The city of Chicago took another small step towards the building of a casino in the downtown area Thursday, issuing a RFI (Request for Information) seeking ideas and strategies to “develop and operate a world-class casino in Chicago.”
The RFI comes approximately three months after Illinois lawmakers passed a $40 billion budget for the fiscal year, and within that bill was an extensive rewrite of the tax rates for any casino that would be built in the downtown area. A downtown casino has long been a goal of mayoral administrations in Chicago, including current Mayor Lori Lightfoot, who has actively sought one since taking office in May 2019.
“After securing favorable legislation that had eluded us for decades, Chicago can finally pursue a once-in-a-generation opportunity to bring a casino to our city, generating hundreds of millions in new gaming revenues to shore up the City’s pension obligations and drive huge levels of infrastructure funding in Illinois as well as creating thousands of new and much-needed jobs for local residents,” Lightfoot said in a statement Thursday. “This is the right time to begin having these discussions as we continue to lay the foundation to make a strong recovery from the impacts of the COVID-19 pandemic.”
The downtown area was one of six places designated for a casino in the gaming expansion bill Illinois Gov. J.B. Pritzker signed into law in June 2019. That bill also legalized sports betting in the Prairie State, which went live in March for less than a week before casinos across the state were shuttered due to COVID-19.
Six sportsbooks are currently active among the state’s 10 operating casinos, while a seventh does have a sports wagering license and has yet to go live. Additionally, Hawthorne Race Course has a sports wagering license and is expected to launch its sportsbook prior to the start of the NFL season.
Changes in fiscal bill boost Chicago casino viability
Lightfoot’s success in having the tax rates revised was a needed feature in making a downtown casino viable. A study conducted by Union Gaming Analytics in August 2019 stated a casino with the previous rates would “not be feasible due to the onerous tax and fee structure.” It estimated there would have been an effective tax rate of 72% on the highest-earning potential of $800 million in AGR before factoring in the casino’s additional operating expenses.
After the fiscal bill was passed with changes to those rates, Union Gaming Analytics estimated the effective tax rate had dropped to approximately 40% or lower, a figure the Las Vegas-based group labeled in an updated report this month as “an attractive-enough effective tax rate to result in a successful RFP process, which we think should be delayed until next year in order to allow more-financially viable gaming developers enough time to work through the on-going COVID-19 disruptions and more properly assess their growth strategies and participation in the Chicago casino RFP.”
Another change within the fiscal bill that the Union Gaming Analytics found favorable for a potential casino was the extension of the period in which a reconciliation fee could be paid. New casino licenses located in Cook County — where downtown Chicago is — would require an upfront payment of $30,000 per gaming position, a figure that turns into a potential $120 million payment should a downtown Chicago casino utilize the full 4,000 positions made available per the expansion bill.
After the first three years of operations, the reconciliation fee is calculated at 75% of the highest adjusted gross receipts (AGR) of any rolling 12-month period minus the upfront fees paid. The study previous used $800 million AGR as a high-water mark for such a period, which would result in a $480 million reconciliation fee with all 4,000 positions. The original bill called for such a payment to be made over a two-year period with interest, but the new version allows for a six-year payment without interest.
Another positive is free play no longer being taxed, something the updated study noted would allow Illinois casinos “to more effectively compete with border casinos in Indiana, Iowa, and Missouri.”
Answers Chicago is seeking in the RFI
The RFI is designed to allow the gaming industry to share its thoughts on the city. There are nine questions that deal with a wide range of subjects, including one asking for thoughts on the potential impact of COVID-19 on the development of a casino.
Another asks for priority factors in considering a locale for any potential casino. Originally, Lightfoot had tipped five potential locations throughout the south and west sides of the city, but also stressed they were “not definitive ones.” In the new Union Gaming Analytics Study, it noted the plan is currently “site agnostic” and that developers would not be tied to any of those locations. Rather, the expectation is developers would have the liberty to choose a site that would then be subject to approval.
In a related question, developers are asked: “What do you believe is the minimum number of acres needed to achieve a world-class casino and entertainment complex in an urban setting like Chicago? Please provide a separate figure for the casino facility, related amenities and entertainment complex.”
Chicago a sleeper in the gaming market
In a seven-page supplement to the RFI, the August 2019 study by Union Gaming Analytics noted the per-capita income spent on gaming is 0.6%, which is slightly more than half compared to the metropolitan areas of fellow Midwestern cities Detroit and St. Louis. Additionally, Rivers Casino in Des Plaines — located 17 miles from downtown Chicago — is considered the most profitable casino in the country on a per-square-foot and per-device basis, lending credence to the market being under-served in terms of gaming options.
In terms of population, the supplement argues Chicago is the largest “untapped and legal gaming growth opportunity in the country,” offering comparisons to more restricted markets Dallas and Houston and “well-served” markets of New York City and Washington D.C.
The expectation is that after receiving feedback through the RFI, the Request for Proposals (RFP) would be released in the first or second quarter of 2021.