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."
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."
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