Gaming industry turns eyes to Illinois

6 June 2011

SPRINGFIELD, Illinois -- Illinois traveled from afterthought to red hot on the gaming expansion scale in a matter of days last week.

Still to be answered, however, is how gaming will play out in the state.

Will Illinois become the next Pennsylvania, a case study for casino expansion where revenues have grown more than 54 percent in two years?

Or will Illinois become the next Ohio, where political infighting halted casino construction and could sink the state's gaming potential?

No one has the answer.

But what is certain is that Gov. Pat Quinn is sitting on the button and has 45 days, starting last Tuesday, to call the hand, fold, raise, bluff or go all-in. Last week, Quinn called the state's planned expansion "excessive" in remarks picked up by media outlets.

"Although Gov. Quinn has previously stated his disapproval of a large gaming expansion measure, his recent comments in the press suggest that he may be more inclined now to sign the bill," Union Gaming Group Principal Bill Lerner said last week.

Illinois has nine riverboat casinos that produced $1.37 billion in gaming revenue in 2010.

Under a bill approved by the state's house and senate, Illinois could add four riverboat casinos and a casino in downtown Chicago, while allowing six racetracks and the O'Hare and Midway Airports in Chicago to operate slot machines. Existing riverboat casinos could expand their number of slot machines from 1,200 to 2,000.

Janney Montgomery gaming analyst Brian McGill told investors that the number of slot machines added through the bill could reach 30,000 -- tripling Illinois' current number of games.

"The bill is a massive expansion of gaming in the state," McGill said.

Quinn has another option besides signing the bill: vetoing the measure, or letting it become law without his signature. Illinois is just one of seven states that allows the governor to use an amendatory veto, where he can make specific recommendations for changes.

The legislature would need a majority vote to approve any changes and a three-fifths vote to override a veto. Neither seems likely.

"The issue boils down to, 'What will the governor decide to do with gaming in the state?' " McGill said.

Gaming expansion has influential supporters, notably, new Chicago Mayor Rahm Emanuel, who lobbied for the measure. In addition to a downtown casino, which could create 7,000 to 10,000 jobs, two of the riverboat casinos would be in Chicago suburbs.

Supporters said the measure would generate $1.5 billion in licensing fees for the state. Taxable gaming revenues could increase by $500 million.

"The state of Illinois is facing significant budget shortfalls, and gaming expansion is seen as a way to improve the state's current fiscal situation as well as add incremental jobs," Lerner said.

The chance to operate a downtown Chicago casino could attract some of the gaming industry's biggest names if the development makes sense financially. But we're a long way from the bidding process.

If there are losers in this bill, Penn National Gaming tops the list. The company operates three of Illinois' existing riverboat casinos, which could all lose business to Chicago-area gaming.

Casinos in northern Indiana that attract customers from Chicago, including properties operated by Boyd Gaming Corp., Caesars Entertainment Corp. and Ameristar Casinos, could also see customers stick closer to home.

"It depends what the final competition will look like, but (Penn) will likely see reduced revenues at all three properties," McGill said.

Slot machine manufacturers, on the other hand, looking for any hint of game sales, welcome the Illinois potential.

"If passed, Illinois would provide gaming equipment suppliers a much needed pickup in new and expansionary demand," Roth Capital Partners gaming analyst Todd Eilers said.

Gaming expansion proposals are floating in at least a dozen state legislatures, including Texas, Massachusetts and Minnesota.

We could know sometime this month where Illinois fits into the equation.

Related Links
Union Gaming Group Gaming Vendor Information
Illinois Gambling


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