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5 Chicago casino sites ‘not feasible,’ study concludes

Chicago Sun Times

Tuesday, August 13, 2019  |  Article  |  Fran Spielman and Mitchell Armentrout

Gambling, Gaming
Mayor Lori Lightfoot has questioned whether the tax structure set up in the state’s newly expanded gaming law makes the city unattractive for casino developers.

Financing for any of the five Chicago casino sites studied on South and West sides is “not feasible,” because of an “onerous” tax structure established by the Illinois General Assembly, a consultant hired by the Illinois Gaming Board has concluded.

In a highly anticipated report expected to set the stage for a fix during the General Assembly’s fall veto session, Union Gaming Analytics concluded that a Chicago casino “has the potential to become the highest grossing casino” in Illinois — “significantly higher” than the “market-leading” Rivers Casino, which generated $441.8 million in adjusted gross receipts in 2018. But only if the tax structure is made less “onerous.”

The consultant further concluded the site of the former Michael Reese Hospital would be the most profitable of the five sites pinpointed for study by Mayor Lori Lightfoot.

But Union Gaming Analytics also concluded that not even the Reese site would be attractive enough to secure financing because of an “onerous tax and fee structure” that includes a 33.3% privilege tax on adjusted gross receipts. That’s on top of the existing tax structure in place for all statewide casinos.

The bottom line is that the effective tax rate for a Chicago casino is “approximately 72%,” the consultant said. On top of that, operating expenses “can easily approach the equivalent of 30 percent of adjusted gross revenues if not higher.”

“Combined with an effective tax rate of 72 percent yields an expense structure that could exceed casino revenue,” the consultant states.

“Ultimately, the additional privilege tax of AGR specific to the city of Chicago results in none of the five sites being financially feasible.”

Union Analytics also concluded “only a centrally-located casino that is in close proximity to high-quality hotels and other notable tourist attractions” would be able to “meaningfully penetrate the robust tourism trends” the city of Chicago enjoys.

“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 accessible attractions nearby,” the consultant said.

The consultant floats the idea that it could be feasible for the city to own the casino and have a company manage it.

“The casino could potentially be financed by municipal bonds, for example, with the City of Chicago capturing cash flows less debt service, casino management fees, and any other receipts shared with, for example, the county or state,” the study notes.

The study analyzed five South and West side locations:

  • Near the Harborside International Golf Center site at 111th and the Bishop Ford Freeway
  • The former Michael Reese Hospital, at 31st and Cottage Grove;
  • Pershing Road and State Street
  • Roosevelt Road and Kostner Avenue
  • The former U.S. Steel parcel at 80th Street and Lake Shore Drive

Lightfoot has said that’s not the “definitive” list of possible sites, and that a downtown location could eventually be considered. Four of the studied sites are on city-owned land.

And while Ald. Susan Sadlowski-Garza (10th) has lobbied hard for the Harborside site, Ald. Sophia King (4th) has said the idea of putting it in historic Bronzeville with the Reese site was “appalling and offensive,” and Ald. Pat Dowell (3rd) said her constituents need a grocery store at Pershing and State, not a casino.

The feasibility study is the first step toward a Chicago casino that has long eluded Chicago mayors, as spelled out in the massive gambling expansion bill passed earlier this summer in Gov. J.B. Pritzker $45 billion capital plan.

The mayor’s office now has 90 days to huddle with lawmakers in Springfield about potential changes that could be made to the law during the fall veto session. If no changes are sought — a long shot — the gaming board says it could begin accepting license applications as early as November.

Lightfoot has expressed concerns over whether the steep tax structure outlined in the law will scare off potential developers well before they jump in a competitive bidding process for the Chicago license that allows for up to 4,000 gaming positions — more than triple the number of slots and table games at any of Illinois’ 10 existing casinos. Some of those positions could be placed at O’Hare and Midway airports.

Operators will be on the hook for $250,000 just to submit an application to the gaming board. They’ll then pay a $15 million “reconciliation fee,” plus $30,000 to license each gaming position — a whopping $120 million if fully implemented.

With other red-tape costs, including $10 million for a sports wagering license if the developer wants to open a sports book, the cost just to set up shop before breaking ground could edge toward $150 million.

And after that, the developer would keep only a third of the casino’s gambling profits. The other two-thirds are taken in taxes and split between evenly city and state, with Chicago’s cut earmarked for its desperately underfunded police and firefighter pensions.

The location will need City Council approval. Once a license is issued by the gaming board, the developer would be allowed to operate from a temporary site for up to three years while constructing the permanent casino structure.

Read the Chicago casino feasibility study (pdf)