Gaming Gone Wild – How Gaming Is Taking Over

You can find the machines at just about every establishment you travel to in your day to day life nowadays. Around every corner bright colored signs scream out with big bold letters enticing you to play the game of winning. Hope is for sale today and from grocery stores to gas stations, dimly lit make-shift room barriers hide thousands of people all eagerly spending their hard earned money, all hoping to win at the game.

A new place to play the game is opening in Cedarville, Illinois in the coming weeks. A local realtor announced earlier on Thursday that ‘Slot City’ in Cedarville is now “formally approved” adding that, “NW Illinois’ Premier gaming parlor” will be at the location of the former Just In Time BBQ spot. What was once the dream of a few men to offer great BBQ to the locals in exchange for their hard earned money, will soon be a place where a new kind of patron comes to give up their money, in exchange for the hope of winning money.

In July 2009, Public Act 96-0034 became law, legalizing video gaming in Illinois. The act became the first comprehensive capital bill in many years and the revenue streams used to pay for the new capital projects were as follows:

  • expansion of the sales and use tax;
  • privatization of the lottery/online lottery program;
  • increasing the liquor tax;
  • increasing motor vehicle fees;
  • and the legalization of video gaming machines.

While legal issues and interruptions in the implementation of many of these sources caused significant delays in receiving these capital-earmarked revenues, video gaming finally began operations in Illinois in September 2012, a little over three years after Public Act 96-0034 was signed into law.

In its opening month of September 2012, 61 video gaming terminals were in operation in Illinois. Each qualified establishment was allowed to operate up to 5 video gaming terminals on its premises at any time. By the end of FY 2019 (June 2019), this number had risen from 61 terminals to 32,033 video gaming terminals.

illinois-gaming-terminals-growth

As the terminals have increased, so have the amounts of revenue and tax dollars generated by these machines. As people complain about paying the government so much in taxes, it’s one source of revenue the government has people hoping they give. In FY 2013, $36 million in tax revenues were generated from video gaming. In FY 2019, a total of nearly $1.6 billion in net terminal income (taxable income) were generated, leaving $478 million in State and local tax dollars. This income produced $80 million in tax revenues to local governments (up from $70 million in FY 2018).

At the current pace, it appears that the monthly number of video gaming terminals in operation in Illinois will approach and possibly surpass 35,000 terminals by the end of FY 2020, especially in light of the higher limits established under Public Act 101-0031. P.A. 101-0031, explained more below, increased the limit on video gaming terminals per establishment from 5 to 6, and [licensed] truck stop establishments, with at least 50,000 gallons or more sold, can now operate up to 10 video gaming terminals on its premises at any time.

In FY 2019 Stephenson County Illinois had 53 businesses with a total of 248 terminals. With the 2017 population numbers of 45,054 in the county, that equates to a gaming terminal for every 181 residents.

While the Video Gaming Act does allow a municipality to pass an ordinance prohibiting video gaming within the corporate limits of the municipality, as local governments search for additional revenues more and more are turning to video gaming as a source. In 2013, the Gaming Commission calculated that the percentage of the State’s population that lived in an area banning video gaming was at 63.3%. The FY 2019 data shows that the percentage of Illinois communities without video gaming has fallen to approximately 36%.

What kind of impact has video gaming had on the tax revenues from all gaming sources? In FY 2012, the taxes imposed on the Illinois casinos (admission tax and the graduated tax on adjusted gross receipts) generated $548 million. Due to the recent declines in admissions and AGR (adjusted gross revenue) totals, this tax amount fell to $454 million in FY 2019, a seven-year decline of 17.2%. However, these declines have been more than offset by the additional tax revenue generated from video gaming.

As mentioned, in FY 2013 $36 million in tax revenues were generated from video gaming. This total has continued to rise to its most recent total of $478 million in FY 2019. When combining these video gaming tax revenues with casino tax revenues, overall tax revenues grew from $548 million in FY 2012 to $932 million in FY 2019, an increase of 69.9%.

While some may feel higher tax revenues are a good thing, the destination of these gaming tax dollars, not to mention the social cost, is an issue to most. The majority of tax revenues from casinos are eventually transferred to the Education Assistance Fund. The majority of tax revenues from video gaming are deposited into the Capital Projects Fund. Therefore, if video gaming causes a reduction in revenues from casinos, tax dollars are effectively being shifted from the Education Assistance Fund to the Capital Projects Fund.

Furthermore, money set aside for administration costs pertaining to both casinos and video gaming comes from casino taxes deposited into the State Gaming Fund. In other words, as video gaming administration expenses increase, this results in less revenue in the State Gaming Fund to be transferred into the Education Assistance Fund. Worse are the effects of gambling itself, evidenced by the very fee structure setup to get a terminal.

