Suburbs weigh new revenue against protecting old
When Gov. Pat Quinn signed the Video Gaming Act in July, he opened the door for video gambling machines in bars, truck stops and restaurants across the state. What he also did was put suburban communities that have their own casinos in a very tough spot.
Should cities with casinos, such as Elgin and Aurora, and Des Plaines, which plans to open one in two years, follow the lead of DuPage County and Rosemont and issue a flat-out "no" to video gambling to protect their casinos but in turn lose a new source of revenue?
Or do these towns give the thumbs up to video gambling and risk further eroding casino revenues, which are on the decline, such as in Elgin, where casino profits have dipped 22 percent since 2007?
One might call that a lose-lose situation.
"It's very close to that," Elgin City Councilman David Kaptain said.
He says he opposes video gambling machines for two reasons: they will hurt the Grand Victoria Casino's bottom line and their use could be expanded dramatically if the initial rollout is successful.
"If people want to gamble, they can go to the riverboat. They don't need poker machines in bars," Kaptain said. "Once you allow it in, it's in. You kicked Pandora's box over and opened it up."
Elgin Councilman John Prigge says he's skeptical about video gambling, but is withholding judgment until the city staff can study it.
"Frankly, I'm a pretty loyal person and I'm going to look at anything that could challenge the Grand Victoria riverboat with a jaundiced eye," he said, adding the situation appears to be a lose-lose in the short term. "I don't see how this could help the boat. I see only a hurt to it."
The Elgin casino has funded numerous improvements across the city, most recently the development of Festival Park, along with sewer projects, grants to low-income residents for home improvement, new fire department trucks and equipment, along with supporting its own charitable foundation.
Not happening overnight
Despite Quinn's action, it could be a long time before video gambling sprouts up at a bar near you.
Gene O'Shea, spokesman for the Illinois Gaming Board, said attorneys there are still working on a set of rules and regulations for the machines. He said there is no timeline for the board to finish the rules, which also are subject to a period of public comment. Finally, the gaming board must put out a request for companies to build a centralized computer system to monitor the machines.
"There is a process that's going to take some time," O'Shea said.
Still, the delay has not stopped many communities from considering ban or outright banning video gambling within their borders.
DuPage County leaders voted in mid-August to ban the video machines in unincorporated areas, a move they estimated would cost the county $350,000 a year in its share of money from the machines. The McHenry County Board is considering a ban; Cook County already has outlawed it.
And leaders in Buffalo Grove, Elburn, Elmhurst, Kildeer, Mettawa, Naperville, Rosemont and Wheaton, among other Chicago suburbs, have all enacted bans on video gambling. Carol Stream officials decided to ban video gambling without village board approval, as they wait to see what kind of rules the gaming board sets up statewide. And Mount Prospect has banned the machines until officials can get more information and feedback on the issue.
In Winfield, officials have indicated they were prepared to ban it was well, a move that could cost the village $45,000 a year in lost revenues.
And scores of other communities are talking about the issue.
Yet leaders in Aurora and Elgin are taking a wait-and-see approach and casino officials in both cities aren't directly commenting on it.
"Any action now is premature until we know what the rules and regulations are (for the video gambling machines)," said Elgin Mayor Ed Schock, who stressed that Quinn's action was the largest gambling expansion in the state's history. "It was very ill thought out, especially when you don't allot any money to get it started."
Schock also disputed whether giving the green light to video gambling would hurt his casino.
He said one theory is that the Grand Victoria and bars attract different gamblers. The casino is a destination with more gambling options and higher limits, whereas video gambling in a bar is for the impulse gambler or someone playing a few hands to pass the time.
"It's feasible the Grand Victoria wouldn't lose any money," added Jim Nowicki, Elgin's finance officer.
What the experts think
It is difficult to quantify if - or how much - larger casinos are hurt by video gambling.
David G. Schwartz, director of the Center for Gaming Research at the University of Nevada Las Vegas, said he does not know of a study that explored this question.
