Tax Rates Threaten New Chicago Casino, Sportsbook

Posted on August 26, 2019

Casinos operate on a simple equation of revenue minus expenses equals profit, like any other business.

Taxes are one of those expenses, and that’s the expense that could prevent a new Chicago casino project from ever being started.

A recently completed feasibility study commissioned by the Illinois legislature presents a negative forecast. Because of that, the project moving forward is now in doubt.

Details of the study on a new Chicago casino project

A study performed by Las Vegas’ Union Gaming Analytics was released Aug. 13. The most pertinent statement in the study makes the conclusions clear:

…the current regulatory construct, namely the highest effective gaming tax and fee structure in the US, makes any casino project — regardless of location — generally not financially feasible.

Running a casino is a double-edged sword. The potential for revenue is high, but casinos face some of the heaviest taxes in the country.

That’s especially true for casinos in the Land of Lincoln. As the above statement notes, no other state taxes casinos as heavily as Illinois.

According to the data in the study, a new Chicago casino would pay 72% of its revenue in taxes. No business can turn a profit with only 28% of revenue leftover before it pays its operating expenses, even if that revenue is in the hundreds of millions of dollars annually.

The results of the study cast doubt upon the state government’s plan to rectify its financial situation.

Why this is terrible news for Illinois

In short, Illinois lawmakers saw gaming expansion as a way out of debt. The state has been cash-strapped for years, to the point where individual income tax refunds were delayed.

By authorizing six new gaming facilities, including a mega-casino in the Chicago metro along with Illinois sports betting, the hope was that the new tax revenue would pad the state coffers.

That plan might have now become a victim of its own “success.” The tax rates in the new law, which were intended to be the state’s hero, have now become that hero’s own downfall.

In order to move forward with the project, it’s pretty clear that lawmakers will have to lower their expectations. That might happen.

Where the new Chicago casino project goes from here

According to the new law, the Illinois Gaming Board now has 90 days to recommend modifications to state lawmakers. That might end up including a reduction in the tax rates.

If that happens, the entire outlook on the project should improve. The study determined there is enormous potential to take in millions of dollars.

The question is to what extent lawmakers will be willing to relax the tax in order to make the project feasible. Slashing the rate too far will diminish the casino’s ability to buoy the state treasury.

If a realistic compromise can’t be found between the competing interests, it may be years before any further action is taken on a Chicago casino. Death and taxes are a certainty in life.

Death by taxes is a possibility for the Chicago casino project.  Lawmakers have to clear that obstacle in order to move forward.

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