Chicago’s Casinos Profitable, But Different Tax Needed

Tax rate weighs down a potential Chicago casino project Profit margins for prospective casinos remain sub-3% over a 5-year period Senator Link believes analysts’ assessment method is wrong

A Chicago casino could potentially be one of the wealthiest properties nationwide, but it is weighed down by onerous taxation.

Illinois Studies Feasibility of Casinos in Chicago

Casinosmay not be feasible in Chicago,Illinoisa company hired by the IllinoisGaming Board(IGB)revealed on Tuesday,following a thorough audit of the industry. According to thecomprehensive report studying the feasibility of land-based projects,the tax guidelines established by the IllinoisGeneral Assemblymade the operation of casinos not possible from a financialstandpoint.

Las Vegas-based Union Gaming Analytics, the company charged with the report, pointed to both the upsides and downsides of the current situation. Describing taxation as onerous, the company explained that no casino project is likely to arrive in Chicago any time soon.

Feasibility study on Chicago casino expected today from Las Vegas consultants (one of whom donated to Lou Lang a few years ago, FWIW). Where should a Chicago casino be located?

— Kristen McQueary (@McQuearyKristen) August 13, 2019

Onthe other hand, allowing a casino to open in Chicago under milder taxterms could lead to a catalyst property that could quickly turn intothe “highest grossing casino” in the state. More profitable, UGAestimated, than RiversCasinoin Des Plaines.

Toput things in perspective, Rivers generated $450 million in2018/2019, making it one of the highest grossing propertiesnationwide. Now, Chicago promises to improve on that result.

Chicago’s Casinos: Extremely Profitable Under Different Tax Rate

Illinois will possibly be late with the launch of its sports betting sector, as proper statures need to be drafted. This puts the state behind Iowa and Indiana which are rolling out betting options this week. Responding to the latest analysis, Chicago Mayor Lori Lightfoot confirmed that the high tax rate had been highlighted during the process of drafting the bill.

Lightfootremained confident that the tax structure can be re-worked with thehelp of the governor as well as legislative leaders. Yet, a re-workwould mean nothing good for the timeline and Illinois is in alllikelihood not going to offer betting options for the NationalFootball League (NFL)season.

Backto the report, the analysis estimates that at all availablelocations, a casino would be earning far below the industry averageand therefore be marginally profitable. The significant part of thisfinancial burden is due to taxes and fees. Here’s a breakdown of theprofitability of each potential casino site in a period of fiveyears:

RoosveltRoad and Kostner Avenue – $3.8million/Profit Margin: 0.5%31stStreet and Cottage Grove Avenue –$30.7 million/PM: 3.2%Pershing Road and State Street –$24.5 million/PM: 2.6%80thStreet and Lake Shore Drive – $5.9million/PM: -0.7%111thStreet and Bishop Ford Freeway – $3.5million/PM: 0.4%

Yet these numbers could have been misinterpreted, a lawmaker has 7BALL said. According to Sen. Terry Link, D-Vernon Hills, UGA have only considered the developer’s side of the story. Sen. Link is convinced that a casino project would need to also focus on redeveloping the area around the casino as well. Otherwise, one such move would only help the casinos.

Yet, the feasibility study’s numbers are rather daunting if you are planning to run a casino business yourself. For example, the Reese site would rake in $806 million in the five-year window the study suggests, but it profit would be a paltry 3%. All of this is because of the stiff 33.3% tax rate which would make it very difficult for companies to begin operations. According to UGA’s estimate, even Reese would need to pony up $502.6 million, which will not only have immediate results, but would also impede the long-term profitability of the property.

Uptown Casino Blues and a Downtown Opportunity

Inlight of these inherent challenges, Chicago has only one option –that is to find a property that is close to high-quality hotels andtourist attractions and hope to convert the influx of people intopaying customers at the casino.

Plus,Chicago has to worry about a growing police and fire pensions funds’deficits which are biting sharply into casino’s finances as well.According to UGA, that bill has swollen to $1 billion in the veryleast.

Atthe same time, not everyone is happy to collaborate with a megacasino project that would host 4,000 gaming options, not least of allthe McCormick Place whichfears that customers may stop visiting for the sake of a glitzycasino.

Gov. J.B. Pritzker gave his full support for the $45 billion gambling plan that the Governor expects would help the state with covering any economic deficits it may still be sporting. Gov. Pritzker also commented on the situation, arguing that he believed in the success of the project.

Ashe put it, “Weall want it to succeed.”

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