Video gaming terminals (VGTs) generated $71.9 million in Illinois state and local tax revenue in September, a number consistent with previous months.
For online casino proponents in Illinois, VGTs are the biggest obstacle. IL has the largest VGT industry in the country, and it is a consistent and gaudy revenue driver for the state government. And simply put, certain lawmakers don’t want to mess with that success.
State Sen. Dave Syverson told PlayIllinois this summer:
“There’s only so much disposable gaming dollars. I can tell you, a lot of restaurants and bars and VFWs in Illinois are only staying open because they’ve got the video gaming revenue to keep them sustainable. If, all of a sudden, that gaming revenue were to decrease, it would have a big devastation.”
There is fear in the VGT industry that online casinos would cannibalize the market. The previous worry was that the brick-and-mortar casino industry would oppose online gaming expansion, but for the most part, land-based casinos are on board.
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In July, the Illinois Senate released a report examining online casinos from many angles. Among them is whether gaming cannibalization is real.
A snippet from Page 22 of the report reads:
“As history has shown, the creation of new gambling, whether it be in the form of a new casino or the implementation of video gaming terminals throughout the state, will likely cause a decline in revenues at existing gaming locations. While online gaming may bring in some new gamblers and dollars to the State, it is likely that a significant portion of these internet gaming revenues would come from existing gaming areas.”
Report authors also estimated how much revenue online casino games could have generated throughout 16 months of the pandemic.
As far as state and local taxes go, it’s minimal compared to VGTs.
How much tax revenue could online casinos produce in Illinois?
Report authors estimated that Illinois online casino gaming could have generated anywhere between $622.4 million and $1.249 billion for operators during the 16-month period beginning on Feb. 28, 2020.
From there, it would depend on how much the revenue is taxed. Given the bills we’ve seen, proposed tax rates are somewhere in the teens.
Thus, here’s how much tax revenue the report projected over the 16-month stretch:
- 12%: Between $75 million-$150 million
- 15%: Between $93 million-$187 million
- 16%: Between $100 million-$200 million
- 15% on the first $25 million and 20% on the rest: Between $105 million-$230 million
Let’s say we remove the “and local” from the September VGT tax revenue report. VGTs still generated $61.3 million in July state tax revenue for Illinois.
Even given the highest tax rates for online casino, it would take VGTs about four months to produce the same state tax revenue that authors projected for online casinos over 16 months.
Could VGTs and online casino coexist?
Even if online casinos wouldn’t overtake VGTs as a revenue driver for the state, it doesn’t mean each can’t thrive. In theory, even if online casinos slice into VGT revenue, adding another stream would just generate even more gaming tax dollars for the state.
With that said, adding online casino to a robust VGT market like this one would be unprecedented. That’s because Illinois easily has the largest VGT industry in the US.
There’s not a great comparison for any other state. Take Pennsylvania, for instance, which has a healthy online casino market and also has VGTs.
VGTs produced just $3.6 million in overall revenue — not tax revenue — in August. There are only hundreds of legal machines in Pennsylvania; Illinois has tens of thousands.
With the lack of precedent, passing online casino legislation would take a leap of faith from Illinois lawmakers. Our sister site, Online Poker Report, reported that online casino legislation likely wouldn’t be heard during the ongoing veto session.
We’ll hear more about it in January, but will online casino in Illinois gain serious traction? Proponents hope so, but it’s going to be hard to overcome VGTs next year and beyond.
