News |

‘Little baby casinos’: Huge growth in video gambling boosts Illinois gaming revenue to record levels, but at what cost?

Full meals used to be on the menu at La Cabana Mexican Restaurant in Melrose Park, but now the small storefront sells only steak tacos. These days, many people come not to eat, but to gamble.

Customers will typically spend two to four hours at a time at one of the video poker or slot machines at the strip mall business along Mannheim Road, and will often drop around $400, said operator Juventina Mesa, adding gambling now makes up the bulk of her receipts.

“They like it, but some people lose a lot of money,” she said.

A new state report says Mesa’s customers are far from unusual. It shows that Illinoisans lost a whopping $4 billion in total last year on legal gambling. And the big winner? Video gambling, whose revenues have grown by more than 75 percent in just the last three years.

Even with video gambling prohibited in the city of Chicago, there are now about 11,000 individual gaming machines in the metropolitan area — the equivalent of adding more than nine full-size casinos, according to the “Wagering in Illinois” report released last month by the state’s Commission on Government Forecasting and Accountability. That’s only six years after the first legal pokers machines were rolled out in Illinois.

The driving force behind overall gambling revenues hitting an all-time record high last year in Illinois, video gambling terminals have sprouted up at bars, truck stops, doughnut shops, pizzerias and in storefront chains devoted expressly to the poker and slot machines.

“Oh my God, it’s so crazy down here,” said Mark Dixon, professor of behavior analysis and therapy at Southern Illinois University in Carbondale who treats people with gambling problems. “Instead of free alcohol (as at casinos), you get free doughnuts. I lived in Nevada, but this is like nothing I’ve ever seen before. You take establishments that don’t even fit a gambling culture, and now they have little baby casinos. And the people playing are definitely ones who can’t afford to lose.”

And video gambling’s contributions to state tax coffers has offset what the report called “relatively stagnant performances” by the lottery, horseracing and river gambling.

Gambling revenue from the state’s riverboat casinos, in fact, has fallen more than 15 percent since video gaming machines were introduced in 2012, the report said, even with the state’s most lucrative gambling palace — Rivers Casino in Des Plaines — having opened just in 2011.

And while a trip to the casino is, for many players, more of an event, some video gamblers said they prefer something that’s more low-key and convenient.

“This is cozy and close to home,” said Major Peterson, a retired machinist who likes to play video poker two or three times a week and will often walk to Betty’s, another storefront parlor in Melrose Park that’s near his home. “You can go shopping and … stop in. You can’t win as much, but it’s the pleasure of the play.”

The maximum bets on machines he plays are $2, but Peterson said he can play longer with bets as low as 9 cents. He knows some serious gamblers, though, who spend hundreds of dollars at a time. He’s seen some players come when the parlors open and leave when they close, and saw one angry customer overturn a machine after complaining that he’d lost $3,000.

Can most players afford to lose?

“Gambling is such a subjective thing,” Peterson said. “They can afford it but not on a regular basis.”

Whatever the costs to individual pocketbooks, though, there is a strong financial incentive for local governments to expand the pot.

Video gambling racked up $1.4 billion in net income in the fiscal year that ended on June 30, generating about $70 million in tax revenue to local governments, the report states — a welcome source of new dollars for communities that are struggling to pay for services, workers’ compensation and public pension. So while almost two-thirds of local communities banned the games when they became legally available, that ratio has shrunk to about one-third.

Yet from the perspective of some business operators, the expansion of video gaming has gone too far, diluting the market. At La Cabana, for example, Mesa said business is steady, but not as good as it used to be, before so many competitors opened. The restaurant sits between two chain video gambling parlors, and there are five businesses in her strip mall alone that have the machines.

Despite such concerns about oversaturation, there is no state limit on the number of new video poker sites, though the state limits each site to five machines and allows video gambling only at establishments that have a liquor license.

The report comes as state lawmakers are considering whether to expand existing gambling, and fundamentally change gambling culture in the state by adding sports, sports fantasy and online betting.

But even if that happens, such ventures would need to attract new customers to make a difference to the government’s share of the earnings.

“The State could have a large expansion of gambling, but yet have little new tax revenues to show for it,” the report states.

