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Illinoisans get a piece of the action

by Kurt Erickson

With their bright lights and chirping electronic sounds, the row of five slot machines could be in any casino in the world.

The seats are comfortable. The attendant is a kindly elderly woman who offers to get you something to drink. Within minutes, you’ve just won $10 on a rainy Sunday afternoon.

But make no mistake, this isn’t Las Vegas. Or even one of Illinois’ 10 riverboat casinos. This is a strip mall in central Illinois, just a few storefronts away from a Chuck E. Cheese restaurant, a nail salon and a dollar store.

The machine that spits out your winning voucher is among more than 15,600 like it across the state that weren’t even legal five years ago.

The rise of video gambling in Illinois can be either credited or blamed on the now-imprisoned Rod Blagojevich, Illinois’ bad boy governor from 2003 until his unceremonious ouster in 2009.

Throughout his tenure as chief executive, Blagojevich and legislative leaders were unable to agree on a plan to finance a statewide construction program.

Soon after his impeachment, his replacement, Pat Quinn, and members of the General Assembly cobbled together a landmark $31 billion road, bridge and school construction program financed by new fees for motorists, higher alcohol taxes and the legalization of video gambling.

Under the new law, Illinois would get 25 percent of the earnings from the newly legalized video machines with local governments getting a 5 percent cut. The General Assembly’s Commission on Government Forecasting and Accountability estimated that the law could result in between 45,000 and 65,000 slot machines.

But the money wouldn’t start flowing anytime soon.

Initially, the construction program was tied up in court over the new taxes on booze. Then, state gaming regulators found it tough going to write and implement rules and regulations that would govern the state’s newest form of gambling.

While the construction plan’s kinks were being ironed out in court and within the offices of the Illinois Gaming Board, hundreds of communities mulled whether to participate in the gold rush.

Scores of cities and villages, including Chicago, decided against allowing video gambling within their borders.

Finally, in September 2012, the gaming board launched a test run of the new system, comprised of 278 video gambling terminals placed at 65 establishments across the state.

After deeming the rollout a success, the board began signing off on a rapid expansion of the industry.

According to the Illinois Gaming Board, the machines generated $44 million in revenue for the state in Year One.

By the end of March 2014, Illinois was home to 15,667 terminals in bars, restaurants, truck stops and fraternal organizations in nearly every corner of the state, an amount three times the number of machines in place just a year before.

Gaming board tallies show that players plunked down $671.5 million in March and lost $53 million of it.

For the state, that meant $13.3 million in revenue. Municipalities took in $2.6 million. The establishments, agents and other middlemen in the industry divvied up $37.3 million.

The devices have proven so popular statewide that the number of video gambling machines in bars, restaurants, truck stops and other places last fall surpassed the number of machines and seats at table games in the state’s 10 casinos combined.

According to gaming board statistics, the big earners in recent months have been truck stops.

A Road Ranger truck stop on Interstate 55 on the northeast edge of Springfield has been routinely at the top of the list when it comes to generating revenue for the state. In February, the machines funneled $24,761 into state coffers.

Unlike bars and taverns, the truck stops can operate 24 hours per day, giving them a leg-up on the competition.

But, the law is written so that some gas stations qualify as truck stops, even though they are located miles from interstates.

The Qik N EZ outlet on Bloomington’s south side is deemed a truck stop because it has a convenience store, lies on three acres of land and sells at least 10,000 gallons of diesel fuel each month at one of its separate commercial-vehicle fueling islands.

Though it has few of the trappings of a traditional truck stop, including a parking lot full of diesel-belching Big Rigs, it has been a gold mine for the state and its owner, the Chronister Oil Co. In March, it was the state’s top earner in the new video gambling sweepstakes, bringing in $24,891.

The statewide revenue numbers are expected to continue growing.

In late February, the Illinois Gaming Board listed pending applications on file from an additional 740 companies looking to put machines in their establishments.

That could amount to an additional 3,700 terminals spread across the state.

New forecasts show the industry is on pace to generate nearly $200 million per year for the state. That’s down from initial estimates, largely because Chicago opted out of the program and doesn’t allow video gaming within its borders.

Just as the so-called truck stops have benefited, the new law also has spawned a new type of business in Illinois that some lawmakers hadn’t foreseen.

While the machines originally had been seen as purely for bars, truck stops and fraternal organizations, investors looked to other states for a different breed of gambling parlor.

Among them was Christopher Stone, a registered lobbyist in Springfield.

Seeing an untapped business opportunity, Stone launched a chain of video gambling parlors named Lucy’s Place. The operation now has 20 locations in Springfield and points south.

Stone says he and his investors traveled to other states to get a sense of how these gambling “cafes” worked.

Branding plays a big role. Lucy’s Place was originally designed to attract women over 40, similar to other operations called Nikki’s, Dotty’s or Penny’s. Located in strip malls, they are more like a Starbuck’s than a tavern.

“I don’t know if the state envisioned it when they implemented this,” Stone says.

But, Stone says the demographic they’ve been drawing is not necessarily the one they originally targeted.

“We’re a little surprised at the amount of people under 40 who come in to play,” Stone says.

Stone says Lucy’s Place doesn’t compete against taverns.

“Our clientele are people who don’t go to bars in the first place,” Stone says.

