Las Vegas gaming companies look at opportunities in Illinois

Nevada-based casinos and slot machine manufacturers have been preparing for new markets in places like Massachusetts and Japan. Now, there’s an opportunity for growth nestled in the heart of the Midwest: Illinois.

Earlier this month, the Illinois legislature passed a bill that dramatically expands its gaming industry, in part 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 new opportunities for gaming companies, including some based in Las Vegas. But with a tax structure that demands far more than Nevada’s, some companies may pass on the chance to move to the Windy City.

The ‘likely winners’

While casino operators may pass up the expansion opportunity, experts agree that the bill is a boon for one area in 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 estimates 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.”

Prater said Las Vegas is known as the “epicenter for slot companies,” meaning at least some local slot 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.”

Mooberry wasn’t able to give an estimate of how prevalent the company is today in the Illinois gaming industry, but he said Scientific Games is one of the largest suppliers in the state.

With the bill allowing growth in both the traditional casino market and 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,” Mooberry said.

Phil O’Shaughnessy, vice president of global communications, trade shows and creative services at slot machine manufacturer IGT, said the company also views the expansion as an opportunity. IGT already has a presence in the Las Vegas and Reno airports, and O’Shaughnessy is confident the company will make moves to place machines inside the Illinois airports as well.

“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 positions in the state, but Jonas doubts that many machines 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

There are currently 10 casinos in the state, none of which are in Chicago. Seven of those 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 the company 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 Casino 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 this 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 coming in.

“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.”

The Las Vegas Review-Journal is owned by the family of Las Vegas Sands Corp. Chairman and CEO Sheldon Adelson.

Contact Bailey Schulz at bschulz@reviewjournal.com or 702-383-0233. Follow @bailey_schulz on Twitter.