Ivan Fernandez, executive director of the Illinois Gaming Machine Operators Association, said he does not consider video game establishments in competition with casinos because they offer two different experiences.

“We’re convenience gambling, available around the corner,” he said. “People play because it’s easy to play, whereas casinos are destination play, where you plan an evening out.”

If Chicago allows video gambling, which Fernandez considers inevitable, that will greatly expand the market. And, he said, if casinos seek sports or online gambling, video gambling operators, who install and maintain the games, want a seat at the table.

Anti-gambling activist Anita Bedell, director of Illinois Church Action on Alcohol and Addiction Problems, said video gambling’s wide availability only increases addictive and problem gambling.

“It’s a concern because it’s in so many different communities and people are losing so much money,” she said. “They’re everywhere you look.”

Online gambling, she warned, would be worse, by making gambling available constantly at home or on mobile devices, while raising the risk of underage gambling.

Dixon, the SIU professor, called for the gambling industry to provide greater funding for proven treatments.

John Kindt, a professor emeritus of business and legal policy at the University of Illinois, emphasized the social and economic costs of gambling. He called for the state to substantially raise its taxes and licensing fees for gambling, similar to Canada, which keeps most of the income.

Tom Swoik, executive director of the Illinois Casino Gaming Association, said any expansion of gambling would come with safeguards, such as identification verification, and would allow problem gamblers to set monetary limits or put themselves on an exclusionary list. The report shows that the industry is “cannabilizing” itself, he said, and should not add new gambling sites, but should add sports, fantasy and online gambling. State Rep. Lou Lang, a Skokie Democrat, is expected to introduce expanded gambling legislation next year.

Online gambling in particular, Swoik said, would appeal to a new generation of younger players, and has surprisingly drawn more players to casinos in other states.

At riverboat casinos, revenues decreased 1 percent, with adjusted gross receipts down at every casino in the state except Rivers Casino Des Plaines and Hollywood Casino Joliet. State revenue from casinos remained less than half of what it was a decade ago, which the report stated was due mainly to competition from video poker.

State lottery sales continued to make up more than half of all state revenue from gambling, up almost 3 percent, to nearly $3 billion. That comes as the state replaced its private operator Northstar Lottery Group with a new contract with Camelot Illinois “due to disappointing sales,” according to the report, though it was too early to judge the results.

Total horse racing bets actually increased almost 3 percent, thanks to increased online advanced-deposit wagering, but overall betting of $600 million remained “miniscule,” at less than one-tenth of its peak from the 1970s. The horse racing industry is “struggling” to compete not only with racetracks in other states that offer higher purses thanks to getting a share of casino revenues, but also with the proliferation of gambling within the state, the report found.

Since Maywood and Balmoral parks closed in 2015, only three racetracks remain in the state: Arlington Park in Arlington Heights, Hawthorne Race Course in Cicero, and Fairmount Park Racetrack near St. Louis. In a potentially significant change, the Illinois Racing Board will soon consider rules to allow what’s called historical horse racing, similar to video slot machines, at the tracks.

Other options for new gaming in the state continue to be discussed, such as adding new casinos, allowing casinos games or slots at horse tracks, internet gambling, and sports and fantasy sports betting. Gov.-elect J.B. Pritzker has called sports gambling “an important thing to consider” to raise revenue for the state.

The report estimated that adding a casino in Chicago, plus five new riverboats, and three racetrack casinos, as proposed in pending legislation, would increase overall revenues by $1 billion — but would increase tax revenues by only about $75 million.

Overall, per-person spending on gambling in Illinois reached $311, an increase of more than a third in the past six years. Most of the lottery money goes to a state education fund, while money from video slots is dedicated to capital projects.

One other factor to look out for, the study’s authors noted, is competition from “sweepstakes” machines, which are similar to video gaming terminals but are not subject to regulation or taxation. The Illinois Gaming Board has called the machines illegal, but it’s a gray area in the law, and they remain in operation.

“These machines can be played for free, which reportedly provides a legal ‘loophole’ that these are not gambling devices,” the report stated. “If the popularity of these devices grows and more businesses choose these machines over video gaming terminals, the State’s video gaming numbers could be negatively affected.”

rmccoppin@chicagotribune.com

Twitter @RobertMcCoppin