Stone says the first year after the law went into effect was the most painful. State gaming regulators moved slower than he’d anticipated in getting the system up and running, forcing him to burn through cash.

In the past year, however, he says most of the glitches have disappeared. Regulators are like “night and day” when it comes to bringing new businesses online, he says.

Communities like Litchfield have welcomed him. A Lucy’s Place outlet in the Montgomery County community will put about $8,000 into the city coffers this year, an amount equivalent to what a large retailer would generate in sales tax revenue.

The lure of that money has resulted in more communities deciding they want a piece of the action.

In April, the Lake Zurich board of trustees overturned a video gambling ban that had been in place for a year.

In Mahomet, Village Manager Mell Smigielski says the community of 7,200 residents banned video gambling in 2009. But, talk of legalizing it was reopened earlier this year when the owners of two restaurants approached the village in hope of generating some extra cash.

There have been multiple meetings since then, with the community coming out very split over the issue, he says.

“Most people are against it on moral grounds,” Smigielski says. “But, there is a feeling that establishments should be given a choice. If someone says they won’t go to a place with the machines, that’s the chance the owner takes.”

It’s not the first battle over moral issues to hit Mahomet in the past decade. The village, located west of Champaign-Urbana, was dry until 2007.

Smigielski says he’s not sure who will win.

“Allowing video gambling might be too much for the community to handle,” Smigielski says.

It’s not just the revenue from the gambling that has brought in cash for communities. An April analysis showed Springfield brought in nearly a quarter of a million dollars in registration and license fees in just over a year.

In addition to the tax revenue, Stone says his businesses have created jobs. All told, he has 40 full-timers on staff and 120 total employees in outlets from Harrisburg to Jacksonville.

Amid all the talk of money, gambling opponent Anita Bedell, of the Illinois Church Action on Alcohol & Addiction Problems, continues to argue that the machines aren’t worth it.

“The amount of money the municipalities receive will not begin to pay for the increased costs of addiction, bankruptcy, crime, family problems and suicide,” Bedell says.

The rise of video gambling also has had an effect on the state’s casinos.

Gaming board figures show casinos have seen fewer people coming through their doors since video gambling has taken off. Overall admissions in March 2014 were down more than 11 percent from the previous year.

Revenue for slot machines at all of the casinos was down 7.8 percent in February 2014 compared to the year before.

At the East Peoria Par-A-Dice casino, March 2014 admissions were down 7.4 percent.

While the Par-A-Dice has 1,151 slot machines, establishments surrounding it in Peoria, East Peoria, Pekin and other nearby municipalities have 473 terminals.

At the Argosy in Alton, slow business forced the owners to close its third deck during the week. The Casino Queen in East St. Louis saw its revenue dip by 14 percent in March.

For some tavern owners, it’s easy to see why the casinos are suffering.

Diana Binkley, owner of the Feeling Lucky Lounge in Decatur, says her establishment is within walking distance of senior citizen apartments. Her customers have told her they’d rather pop in for a couple of games than take an entire evening to drive or take a bus to a casino.

Since installing five machines, Binkley says she’s brought in enough revenue to remodel, give her employees raises and offer more specials.

At the Village Pub in Milan, owner Karla Bateman is having a similar experience. Rather than trek across one of the large casino parking lots in the Quad Cities, seniors can walk a few steps into her bar.

Stone thinks some of his customers may have replaced semi-regular trips to the casinos with an occasional stop at his businesses.

“Its probably taken a little business from the casinos,” Stone says.

Tom Swoik, executive director of the Illinois Casino Gaming Association, says the effect of the machines on casinos has been more than the organization had expected.

When the proposal was first aired, casino owners thought the new legal system would merely replace the existence of thousands of illegal gambling machines in bars and fraternal organizations.

But, Swoik says he thinks many potential gamblers were afraid of using the old machines simply because they were concerned about the legality of them.

Now, with the state sanctioning video gambling, more people are playing.

“We knew it was going to have some impact,” Swoik says. “But we didn’t think it was going to be as fast.”

Bedell says proximity matters when it comes to gambling.

“People will gamble at the closest location,” Bedell says.

Although the new industry is still in its infancy, lawmakers have already begun to consider ways to tweak the law.

Sen. Dave Syverson, a Republican from Rockford, proposed a plan this spring to allow truck stops to have twice as many video gaming machines as other establishments.

Syverson says adding machines at truck stops could pull in more revenue from out-of-state drivers. The measure, however, fell short in the Senate.

Establishments like Lucy’s Place have drawn the ire of bar and restaurant owners who say the gambling cafes are stealing potential business.

Sen. Bill Cunningham, a Chicago Democrat, is sponsoring legislation to allow cities and counties to limit the number of gambling licenses in communities in an attempt to keep the cafes out. Like Syverson’s proposal, that measure remains stalled in the Senate.

Bedell says Illinoisans should look at how much is being lost by players as the industry grows. That, she says, is a more important social indicator than how much state and local governments are receiving to pay for statewide construction projects.

“The big winners are the gambling agents and the establishments,” Bedell says. “They are making out like bandits.”

Kurt Erickson is Statehouse bureau chief for Lee Enterprises.

Illinois Issues, June 2014

 

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Lucy’s Place exteriorLucy’s Place is a video gaming parlor located in a strip mall in Springfield.