Chicago likely a winner, existing casinos losers in gambling expansion
BY FRANCINE KNOWLES Business Reporter email@example.com June 1, 2011 5:48PM
Updated: September 11, 2011 12:22AM
It’s no sure bet the expansion of casinos and slot machines in Illinois will produce big payoffs for the industry, particularly given the revenue declines it has experienced in recent years, industry experts say.
Amid high unemployment that caused consumers to clamp down on discretionary spending, consumer spending on casino gambling fell 4.2 percent in Illinois in 2010, to $1.37 billion, according to the American Gaming Association.
Revenues are down 32 percent over the last three years, said Tom Swoik, executive director of the Illinois Casino Gaming Association. Swoik worries the market will become oversaturated.
“Going from 12,000 gaming positions to 39,000 doesn’t make a lot of sense,” he said.
Revenues could fall an additional 20 to 30 percent under the expansion approved by the Legislature, Swoik contends.
“It’s a massive expansion at a time when our industry is down significantly,” said Eric Schippers, a spokesman for Penn National Gaming, which owns the Hollywood Casinos in Joliet and Aurora and the casino in Alton.
“It’s a quantum change in the market,” acknowledged Steve Rittvo, chairman of the Innovation Group, a gaming industry consulting firm. There’s “some question as to whether it can all be accommodated effectively,” he said.
Legislation awaiting Gov. Pat Quinn’s signature would allow for five new casinos, including sites in Chicago, the south suburbs, in Lake County and downstate. It also would allow slot machines at racetracks and possibly the city’s two airports.
There will be winners and losers under the expansion, experts said.
“Chicago will definitely be a winner,” Swoik said. “The local communities where the other new casinos are located will be winners.”
But the expansion, specifically a Chicago and south suburban casino and slots at racetracks, could hurt the Elgin Grand Victoria, Hollywood Aurora, Hollywood Joliet and Harrah’s Joliet casinos by pulling business from them, he said.
And Ball State University Professor Michael Hicks, who studies casinos, said the impact on Northwest Indiana casinos would be devastating.
“The Illinois casino package will really clobber Lake County gambling,” Hicks said. “The closure of one or two will be very likely.”
Elgin Mayor Dave Kaptain said Wednesday the city will lobby Quinn to veto the bill, the same day Quinn called the plan “excessive” without signaling his plans either way.
“For a long time, I’ve said this is the wrong way to go,” Kaptain said. “It’s slicing the same pie, but this just means making all the slices smaller.”
The city of Joliet expects to lose as much as $6 million a year in gaming taxes if all the casinos in the proposed gambling expansion bill are built.
“That would takes us down to $15 million a year, and that would be down from a high mark of $37 million in 2007,” Joliet City Manager Thomas Thanas said.
Gaming taxes already have fallen off to a projected $21.5 million this year, a decline attributed to the recession and the Illinois smoking ban, which has pushed gamblers to Indiana, where they are free to light up.
Rittvo said there’s no guarantee a downtown Chicago casino will be a success and spell doom for suburban casinos, judging by what’s happened in other markets outside Illinois. He noted while in Detroit, downtown casinos have fared well, in New Orleans, the downtown casino ended up in bankruptcy twice.
The key in a downtown casino “is that it not be overbuilt that there not be these tremendous expectations that everybody that goes to suburbia is now going to come downtown,” Rittvo said.
There needs to be balance between the number of gaming positions downtown and at the airports, he stressed.
“Las Vegas has shown slot machines at airports can be exceedingly profitable for the community,” he said.”You’ve got somewhat of a captive market.”
The casino most at risk by the expansion is the new Rivers Casino scheduled to open in July in Des Plaines, Rittvo said.
“They are the people that have gotten the shortest end of the stick,” he said, noting existing casinos have been around long enough to build a market and cover their debts.
The Des Plaines casino owners “borrowed money based upon certain earnings (expectations),” he said. “This potentially changes the playing field.”
But by having the ability to increase their gaming positions, Illinois riverboats could be better positioned to compete with their Indiana counterparts, which have had significantly more gaming positions, Rittvo said. Consumer spending at Indiana casinos have also held up better than in Illinois, falling only 0.4 percent last year to $2.79 billion, according to the American Gaming Association.
“I think there is the ability to recapture a significant amount of revenue that’s going to Indiana right now,” Rittvo said. “You can repatriate dollars to Illinois. I think that’s a good thing for the state. I think the ability to pick up some untapped demand in the central city, to capture more tourist dollars, I think are good.”
South suburban leaders were already jockeying for position Wednesday and gearing up for a battle over a possible south suburban gambling license. Ford Heights and Country Club Hills are definitely in the game, and Tinley Park isn’t ruling out a casino bid.
“We are trying to be very competitive,” Ford Heights Mayor Charles Griffin said. “We’ve got the spirit, the energy and the motivation.”
Contributing: Mike Danahey, Amy Lee, Susan DeMar Lafferty, Karen Caffarini, Christin Nance Lazerus and Bob Okon