No jackpot

Video gambling gets off to a slow start

GOVERNMENT | Bruce Rushton

The best way to curb gambling might be for the state of Illinois to legalize it.

The going has been slow since lawmakers more than three years ago approved video gambling outside casinos. Only last spring did the state gaming board start accepting applications from businesses, fraternal organizations and veterans groups for licenses to have video gambling on their premises. Fewer than 350 of those applications have been approved. The application backlog stands at more than 3,000.

State Rep. Rich Brauer, R-Springfield, blames the gaming board for delays.

“To me, it’s very frustrating that the state is so unorganized that a fairly basic bill takes over three years to implement,” said Brauer, who voted in favor of legalization.

It’s not necessarily the gaming board’s fault, according to Gene O’Shea, board spokesman.

A lawsuit challenging the constitutionality of the statute that legalized video gambling delayed implementation, O’Shea said. The legal challenge ended more than a year ago when the state Supreme Court upheld the law. In 2010, the gaming board reopened bidding for a statewide computer system to track wagering and money after an unsuccessful bidder argued that the bidding process had been botched. Gaming officials have also complained that lawmakers did not provide sufficient money for the gaming board to promptly license applicants and otherwise create a regulatory system.

Regardless, the gaming board, which began allowing gambling at a handful of locations this month as a test, says it’s now ready for the games to begin.

“As you probably all know, we are set to go,” gaming board chairman Aaron Jaffe said last week at the board’s monthly meeting. “If you’re ready to go, we’re ready to go.”

But video gambling riches are far from a sure bet.

Brauer and other lawmakers who voted in favor of video gambling say they were swayed in part by tens of thousands of illegal machines that were already being played throughout the state without the government collecting a percentage. If it’s already happening, legislators figured, the state should cash in.

Thanks to a five-machine limit per location contained in state law, fewer than 20,000 machines could be installed now if every location that has applied for a license gets one.

That’s far fewer than the estimated number of machines that existed three years ago when lawmakers legalized video gambling.

Furthermore, the law allows local governments to ban video gambling, and hundreds of municipalities and counties have done exactly that. As a result, state forecasters have dramatically reeled back initial projections that showed the state might collect more than a half-billion dollars a year from video gamblers.

Illegal machines disappear

When state lawmakers approved video gam bling, legislators counted on video gamblers to help fund a $31 billion capital budget earmarked for road improvements, repairs to bridges, updates to crumbling buildings and, this being Illinois, a fair number of grants to such favored private organizations as the Irish American Heritage Center in Chicago and VFW posts throughout the state.

Pro-gambling politicians had reason to be confident. Even before lawmakers legalized video gambling in 2009, illegal so-called gray machines had proliferated for years, mostly in bars. The “for amusement only” disclaimers on the devices that gobbled untold riches were, well, amusing, and everyone knew it.

Aside from annual license fees of $30 per machine, the state collected nothing from the devices that looked like electronic slot machines, worked like electronic slot machines, sounded like electronic slot machines and paid off, albeit under the table, like electronic slot machines. By some estimates, more than 20,000 such games were licensed in 2009 when the General Assembly voted to legalize the business and take a cut of profits, with the state collecting 25 percent and local governments getting an additional 5 percent. When unlicensed devices were considered, estimates ranged as high as 60,000 machines.

No longer. Check a dozen bars at random in Springfield and you’ll find more ashtrays, smoking ban notwithstanding, than video poker machines or any of the other so-called gray machines that once were as ubiquitous as beer on St. Patrick’s Day.

“They’re all gone,” says Mike Walton, a board member of American Legion Post 32 who acknowledges that the establishment on Sangamon Avenue was one of scores in Springfield that once offered video gambling without oversight from state gaming regulators.

Possession of so-called gray machines became a felony in mid-August, but numbers from the state Department of Revenue and the Springfield city clerk’s office show the decline began three years ago.

The number of amusement-device licenses issued in Springfield has dropped from more than 1,000 in 2010 to 815 this year, with those figures also including jukeboxes, video games such as Golden Tee and other gizmos that aren’t used for gambling. The state Department of Revenue issued more than 64,800 amusement-device licenses in 2010 and 62,200 in 2011. Fewer than 46,000 licenses have been issued for the current licensing year that began Aug. 1.

Sue Hofer, spokesman for the state Department of Revenue, says the state is still issuing licenses for “simulated gaming” devices that are perfectly legal so long as no jackpots are paid.

“It is up to the taxpayer to know whether their machines are in compliance with the new gaming law,” Hofer wrote in an email. “A number of taxpayers have indicated they have been getting rid of their simulated gaming machines over the past three years in anticipation of video gaming going online. This could be a potential cause of the decline in the number of decals issued.”

Fear of prosecution prompted bars to get rid of gray machines that paid jackpots, Walton and others say. But even before possession of such machines became a felony last month, the gaming board warned that it would be tough on establishments that have allowed illegal gambling.

