hands in the pot, too. Between $35 million and $65 million will be distributed proportionally to the Illinois communities who have chosen to allow video gambling in their backyards.

Chump change, says University of Illinois business Professor John Kindt, a renowned academic expert on gambling and a critic of video gaming.

"The city is getting peanuts in revenue out of this," Kindt said. "The state is getting peanuts in revenue out of this."

Based on Noggle's forecast, the state is expecting that players will lose between $700 million and $1.3 billion in the video-gambling machines annually. The biggest beneficiaries will be the owners who operate the machines and the businesses that house them — anywhere from $490 million to $910 million to be split among the thousands of private businesses that will offer video gambling.

Long-term players are nearly guaranteed to lose. State law requires the machines have a built-in probability formula so they pay out no less than 80 percent of all amounts played. That means, in the long-run, players should expect to lose 20 cents of every dollar they put into the machine.

Some of those businesses say the revenue will be crucial to keeping their doors open, but Kindt says it's "the crack cocaine of creating new, addictive gamblers."

'Railroaded through'

The state law gives local governments the option of keeping the machines out of their towns, but doing so would also disqualify those communities from getting their share of the tax.

Noggle's numbers are based on March estimates, the most recent available, when the communities that had opted out represented about 39 percent of the population. More communities have opted out since then, and others remain uncertain.

But communities like Champaign, where the city council has already voted to allow video gambling, will get 5 percent of the players' losings.

It's still not clear what that will amount to. But Anita Bedell, the executive director of Illinois Church Action on Alcohol and Addition Problems, is leading an effort to get local agencies to disallow video gambling, and she points out that for the city of Champaign to receive $300,000, players there would have to lose $6 million.

What's worse, she said, is that expanding gambling could lead to more addiction, crime and family issues.

"The costs are so great that we are asking the local officials to consider these costs," Bedell said. "They weigh heavily."

She worries that the legislation is being "railroaded through" local governments' city councils and boards. The vote to opt-in to video gambling came and went with one meeting in Champaign in May.

"That's what they're counting on," Bedell said. "They're shutting the public out. This is not good government when you shut the public out."

But Champaign Mayor Don Gerard said the discussion is never over.

"If it becomes a substantial problem, we always have home-rule authority," Gerard said.

That means the city could always revisit the issue and opt-out of video gambling.

Gerard compares the issue to when off-track betting became legal — at the time, he said, there was much consternation, but "at the end of the day, it's hardly even noticed."

He said he is not looking at video gambling as a revenue-generating mechanism for the city budget, and he has faith in Champaign businesses to operate reasonably.

"I'm hoping our businesses rise above the fray and not just make a mad dash for every last nickel," Gerard said.

The Urbana City Council is spending more time on the proposal than did its Champaign counterpart. Mayor Laurel Prussing last month said she wanted to find a "middle ground" between completely allowing or disallowing video gambling.

The council is expected to approve an ordinance Monday that would set up extra, city-imposed rules on the new gambling machines.

The state law already requires that almost everyone short of the players themselves who are involved in the operation of the machine be licensed with the state, that the machines be located in an area within the business inaccessible to anyone under 21 years old and that they are constantly monitored by an employee who is at least 21.

Urbana's rules would set up another layer of licensing — this one at the city level — and officials, initially, would only make 12 licenses available. Business owners would have to pay $200 per machine for up to five machines.

Staying in business

Kindt is blunt when he talks about the impact he expects the machines to have on the local community. He cites data that show young people are gambling with twice the addiction rate of older populations.

That makes Champaign-Urbana a choice market.

"The gambling industry has been salivating over putting video gambling machines in this backyard for years and years, and they haven't been able to do it," Kindt said.

But owners say the revenue will only be enough to keep their businesses profitable, and in some cases, just enough to break even. Bar owner Scott Cochrane said he has applications pending for two of his campus bars: Firehaus and The Clybourne, both on Sixth Street just south of Green Street.

"Especially for smaller places, the revenue is very important," Cochrane said.

Cochrane is one of a handful of bar owners that publicly have said the revenue the machines will generate is going to help keep local businesses healthy. Bruce Brown, the commander of the American Legion in Urbana, has said that he wouldn't be able to keep the doors to the veterans' organization open without the income from the machines.