In order to get a terminal, a non-refundable application fee is paid at the time an application for a license is filed with the Gaming Board. These fee amounts are as follows:

1) Manufacturing: $5,000
2) Distributor: $5,000
3) Operator: $5,000
4) Supplier: $2,500
5) Technician: $100
6) Terminal Handler: $50

In addition, the Gaming Board establishes an annual fee for each license as follows:

1) Manufacturer: $10,000
2) Distributor: $10,000
3) Operator: $5,000
4) Supplier: $2,000
5) Technician: $100
6) Establishments: $100
7) Video Gaming Terminal: $100
8) Terminal Handler: $50

Of these fees, 25% is paid for the treatment of compulsive gambling and 75% is used for the administration of the Video Gaming Act. To make a comparison, it would be as if your favorite local pub paid 25% of the money you gave them [for beer] to an alcoholics fund, just so they could help people who drink their beer, not drink so much of their beer. Meanwhile, they do everything they can to pull on your hope strings enticing you to do just that, drink their beer.

Gambling originated in human societies thousands of years ago. The determination of a prize on the throw of a dice or the spin of a wheel taps into our basic fascination with chance, fate, hope and luck. No one understands those emotions better than the government, and the new gaming legislation in P.A. 101-0031 is going to make the government even more money, as it rolls out additional taxes imposed on licensees.

The current tax rate imposed on video gaming terminals’ (“VGTs”) net terminal income is 30%, with 5/6 of the revenues going to the Capital Project Fund and the remaining 1/6 distributed to all participating local governments. On July 1, 2019, an additional 3% tax was imposed on a VGT’s net terminal income (for a total of 33%).  Additionally, beginning on July 1, 2020, an additional 1% tax shall be imposed on a VGT’s net terminal income (for a total of 34%).  Of the after-tax profits from a video gaming terminal, 50% shall be paid to the terminal operator and 50% to the establishment conducting video gaming.

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But the meteoric rise of video gambling has proven to be little more than a botched money grab, according to a ProPublica Illinois investigation of a system that has gone virtually unchecked since its inception. Based on dozens of interviews, a review of thousands of pages of state financial records and an analysis of six years of gambling data, this unprecedented examination found that far from helping to pull the state out of its financial tailspin, the legalization of video gambling instead accelerated it and saddled Illinois with new, unfunded regulatory and social costs.

Meanwhile, video gambling companies have exploited the deeply flawed legislation to reap hundreds of millions of dollars in profits, while the cities and towns that bear the brunt of the social costs related to gambling receive a fraction of those proceeds. Of the $64,167,457.74 ($64.1 million) in video gambling wagering activity from January 2019 thru October 2019 in the city of Freeport, only $274,954.89 ($274k) came back to the city in taxes. It is unclear where exactly that money goes.

Screenshot from 2019-11-09 18-53-45

Within months of the law’s initial passage in July 2009, the state began borrowing hundreds of millions of dollars against the anticipated revenue. Bond documents claimed video gambling machines would raise $300 million each year to help cover the debt payments. It wasn’t until 2017, eight years after the legalization of video gambling, that the state came close to collecting that amount. By then, video gambling had brought in less than $1 billion to pay the bond debt, $1.3 billion short of what lawmakers anticipated. People in Illinois gambled a lot more, but most of the additional money ended up in the coffers of the companies behind video gambling.

Not surprisingly, problem gambling has become a major issue in the state, one that affects hundreds of thousands of people with little response from Springfield, or frankly any other local government. Numerous studies from around the world have found that access and density of gambling options drive addiction. Yet Illinois is one of only two states with legalized video gambling — the other is West Virginia — that has never conducted research to measure the prevalence of gambling addiction.

Despite pledges to increase funding for addiction services to match the massive growth in gambling outlets, the state spends less than it did before legalizing tens of thousands of algorithm-driven machines so adept at making people play faster and longer they have earned nicknames like “electronic morphine” and “the crack cocaine of gambling.”

This time of year with so many efforts to help others in the community, $64.1 million dollars wagered ($21.9 funds in) on gambling in ten months, where the big winner is not us, is quite the ironic cup of eggnog to swallow. Hope is for sale and its lure is stronger than reality and what if, has more promise than probably not. Truths that make it hard to believe one’s true nature could ever be to help the world, in such a game as that.

Warren Buffett once told a story of his honeymoon where he traveled out west. He said when he visited the casino and saw all those smart well-dressed people participating in a game with the odds against them, it was then that he realized he wouldn’t have a problem getting rich.

“I’m not a prude about it, but to quite an extent, gambling is a tax on ignorance. You just put it in and guys like me don’t pay the taxes — it relieves taxes on those who don’t gamble. I find it socially revolting when a government preys on its citizens rather than serving them. A government shouldn’t make it easy for people to take their social security checks and [waste them pulling] a handle.”

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http://cgfa.ilga.gov/Upload/2019wageringinIllinois.pdf

https://features.propublica.org/the-bad-bet/how-illinois-bet-on-video-gambling-and-lost/

https://www.igb.illinois.gov/



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