Upsizing Illinois

Or would “capsizing” be the right word? Late Thursday, Wells Fargo released a study of the effects on Illinois‘ casino market if a massive expansion backed by state Democrats goes through. They’re under the gun, since the whole issue gets “reset to zero” once the new Legislature is sworn in next Wednesday. Although analyst Carlo Santarelli rated the chances of passage low, he didn’t hesitate to characterize the situation as “dangerous” for existing operators.

Basically, Illinois solons — with the possible backing of vacillating Gov. Pat Quinn (D, left) — would like to pile the equivalent of the entire Mississippi casino industry onto the Land of Lincoln’s already strained gaming infrastructure. The only sure winners in this scenario are the slot makers. International Game Technology, favorite son WMS and Bally Technologies could make nearly half their 2010 quota off Illinois alone if lawmakers’ dreams come true, increasing the extant slot inventory fourfold and then some, followed by a 30% increase in 2012 and 7% more slots the year after, for an eventual 80,100 gaming positions.

This something-for-almost-everyone Christmas tree of a bill breaks down as follows:

• Three 1,200-slot racinos (Arlington Park, Maywood Park Race Track, Hawthorne Race Course, all in the greater Chicago area) and five more 900-slot ones.

• A megaresort-sized casino (4,000) for the Windy City, plus casinos in Danville, Rockford, Park City and Cook County of 1,600 slots each, stepping up to 2,000 slots in 2013.

• Installed slot base increases for existing casinos of 400 apiece in 2011-12, with another 400 slots permitted in 2013.

• A gradual stepping-down of the tax rate (currently 15%-50%, depending on one’s corporate income bracket). In 2012 through mid-2013, tables would be taxed 12%-34.5%, descending to 10%-32.5% on July 1, 2013. On the same schedule, slot taxes would go from 12%-44% to an eventual 10%-40% … still pretty steep for the big operators.

The tax concession is a fig leaf whereby the state radically widens the scope of available gambling while still collecting revenue as though casinos were a limited and highly valuable commodity. Honesty would be better served by going to a wide-open, Nevada-style casino industry, with a tax structure to match.

After all, Gov. Quinn hopes to expand bar-top gambling and other forms of VLTs to a statewide 40,000 machines, although that initiative has been slow to gain traction. Then there’s Neil Bluhm‘s nearly forgotten Des Plaines casino (above), set to open next year and further dilute the Chicagoland market with another 1,200 gaming positions.

Legislators may be drawing to an empty hand, however. As Santarelli writes, “given the health of the Illinois gaming market … we find it difficult to believe investors/gaming operators will be lining up for the five [new] casino licenses.” Penn National Gaming, which counts on Illinois for 15% of its cash flow, has to be hoping there will be few takers.

Should the bill squeak through we might actually start to see casino closings in Illinois. The numbers are remorseless. Casino revenues hit a historic low of $102.5 million in December (-3% year over year), marking at least two years of decline, interrupted only by a half-percent upward blip last April. Last month’s revenues were the measliest recorded in that period.

The Chicagoland riverboats (-3%) continued to lose business to Caesars Entertainment‘s Horseshoe Hammond and Don Barden‘s two Majestic Star vessels. Meanwhile, Pinnacle Entertainment‘s River City casino continues to drain both Penn’s Alton Belle (-6%) and independent Casino Queen in East St. Louis (-14%). The only vestiges of recovery come from outlying vessels like Boyd Gaming‘s Par-A-Dice in East Peoria (left, +3%), independent Jumer’s Casino Rock Island (+10%) and Harrah’s Metropolis (flat).

If Illinois politicians are bent upon pursuing their expansionist madness and devil take the hindmost, then tax burdens and regulatory constraints (read: smoking bans) should be eased to help everyone survive in this increasingly dog-eat-dog scenario.