"There are a lot of places on the fringe of going out of business," Cochrane said.

For him, the video gambling could present a development opportunity. He told the Urbana City Council earlier this month that he hopes to expand his bar Mug Shotz on North Cunningham Avenue.

"But I don't know if I'll do it without the gambling to be honest," he told the city council. "I feel that it would be a huge disadvantage."

Cochrane spoke of The Office, a now-vacant bar on Main Street in Urbana, which did well before downtown Champaign made a comeback.

"Everybody says, 'Man, if that was in downtown Champaign, it would be packed,'" Cochrane said. "It would. It's not. And I'd like to see downtown Urbana thrive again. I think it's going to put us at a disadvantage if we don't have" video gambling.

Cochrane said he does not believe adding the machines to bars will create a gambling addiction problem in the local community. Regardless of whether they have access to the machines, he said, college students are going to find a way to bet.

The state law requires that 25 percent of the state licensing fees go to the Department of Human Services to support gambling addiction programs.

Kindt said it's not enough.

"It's silly," he said. "You create a billion-dollar problem, and then you throw a few thousands of dollars at it, you throw peanuts at it and say, 'Oh we're going to help those people that can't control themselves.'"

He said he does not buy the argument that video gambling presents an economic development opportunity, but he does believe that there's a lot of money in the game.

"They don't care about jobs, they don't care about employment, they don't care about anything they say that they're doing," Kindt said. "It's all about the slot machines."

Area licensees


The Illinois Gaming Board is working through hundreds of applications from bars, restaurants, veterans establishments, fraternal organizations and truck stops which have asked to house video-gaming terminals. As of last week, 94 locations had been licensed, including 12 in East Central Illinois:

  •  103 East Bar & Grill, Buckley.
  •  American Legion Post 71, Urbana.
  •  Bubba's Bar & Grill, Melvin.
  •  Castle Inn Lounge, Mattoon.
  •  Country Junction, Newman.
  •  Dave's Tap, Gilman.
  •  Jeleniz, Mattoon.
  •  Old Orchard Lanes, Savoy.
  •  Panther Paw Bar and Grill, Charleston.
  •  Road Ranger, Tuscola.
  •  T&T Tavern, Rantoul.
  •  The Sand Trap, Gibson City.

SOURCE: Illinois Gaming Board

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aantulov wrote on July 30, 2012 at 10:07 am

Should  the not city's recieve a straight sales tax 8% on each purchase for a chance win not just the "net" profits? Unless there is addtional money coming to town, the city should be losing money on that deal.

It makes more sense to have gaming legal only in business that want to invest in the empty concrete hulks now littering the both cities. Put little businesses in there like a flea market and you have a casino. Or new growth between Urbana and St. Joe, a better place for a ball field or casino.

The Sunday front page looked like an ad for the new would be casino owners, I hope they bought enough ad space to justify it.

Cochrane? Isnt that the guy that started "unofficial" by providing free charters and flyers promising entrance to his bars for those under 21 in dry counties in a 300 mile radius? Its a lie that the cities make money off their presence when you factor in the police needed. And if a bar can't survive on its own in this town boo hoo, they might want to pay closer attention to the staff or menu. I'm sure Cochran will be there to loan them money when these machine chase away what little business they have. I would hope they don't come whining for a tax abatement after the machines have damaged their business.

And he want's to expand  "Mugshotz" on Cunninham? Seriously? The land is worth more than the building, win it in a bet? If he wanted a bar in Urbana he couldnt put one in the new mall across the street with parking.

Isnt this the guy that had mulitiple violations in his bars and got to keep his bars and serve out sentence by being closed every Monday all summer? hmmm used to getting his way huh.

I'm glad the Urbana council is not so "business friendly" since in Champaign that means a plethora of business deals like that new hotel going in downtown that is not going to pay any taxes for 30 years.  That's right. And all those TIF districts that also don't pay into the schools,parks, and general fund for street lights and such.  They don't even have a jobs or type of jobs requirement, that's not friendly  that's rape.