"You can't do an empirical study because you don't have a control," he said. "It's hard to say (what the effect is). The intuitive response is (video gambling) is going to hurt (casinos)."
Eugene Christiansen, founder of the New York-based Christiansen Capital Advisors, a consultant for casino investors, said video gambling would have some impact on casinos but it would be difficult to say until rules and regulations are developed.
"I don't think the impact would be anything severe," he said. "It wouldn't be anything like a death blow to the Illinois riverboats."
Exactly how much suburban cities that already have their own casinos could lose out on in the video gambling pot is unknown.
The machines are a key component of a state capital improvement plan and estimates are that they would make $367 million a year.
Meanwhile, the Grand Victoria in Elgin has generated millions each year that the city has used for capital projects, local community grants and nonprofit groups.
But the bottom line is eroding at the state's most profitable casino.
In 2006, the city's share of casino profits was $24,132,000. That number inched up to $24,301,000 in 2007.
But in 2008 - because of the smoking ban and recession - the total take at the casino dropped. And city's share dropped 22 percent to $19,130,000.
From Jan. 1 through July 30, 2009, the casino made the city $11,529,465 and is on pace for $19,764,797.
Grand Victoria spokeswoman Marilou Pilman, said the casino had no comment, while Hollywood Casino referred inquiries to casino's corporate office.
Tom Swoik, executive director of the Illinois Casino Gaming Association, which represents seven of the state's nine casinos, including the Grand Victoria and Hollywood, responded to that inquiry, saying the association didn't oppose video gambling when lawmakers were debating it. He said casino members agreed that a maximum of five machines per establishment was a reasonable number and that a lot of places across the state already have machines that pay out - illegally.
Swoik said it was difficult to tell whether towns like Elgin and Aurora were put in a lose-lose situation because it was impossible to compare how much video gambling would affect existing casinos.
"It may have some minimal impact on the casinos," he said. "A lot of places are already paying under the table. They're not using them for entertainment purposes."
Unlike Elgin, Aurora leaders rely on proceeds from the Hollywood Casino to fund employee salaries.
And Hollywood's numbers are down as well.
In 2006, the city made $15,105,575 from the casino. That rose to $15,449,371 in 2007, but fell more than 18 percent to $12,632,332 in 2008. As of July 31, 2009, the casino was on pace to make the city $12,627,123.
Carie Ann Ergo, Aurora deputy chief of staff, also said the city is taking a wait-and-see approach and the city is "in the process of analyzing possible revenues associated with the machines."
No date has been set for the city council to take up the video gambling machine matter.
Asked whether Aurora was put in a lose-lose situation, Ergo said "It would be premature to answer this question without the knowledge of how the city would be directly impacted."
But Jesse Vazquez, chairman of Kane County's Video Gambling Task Force, has said he's spoken with Aurora Mayor Tom Weisner, who told him the city will not take any action to ban video gambling machines.
Vazquez also said he's spoken with businesses in the unincorporated areas of Aurora that have already inquired about being annexed into the city if Kane County moves to ban video gambling.
So far, no one has applied for video gambling licenses in Aurora, Elgin or Des Plaines, city officials said.
The video gambling situation is a little different for Des Plaines, which in December was awarded the state's 10th license and hopes to open its casino in two years.
Des Plaines City Manager Jason Bajor said the council does not have a timeline yet to address video gambling and has not studied how much the city could make from that.
Still, Bajor acknowledged it has stimulated some discussion.
"The casino (developer) has expressed concerns over video gaming but the city hasn't taken an official position on it. I think the mayor (Marty Moylan) has been pretty clear about wanting to assess the situation before we move forward with it one way or the other."
As for Des Plaines being put in a lose-lose situation?
"I think there's certainly the potential there (for revenue losses)," Bajor said. "That's why Midwest Gaming is doing another market study to somehow measure what effect it would have. They don't think the concerns would rise to the level that they would be dissuaded from pursuing a casino. They are still very much committed."
Staff writers Justin Kmitch and Madhu Krishnamurthy contributed to this report.