- Legal States
Julie Moraine August 14, 2019 4 min read
Chicago’s Casinos Profitable, But Different Tax Needed
- Tax rate weighs down a potential Chicago casino project
- Profit margins for prospective casinos remain sub-3% over a 5-year period
- Senator Link believes analysts’ assessment method is wrong
A Chicago casino could potentially be one of the wealthiest properties nationwide, but it is weighed down by onerous taxation.
Illinois Studies Feasibility of Casinos in Chicago
Casinos may not be feasible in Chicago, Illinois a company hired by the Illinois Gaming Board (IGB) revealed on Tuesday, following a thorough audit of the industry. According to the comprehensive report studying the feasibility of land-based projects, the tax guidelines established by the Illinois General Assembly made the operation of casinos not possible from a financial standpoint.
Las Vegas-based Union Gaming Analytics, the company charged with the report, pointed to both the upsides and downsides of the current situation. Describing taxation as onerous, the company explained that no casino project is likely to arrive in Chicago any time soon.
On the other hand, allowing a casino to open in Chicago under milder tax terms could lead to a catalyst property that could quickly turn into the “highest grossing casino” in the state. More profitable, UGA estimated, than Rivers Casino in Des Plaines.
To put things in perspective, Rivers generated $450 million in 2018/2019, making it one of the highest grossing properties nationwide. Now, Chicago promises to improve on that result.
Chicago’s Casinos: Extremely Profitable Under Different Tax Rate
Illinois will possibly be late with the launch of its sports betting sector, as proper statures need to be drafted. This puts the state behind Iowa and Indiana which are rolling out betting options this week. Responding to the latest analysis, Chicago Mayor Lori Lightfoot confirmed that the high tax rate had been highlighted during the process of drafting the bill.
Lightfoot remained confident that the tax structure can be re-worked with the help of the governor as well as legislative leaders. Yet, a re-work would mean nothing good for the timeline and Illinois is in all likelihood not going to offer betting options for the National Football League (NFL) season.
Back to the report, the analysis estimates that at all available locations, a casino would be earning far below the industry average and therefore be marginally profitable. The significant part of this financial burden is due to taxes and fees. Here’s a breakdown of the profitability of each potential casino site in a period of five years:
- Roosvelt Road and Kostner Avenue – $3.8 million/Profit Margin: 0.5%
- 31st Street and Cottage Grove Avenue – $30.7 million/PM: 3.2%
- Pershing Road and State Street – $24.5 million/PM: 2.6%
- 80th Street and Lake Shore Drive – $5.9 million/PM: -0.7%
- 111th Street and Bishop Ford Freeway – $3.5 million/PM: 0.4%
Yet these numbers could have been misinterpreted, a lawmaker has said. According to Sen. Terry Link, D-Vernon Hills, UGA have only considered the developer’s side of the story. Sen. Link is convinced that a casino project would need to also focus on redeveloping the area around the casino as well. Otherwise, one such move would only help the casinos.
Yet, the feasibility study’s numbers are rather daunting if you are planning to run a casino business yourself. For example, the Reese site would rake in $806 million in the five-year window the study suggests, but it profit would be a paltry 3%. All of this is because of the stiff 33.3% tax rate which would make it very difficult for companies to begin operations. According to UGA’s estimate, even Reese would need to pony up $502.6 million, which will not only have immediate results, but would also impede the long-term profitability of the property.
Uptown Casino Blues and a Downtown Opportunity
In light of these inherent challenges, Chicago has only one option – that is to find a property that is close to high-quality hotels and tourist attractions and hope to convert the influx of people into paying customers at the casino.
Plus, Chicago has to worry about a growing police and fire pensions funds’ deficits which are biting sharply into casino’s finances as well. According to UGA, that bill has swollen to $1 billion in the very least.
At the same time, not everyone is happy to collaborate with a mega casino project that would host 4,000 gaming options, not least of all the McCormick Place which fears that customers may stop visiting for the sake of a glitzy casino.
Gov. J.B. Pritzker gave his full support for the $45 billion gambling plan that the Governor expects would help the state with covering any economic deficits it may still be sporting. Gov. Pritzker also commented on the situation, arguing that he believed in the success of the project.
As he put it, “We all want it to succeed.”