Seven Reasons Illinois Should Legalize Online Casinos Despite Dominance Of VGTs

Written By Dave Briggs on August 17, 2023 - Last Updated on August 18, 2023
Seven reasons

Why should Illinois move to legalize online casinos when video lottery terminals are king? I’ll give you seven reasons.

It’s true that VGTs have produced three times the combined state and local tax revenue ($493 million) than Illinois retail casinos ($164.2 million) in 2023 through June. It’s also true VGT tax revenue was six times higher than the taxes earned from online sports betting ($80 million) in the first six months of this year.

But saying Illinois doesn’t need online casinos because it already has a thriving VGT industry is as nonsensical as Ford saying it sells a lot of F-150s and therefore doesn’t need to sell Mustangs or Explorers, too. It’s all about driving total revenue. Offering different gambling products that appeal to different people is simply smart business.

Plus, Illinois clearly could use the money. But we’ll get to that in a second.

No evidence online casinos would cannibalize VGT revenue

First, there is no evidence to suggest legalizing online casinos in Illinois would steal revenue from video gaming terminals — the classic “robbing Peter to pay Paul” cannibalization argument. In fact, a major 2022 US gambling study found that retail gambling (VGTs in this case) is augmented by online gambling.

The study was produced by GP Consulting on behalf of MGM Resorts which operates both land-based and online casinos. As such, MGM is interested in the health of both.

One of that study’s main findings was that gamblers that enjoy going to casinos are largely a different demographic than those that like to wager online.

“If you look at the demographic question, first, you find that these are actually two very different groups of users,” said Dr. Kahlil Philander.

Philander is a noted gaming academic and lead author of the GP/MGM cannibalization study.

“From a sociological level, people who are regular casino goers often find some sort of sense of community within those environments,” he said. “So, the idea that [online] is a direct or even a partial substitute for the online experience that’s typically at home, it’s not obvious that that’s the case…It just didn’t seem like there was any material impact from online gaming legalization on retail gaming, in all the markets that we studied.”

Now that is out of the way, here are seven reasons why legalizing online casinos in Illinois will be beneficial.

Reason #1: Regulating online casinos better protects Illinoisans from scams

Legalizing and regulating online casinos is the best way to protect Illinoisans that choose to gamble.

The evidence is clear that people in Illinois are gambling now on illegal black market sites. Those that do are susceptible to scams.

As black market sites are outside of the laws of Illinois, residents have no recourse if their credit card information is misused or sites refuse to pay out gambling winnings.

Failing to legalize online casinos does not mean that gambling activity does not happen.

In fact, a PlayIllinois analysis found that Illinois’ share of gambling on illegal sites amounted to some $1.65 billion in handle annually. That’s about $660 million in lost revenue and over $105 million in lost tax dollars if online casinos were taxed at the same level as online sportsbooks (16%).

Reason #2: Legalization would direct more money toward problem gambling programs

But doesn’t adding more gambling options lead to a increase in problem gambling? Possibly, but remember, betting through illegal online casinos is going on now. And not one penny of the money bet on black market sites goes to responsible gambling or problem gambling programs in Illinois.

Illinois lawmakers could also use the legalization of online casinos as an opportunity to increase funding for RG programs.

As it stands, based on the most recent data available, Illinois ranked 11th in the US in 2021 in per capita public funds dedicated to problem gambling services. The state of Illinois spent $6.8 million that fiscal year. While it was the fourth most total in the nation, it still was just 0.5% of the $1.358 billion in tax revenue the state took in from all gambling sources in FY2021.

And funding for responsible gambling programs remains much lower than funding for other addictions.

Keith Whyte, the executive director of the NCPG told PlayIllinois in 2022 that per capita funding for problem gambling programs in 2021 was 230 times lower than spending on substance abuse prevention.

Whyte is calling for 1% of legalized gambling tax revenue to be directed toward responsible gambling programs. In Illinois’ case, that would involve doubling spending from $6.8 million to $13.58 million annually to meet that 1% target.

The legalization of online casinos could help Illinois meet or exceed that important target and help Illinoisans with gambling problems.

Reason #3: Illinois could recapture hundreds of millions in lost funds

As mentioned above, Illinois could be losing out on as much as $105 million in tax revenue annually by not legalizing Illinois online casinos. That’s just the beginning and is based on the 16% tax rate for online sports betting.

A slightly higher tax rate — say 20%, which isn’t unreasonable — would produce some $132 million annually in found money for state and local authorities.

And that’s just recapturing lost tax revenue. The state would also collect licensing fees.

Illinois currently licenses online sportsbooks at between $10 million and $20 million depending on the case. Let’s split the difference. There could be as many as 10 legal sportsbooks in Illinois soon. So, let’s also assume 10 is a reasonable number of online casino operators. And many of those operators would be the same ones offering legal sports betting in Illinois now and online casinos in other states.

Ten online casinos, licensed at $15 million apiece is another $150 million for state projects.

Counting taxes at 20% plus licensing fees means that in the first year that could translate into more than $283 million to improve life in Illinois.

Sure, that’s a lot less than VGTs bring in, but remember, the online casino would be in addition to VGT revenue.

Reason #4: With federal pandemic relief coming to an end, Illinois could use the money

Legalizing online casinos in Illinois is one way the state could help eliminate projected budget deficits after pandemic-era rescue funds run out.

Illinois is projected to post a $384 million deficit in 2025 that is expected to grow to $708 million by 2028. That’s according to Illinois Policy.

