The first roll in a bid to finally bring a casino to Chicago has come up snake-eyes.
Financing for any of the five 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 in Des Plaines, which generated $441.8 million in adjusted gross receipts last year — but only if officials lighten the tax burden on developers.
Mayor Lori Lightfoot said the city is far from folding on the gambling den that has eluded city and state leaders for decades.
The study released Tuesday “confirms our concerns about the tax structure,” she was quoted as saying in a news release.
“[We] know that this can be addressed, and we look forward to working with the governor and legislative leaders to revise the legislation and ensure a new casino will be beneficial for Chicago’s communities and the entire state,” Lightfoot said.
How profitable would a casino be at each site? Not much, if at all, thanks to a heavy load of taxes and fees, according to a consultant’s report. Click on each location for the financial estimates of what a casino would be making at each site in its fifth year of operation there. A casino would be marginally profitable at four of the sites, well below industry averages, and lose money at the fifth, the consultant estimates.
The study found the former Michael Reese Hospital location at 31st and Cottage Grove would be the most profitable of the five sites suggested by Lightfoot’s office, raking in an estimated $806 million after five years in operation.
The Las Vegas consulting firm concluded that still wouldn’t be enough to offset the 33.3% privilege tax on adjusted gross receipts, or the money casinos rack up after paying out winners. That’s on top of the existing tax structure in place for all statewide casinos.
Under the state’s massive new gaming law, money from the 4,000-gaming position Chicago mega-casino — more than triple the size of any currently operating in the state — is to be split in thirds among the state, the city and the owner, with Chicago’s cut earmarked for its desperately underfunded police and firefighter pensions.
The bottom line is that the effective tax rate for a Chicago casino is “approximately 72%,” the consultant said.
Factoring in operating expenses, that means a developer’s costs “could exceed casino revenue,” the consultant said. And with a “reconciliation fee” due in three years equal to 75% of the casino’s most lucrative 12-month span — a colossal $502.6 million in the Reese scenario — it “would wipe out any profits generated for many years, if not decades.”
Tack onto that up-front application and licensing costs that could top $135 million, and it “results in none of the five sites being financially feasible,” the consultant found.
The four other sites shot down in the report include:
- Pershing Road and State Street, which the consultant estimated would pull in $782 million in revenue annually five years after launching;
- Roosevelt Road and Kostner Avenue, which could make $698 million;
- the Harborside International Golf Center area near 111th and the Bishop Ford Freeway, which could could make $690 million;
- and the former U.S. Steel parcel at 80th Street and Lake Shore Drive, which could make $653 million.
Lightfoot has said those five are not the “definitive” list of possible sites, and that a downtown location could eventually be considered.
Union Gaming 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.
Such a “tourist-centric” location could rack up $1.15 billion annually five years after getting up and running, Union Gaming estimated.
A Chicago casino located in close proximity to downtown hotels and McCormick Place has always made the most financial sense, since the goal is to raise as much money as possible for police and fire pensions and a city budget shortfall that — Lightfoot is prepared to argue — is $1 billion-plus
But convention and tourism officials have long feared that a casino located too close to McCormick Place would draw patrons off the convention floor and into the casino.
The consultant also floated 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 fee and any other receipts shared with, for example, the county or state,” the study notes.
The feasibility study was the first step toward a Chicago casino as spelled out in the massive gambling expansion bill passed earlier this summer in Gov. J.B. Pritzker’s $45 billion capital plan.
A spokeswoman for the governor said they don’t expect the study’s findings to “significantly impact” the six-year capital plan.
“This study provides valuable insights that will help make sure a Chicago casino works right for the both the city and state,” Pritzker’s office said. “We look forward to working with stakeholders, including the mayor and General Assembly, to refine this approach and ensure that we maximize the opportunities for jobs for residents and revenue to address our financial obligations.”
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.
The gaming board had previously said it could begin accepting license applications as early as November, and proponents had suggested a Chicago casino could be up and running by late next year, but the scathing study now leaves that timeline up in the air.
The study’s conclusions came as no surprise to Lightfoot, who questioned whether fees outlined in the law would scare off potential developers well before they jump in a competitive bidding process.
She asked for the study, precisely because she was concerned that the onerous structure would make financing virtually impossible.
Samir Mayekar, deputy mayor for economic and neighborhood development, said City Hall plan has no plans to recommend a specific remedy for the “onerous” tax structure.
Instead, the mayor will “respect the process” by waiting for the gaming board to make those suggestions within 90 days, as required by law, he said.
“We’ll do whatever it takes with our colleagues in Springfield to ensure that the tax structure is viable and financeable . . . Everything’s going to be on the table to ensure that the tax structure is viable,” he said.
If the tax structure is so onerous, Mayekar was asked why Lightfoot signed off on it in the first place.
“This is the most real conversation about a Chicago casino that any mayor has had . . . It’s very close to being real. Just like any legislative process, you’re going to have iterations . . . This seems like a standard part of complex legislation,” he said.
The consultant’s study appears to give Lightfoot the political cover she needs to choose a casino site closer to the downtown area. But Mayekar refused to go that far.
“This report talks about how none of the sites — even if you were to include the Central Business District — would be financeable,” he said.
“We’re not really engaged on sites right now. We’ll run a site selection process after the tax structure is made viable.”
Also on Tuesday, City Hall released initial results of an online survey asking Chicagoans to weigh in on their site preferences.
Thirty-six percent of the roughly 10,000 people surveyed favor a site near downtown, while 32% prefer a location that would “generate new development.”
That was followed by “proximity” to public transportation (21% ), near tourists (19%), near other entertainment venues and near existing hotels (tied at 15% apiece).
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:
.png?w=600)