I would like to see both city list prominently all TIF district and Tax abatement holders on their website and make them sign their establishments and gain the stigma reserved for people just trying to keep a roof over their heads.

If this gambling thing goes through in Urbana I would like a monthly posted update of locations, the amount they say they made and how much tax they paid, complaints and fines. Let's not collect tax of these places like the IRS approaches the bar tenders tips.

You would think people would be a little more suspect of front business out of Oregon getting exclusive long term contracts out of the lawmakers in Springfield.

These businesses targeted have access to this "easy money" are not the type to have access to market study. Once ensnared in these contracts they may go under.

Have they calculated the number of their patrons that won't return on because the sound of the gadgets are annoying, much less a singular bad experience, not to mention a new found moral conviction once they see an acquaintance humbled financially from a singular  loss they don't recover. As little as two hundred could be won, but these days as little as $50 could start a spiral of fees that could be a car or home endangered.

Its not a big mystery why more solvent owners of businesses are loud about participation. Its not just revenue. If the tiny bars, the vet bars and few locally owned food places go under its more business for those that can afford a franchise or have the capital to swoop in. How much to do these local/Vet bars cost business with their cheaper drinks and use of faculties?

And we all get the American Legion/VFW basr are privately owned and not affiliated beyond renting, another bar owner will take there place, most likely with the last name begining with C.

And since we are talking net profits going to the state do they really think they won't be audited more? It costs small places to be audited, not to mention staff. I not so sure I believe bartenders report all tips.

It would have made more sense to use it as a tool of development in designated area. For instance a casino between St. Joe and Urbana (or for that matter a baseball field) would provide jobs without congestion and safe enclave of businesses to leave cars to shuttle into town.  Infact just a small development there with exclusive license might spawn more.

And just like the "Family Video" chain with the porn in back, they will do a poor job of protecting children. God knows what mischief a 10 year old can get into with a win of $200, buying a gun to deal with a bully? There are reasons this has been illegal. What's next ...prostitution?

So will this mean that fancy restarant  in Lincoln Square mall could put machines where the entire mall would be subject to listening and viewing?  Do parents really want to have to explain gambling to children  going to the toy store?  How does the grocery store that just invested a million in the place feel about that? What's the big rush to this to this again, a few late council meetings? Show some grit Urbana council members make the coffee and call some stake holders.


antigambler wrote on July 31, 2012 at 2:07 pm

Communities that opt-out of video gambling will still get their share of projects funded by the capital bill.  Because 60% of gamblers' losses go out of town, communities would also generate more revenue for their town if that money was spent at other local businesses.  Grocery stores, gas stations, furniture stores, thrift shops, even church collection baskets, mortgage companies and landlords will lose revenue from locals gambling away money that would have been their sales. 

The legislature could decide to take a larger portion of gamblers' losses by raising the tax rate, as they did on large casinos after they opened.  That would lessen the percentage going to gambling-machine route operators and little casinos.  The State owes millions of dollars to other entities.  Would a town's 5% piece of the action be at the top of Illinois' list of bills to pay?  Don't bet on it!

Horse racing has lost favor with the public.  An off-track-betting parlor is only one location catering to a dying clientele.  "Convenience-gambling" machines are a whole different animal.  Why do you think the revenue predictions are so high?  It's because the machines are so addictive.  Businesses are already making a dash for evey last nickel by getting into gambling, the most greedy "business" there is.  In South Carolina (before they re-criminalized the machines because of the social costs), even bakeries and ice cream parlors were applying for liquor licenses in order to get the machines.

Illinois gamblers would be even more likely to get addicted to one-armed bandits that have another 10 years of technology incorporated to get gamblers to "play to extinction" (industry term) than they had in South Carolina.

At their July 19th meeting, the Gaming Board eliminated the requirement that there must be a separate area for the one-armed bandits that is limited to over-21 patrons.  That means you could have someone gambling right next to children eating in a restaurant, as long as the joint has a license to serve liquor.

According to a village attorney, if a town opts out after one-armed bandits arrive, only NEW applicants could be denied the machines.  The ones already there would be grand-fathered in.  In other words, if a town bans them now, they could always allow them later.  But, if a town allows them now, one-armed bandits will be there to stay in that town.