Without additional revenue, projections show Illinois will post a cumulative budget deficit of $2.3 billion from 2025 to 2028.

Propped up by American Rescue Plan Act, plus higher-than-expected revenue, Illinois is poised to post a budget surplus of $3.55 billion in 2023. In the fiscal year 2024, the emergency money will stop flowing and the total federal funds received by the state will decrease by $1.2 billion. Still, projections call for a budget surplus of $357 million in 2024.

After that, balancing the books will be more difficult without other revenue sources.

And raising taxes isn’t the answer.

Illinois already has the highest combined state and local taxes in the United States, according to Illinois Policy. Those taxes alone amount to more than 15% of household income annually.

Capturing a share of billions of dollars now being lost to illegal online gambling sites could help.

Reason #5: Funding for Governor Pritzker’s priorities

As it stands, the tax revenue from online sports betting is earmarked to the state’s Sports Wagering Fund. Money left over in that fund, after expenses, is transferred to the Capital Projects Fund that helps build and maintain infrastructure in Illinois.

Like most states, Illinois has some crumbling infrastructure. So, why not invest more in improvements? Governor J.B. Pritzker, now in his second term, already tackled infrastructure in his first term.

In 2019, he signed a $45 billion Rebuild Illinois infrastructure bill. It was the largest infrastructure improvement plan in Illinois history. It will improve roads, bridges, railways, universities, early childhood centers and state facilities. Sure, infrastructure is a constant need. It’s just not a funding priority so soon after Rebuild Illinois was signed.

But lawmakers could direct the tax revenue from online casinos to other priorities.

How about some of Pritzker’s priorities? Some of those include:

  1. Decreasing Illinois’ massive pension debt of $140 billion.
  2. Increasing funding for child care. Pritzker wants to make Illinois #1 in the US in child care access.
  3. Providing free in-state college education for lower income families.
  4. Continuing down the path of fiscal prudence. In fiscal year 2023, Pritzker has helped deliver Illinois’ first budget surplus in 22 years. But economic storm clouds are circling for an administration that prides itself on balancing the books.
  5. Attracting big employers to Illinois.

Reason #6: Online casinos are where the money is in the online space

Online casinos are much better at driving revenue than online sportsbooks.

Let’s take Ontario for example. In April of 2022, Ontario launched an open online gambling market that includes online casinos, sports betting, poker, bingo and even one betting exchange. To date, the province is home to 50 online gambling operators offering 80 separate gambling sites. And more operators are coming to market.

One of the main reasons there are so many operators is Ontario is the fact that online casinos are legal there. Sports betting offers lower margins and higher costs. Whereas online casinos have greater profitability and use the same technology from state to state.

Through Ontario’s first fiscal year (April 2022 – March 31, 2023), total taxes returned to the province from online gambling revenue was some $280 million. The tax rate is 20% in Ontario compared to 16% in Illinois for sports betting.

Of that $280 million, about 67% came from online casinos. And, the gap is growing between online casinos and sports betting and poker in Ontario. Also, remember, Ontario’s legal online gambling industry was in its infancy in the first year. It is growing rapidly.

In the first quarter of fiscal year 2023-24, 72% of the revenue in Ontario came from online casinos and 83% of the total handle came from online casinos.

In just the first quarter of 2023-24 alone,, Ontario tax revenue from all online gambling sources was $109 million. Even if that stays stagnant for the rest of the fiscal year, it will result in some $436 million tax revenue for the full fiscal year of an open online market.

Online casinos will contribute the vast majority of the total. There’s every reason to believe the same would be true in Illinois.

Reason #7: Online casinos are more accessible

Yes, Illinois is well covered by VGTs, but it’s simply not possible for them — or retail casinos — to be everywhere in the state.

Online casinos offer the convenience of being available in the palm of your hand, anywhere in the Land of Lincoln. Legalizing online casinos would allow access to those physically unable to go to a retail casino.

And we know how important smartphones are to younger consumers in their 20s and 30s.

Bringing online casinos to Illinois would be perfect for the younger generation as they’re already frequently on their phones. It’s far more likely a person in their 20s or 30s will play table games on their phone than it is for them to make the trek to a brick-and-mortar casino.

Also, as we pointed out above, online casinos augment, not cannibalize, retail casinos.

Today, most retail casino patrons are 40 or older. The people in that age range grew up in a time when casino gaming and sports betting was only available at retail locations. In 10 years, that demographic will grow older and likely spend less time in casinos. So, if online casinos are legalized in Illinois, it could expose a younger generation to the fun that can be had playing table games. Over time, some of those people will choose the social benefits of gambling in-person.

Yes, Illinois online casinos interests will have to appease the VGT lobby

There are around 44,000 VGTs in about 8,200 locations in Illinois. That’s a lot of small businesses. It also makes for a powerful lobby group.

Combined state and local tax revenue from VGTs has increased significantly in recent years. It has gone from $528 million in all of 2019 to $921.4 million in all of 2022. As of the June report, taxes of $493 million only half-way through the year have almost matched the taxes collected in all of 2019 and are on course to bring in just shy of $1 billion this year.

All this means the VGT industry likely will need to be appeased before online casinos can be legalized in Illinois.

But that doesn’t make the reasons why online casinos should be legalized any less compelling.

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Dave Briggs

Dave Briggs is a managing editor and writer for Catena Media. His expertise is covering the gambling industry in North America with an emphasis on the casino, sports betting, horse racing and poker sectors. He is currently reporting on the gaming industries in Illinois and Canada.

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