“It’s my personal opinion that if you’re in the gambling racket today illegally, you shouldn’t be able to operate legally,” chairman Jaffe said in 2009. “It’s my feeling we should be as strict as we possibly can.”

Applicants for video gaming licenses must tell the board whether they have ever “facilitated, participated or enabled” the use of amusement devices for gambling. But after the board declared that it would ask applicants whether they had ever been involved with illegal gambling, the legislature passed a law in 2010 that defined “facilitated, participated or enabled” as having been convicted of a felony gambling offense, allowing applicants to answer “no” on licensing forms so long as they’d never been prosecuted and found guilty.

Jaffe has called the 2010 law a “disaster,” saying that lawmakers shouldn’t take power away from the board. Lawyers familiar with the statute say that the board can still consider past conduct, so the fate of applicants who have had gray machines but not been convicted of gambling offenses isn’t entirely clear.

The board has revoked at least one license for jumping the gun on legalization. The revocation came in April, after the board received a tip that AAA City Vendors Gaming owned by Loyal T. Sprague III was supplying gray machines to an American Legion post in Bartonville, near Peoria, that was paying jackpots. It shouldn’t have been a surprise.

In 2004, the Peoria Journal Star reported that Loyal T. Sprague, Jr., who had recently died from four gunshots to his belly, had been a heavy gambler whose company, City Vendors Amusement, supplied games to bars. Police reportedly found $80,000 in cash in Sprague’s home, the newspaper reported, and those who knew him said that he held gambling parties at his home and would bet as much as $10,000 on the flip of a coin. The county sheriff called him “an interesting dude” who always tried to help people.

The bar game business ran in the family:

Sprague had inherited it from his father, according to the Journal Star report, and Loyal T. Sprague III, Sprague’s son, was also involved in the enterprise. In 2010, one year after state lawmakers legalized video gambling, the son incorporated AAA City Vendors Amusement and got a license from the state.

When the board unanimously voted to revoke the company’s license in April, Jaffe said that regulators do their best when vetting applicants, but success isn’t guaranteed.

“It’s also clear to me that illegal activity in this industry does not exist in a vacuum,” Jaffe said. “The bar owners know this is occurring, the bartenders know that illegal payments are being handed out, the bar patrons and gamblers know this is happening and, most distressing of all, many local law enforcement officials have turned a blind eye to this crime for decades.”

An application from the Bartonville American Legion post where AAA City Vendors Amusement had installed machines is pending at the gaming board. Opinions vary on whether the state should grant it.

Christopher Stone, a Springfield lobbyist who is seeking a license for a string of planned businesses that will feature video gaming, says no. The gaming board, he said, should be “fair and consistent:” If a supplier of gray machines isn’t allowed to operate, then the bar where the machines were paying out shouldn’t be allowed to get a license, either.

“You need two to tango, right?” Stone says.

“If they’re consistent with their policy, the American Legion doesn’t get one.”

A manager at the Bartonville American Legion post said that the post hasn’t heard from regulators since submitting a license application about two months ago. Gaming board officials visited the post last spring and demanded that gray machines be removed, the manager said.

“Yes, we are concerned,” said the manager, who requested that his name not be published for fear of running afoul of regulators. “We’ll just have to see what happens.”

But Walton, who works for the Sangamon County sheriff’s office and was once Springfield’s police chief, said that he’s not worried about the gaming board rejecting an application from his legion post because the organization once had gray machines.

“If they did that, probably 90 percent of the applicants wouldn’t get one (a license),” Walton said.

Few licenses granted

So far, the American Legion post on Sangamon Avenue is losing when it comes to legalized video gambling.

Walton says the post, which has not yet been awarded a license so gambling can begin, has spent as much as $4,000 on lawyers, licensing fees, fingerprinting and electricians to wire the building for new machines. When gambling does start, Walton doesn’t expect to make as much money as in the past. The gov ernment, he points out, is going to take a 30 percent cut.

The state, meanwhile, is expecting a much smaller windfall than originally envisioned. Since the General Assembly legalized video gambling, forecasters have been reeling back revenue projections that are now a fraction of what lawmakers were told when they voted to legalize.

In 2009, the state predicted that its cut from video gambling would total between $288 million and $534 million. The state Commission on Government Forecasting and Accountability last year slashed that estimate, predicting that video gambling will raise between $184 million and $341.2 million a year. The commission recently cut its prediction even further in a yetunpublished report, saying that video gambling will raise between $105.6 million and $196.2 million in annual revenues.

Municipalities and counties can ban video gaming, and COGFA’s forecast has shrunk because more than 300 communities, including Chicago, have done exactly that, says Eric Noggle, senior analyst for the commission. More than 63 percent of the state’s population lives in jurisdictions that don’t allow video gambling, he said.

The commission’s forecast, based on the state receiving between $70 and $90 from each machine each day, is conservative, Noggle says. While COGFA has said that predicting revenue from video gambling is “challenging,” Noggle said he doubts that there will be as many legal machines as there were illegal ones during unregulated days when bars weren’t bound by a five-machine-per-location limit now contained in state law.

