Chicago Casino Study: Taxes Too High to Be Profitable

An onerous tax structure would virtually kill any chance that a Chicago casino operator could make a profit – and therefore kill off the prospect of a casino in the city, period – despite an ability to make massive amounts of money. That’s the conclusion of the Chicago Casino Feasibility Study, commissioned by the city and the Illinois Gaming Board to determine how a casino would fare at each of five potential city locations.

In early June, the Illinois General Assembly passed a massive expansion of gaming in the state, including authorizing a license for six new casinos, in Chicago, the south suburbs, Waukegan, Danville, Rockford and Walker’s Bluff in southern Illinois. Alone among them, the law put an extra “privilege” tax on adjusted gross receipts (AGR) of the Chicago location.

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“The current regulatory construct, namely the highest effective gaming tax and fee structure in the US, makes any casino project – regardless of location – generally not financially feasible,” the report reads.

With a more forgiving tax and financial structure, the report concludes that a Chicago casino could potentially generate almost twice the profit of Rivers Casino in Des Plaines, which is currently the state’s best performing casino, generating $441.8 million in 2018.

The report analyzed five potential casino locations put forth by the Lightfoot administration: 

• The old Michael Reese Hospital site in Bronzeville, south of McCormick Place and near the lake.

• A vacant parcel in Lawndale at Kostner Avenue and Roosevelt Road on the West Side.

• Next to Harborside International Golf Center in the Chicago port district on the Far Southeast Side.

• South Works – the old U.S. Steel site on the Far South Side.

• And a parcel of land at Pershing and State – four blocks south of Guaranteed Rate Field on the South Side.

The report concludes that the Michael Reese site has the potential to generate the most revenue at an estimated $806 million.

But even that site doesn’t maximize a casino’s potential, if the objective is to maximize revenue by drawing in gamblers, particularly those with extra cash they’re willing to throw down on a roulette table.

“Tourists generally will not patronize a casino in an area that is inconvenient relative to where they are staying or perceived as unsafe, nor will tourists be eager to book a room at a casino’s hotel if there are no other easily accessed attractions nearby,” the analysts wrote. “Unfortunately, none of the five sites analyzed herein fully meet the … considerations of being in close proximity to other attractions and having an attractive location.”

Lightfoot said Tuesday she did not interpret that, however, to mean that Chicago should put a casino downtown.

“Wherever we put it we’ve got to make sure that we maximize the economic opportunities, and build other assets around the casino,” she said. “I think we get it. I think we know what needs to be done.”

She reiterated her refusal to get into a land speculation game, saying no one should “fixate” on any particular location as that’s premature; she said she chose the five locations as placeholders, given that they’d each long been considered options for a potential casino.

A city-owned casino, financed by municipal bonds and managed by a private operator, would be a more favorable structure, according to the report.

Lightfoot on Tuesday dismissed that possibility. She also rejected putting slots at O’Hare and Midway, despite the report’s suggestions that machines at the airports would generate more revenue.

She wants the state legislature to go back to the drawing board, and pass a less top-heavy tax and fee structure.

“We’re gonna make sure that were making adjustments here, based in part on the feasibility study. And so that’ll be up to the General Assembly, making changes to the law,” Gov. J.B. Pritzker told reporters in Springfield on Tuesday afternoon. “I’m very confident that we’ll get there. I think everybody has the right mindset about it and all of us want the city and the state as well as the jobs that will come along with the casino, we all want it to succeed.”

But the gambling law’s main sponsor, state Sen. Terry Link, D-Waukegan, was less optimistic.

If the state lowers the tax rate at all, he said that means less for the city’s underfunded pensions.

“I want to make sure everything is answered … before I would be in favor of making any changes,” Link told WTTW News.

He questioned why Lightfoot didn’t have the Las Vegas-based consultants survey locations in more developed, touristy areas.

“I just hope (the study is) not a shell game of trying to get us to lower something and then they put it in a different location,” Link said. “If it’s a shell game, you’re putting up all these neighborhoods that will not generate the same amount of money as some other neighborhood would and then we lower the tax rate, so now let’s move it to the better neighborhood … that’s disingenuous to the state of Illinois.”

The study by Union Analytics Gaming found that under the current tax structure, a private operator would not be able to make enough of a return on its investment on a Chicago casino in any location.

“Chicago has been presented with a rare opportunity to be home to the second such Las Vegas style urban casino in a major metropolitan area (after Massachusetts’ Boston Harbor),” the study reads. “However, we believe that most, if not all, developers with such a project in mind would have limited interest in the five sites selected for the study by the City of Chicago given the difficulties associated with attracting higher value patrons (including international patrons) to a non-central location that does not offer a significant number of other attractions in the immediate (i.e. walkable) vicinity.”

Even the success of a more centrally located casino, the authors write, would be “dependent on either rmaterial changes to, or abatement of, the city of Chicao privilege tax of 1/3 of AGR.”

Follow us on Twitter: @paschutz / @AmandaVinicky / @WTTW

Related stories:

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Mayor Lightfoot ‘Concerned’ About Feasibility of Chicago Casino

Aldermen Weigh in on Chicago Casino Locations, City Labor Law

Illinois Betting on a Rapid Pace for Casino Expansion

Illinois’ Gaming Expansion Could Be a Losing Bet for Problem Gamblers

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