“We all know a lot of this has been going on illegally for many years,” Noggle said. “I’d be surprised if we actually reached the saturation point of where it was before.”

In Sangamon County, 84 bars, restaurants and other businesses have applied for licenses to conduct on-premises video gambling, according to the most recent figures available from the state gaming board, which has granted just one license in the county, and not to a usual suspect.

With hardwood floors, Perrier Jouet champagne and single-malt Scotches costing more than $150 a bottle, It’s All About Wine on Wabash Avenue in Jerome isn’t exactly a beerand-a-shot bar, but it is the first business in the county to win the right to offer video gambling to patrons. Joe Volenec, co-owner, calls it an experiment. He figures his customers might enjoy electronic games of chance as they sip high-end chardonnays.

“I’m not in the gambling business, I’m in the wine business,” Volenec said. “I don’t see a downside to it. Let’s see what happens.”

The Abraham Lincoln Capital Airport is also hoping to cash in.

“We’ve kind of had this on our radar screen as an additional revenue stream for some time,” says airport executive director Mark Hanna. “Looking at where this is going, it could be a very popular form of entertainment.”

More than a half-dozen truck stops in Sangamon County have applied for video gambling licenses. But fears of video poker on every street corner are not coming true.

Bars and restaurants that pour alcohol are eligible to apply for video gambling licenses, but fewer than 70 of more than 220 establishments with licenses to pour alcohol in Springfield have applied. What the future might hold is anybody’s guess.

Paul Jenson, a Chicago attorney who represents businesses involved with video gambling, predicts an uptick in license applications once video gambling starts in earnest.

“I think, eventually, these establishments will apply (for licenses),” Jenson said. “I think, frankly, a lot of them don’t think it’s reality. … Is the roll-out going to be a little slower than we thought a year or two ago? Probably.”

Stone, the Springfield lobbyist, estimated that between 10 and 20 percent of bars won’t be able to get licenses for reasons ranging from inability to pass background checks to delinquent taxes. State law also gives the gaming board the authority to deny a license if it feels that permitting machines would result in an “undue concentration” of gambling devices in a geographic area.

But plenty of people, including Stone, see opportunity.

Stone is the public face of Lucy’s Place, a partnership that plans on opening video gambling parlors in Springfield and several other cities in central and downstate Illinois. The company has yet to apply for gambling licenses in Springfield, where it has liquor licenses for two yet-unopened locations, but it has applied for 10 licenses in such towns as Litchfield, Wood River and Columbia.

“I don’t think we’re going to rule out any communities if they decide they would like to do it,” Stone said.

Stone is aiming for gamblers who appreciate the quietness afforded by establishments that resemble coffeehouses more than bars or taverns. Under state law, establishments must prohibit anyone younger than 21 from gambling, and Lucy’s Place will take care of that by barring minors and checking driver’s licenses when people enter. While cocktails might eventually be offered, beer and wine will come first. Lottery sales are planned, as is food service. True couch potatoes can drop by and just watch television.

It is the sort of enterprise that worries Anita Bedell, executive director of Illinois Church Action on Alcohol and Addiction Problems, which has long opposed all forms of gambling in the state. The disappearance of video gambling devices since possession of gray machines became a felony is the proverbial calm before the storm, Bedell says.

“As soon as it (legal video gambling) starts, it could mushroom,” Bedell says. “I’ve read reports that said it could go up to 75,000 (machines). It’s going to increase crime. It’s South Carolina had one machine for every 100 residents, and the number of Gamblers Anonymous groups grew in direct proportion.

Proponents of video gambling say that the law in Illinois that limits the number of machines per location and doesn’t allow machines in places other than truck stops, fraternal organizations, veterans groups and businesses that pour alcohol, was written with an eye toward problems in Iowa and South Carolina that resulted in bans.

“We’re not throwing it in everywhere,” says going to increase addiction. … Does Springfield really want to become another Las Vegas?” Bedell points to South Carolina and Iowa, which both banned video gambling outside casinos after forays into legalization.

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“I think it’s something that goes on today that has gone on forever, and so I think it’s really silly for these establishments to be operating illegally when they actually want to operate legally, which increases revenue to the state.”

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Just four years after allowing video gambling, Iowa lawmakers in 2006 banned machines that had been installed by the thousands in grocery stores, gas stations and other businesses frequented by kids. After 14 years of legal video gambling, South Carolina banned video poker in 2000. The machines had become ubiquitous – by some estimates Rich Mitchell, director of the Illinois Coin Machine Operators Association, which lobbied more than two decades for legalization.

And gambling in Illinois is hardly new. “People have been gaming in this state for the last 80 years illegally,” Stone says. “You can’t regulate and mandate choice. To legalize and to regulate it, that’s a good thing. To actually have transparency on this is a great thing.”

State needs revenue Mitchell says his group wants video gambling to start as soon as possible, but he believes that the gaming board is doing the best it can.

“They’ve just absolutely got their hands full,” Mitchell said. “Member operators have their hands full. I would say the roll-out is going to take three years to complete.”

O’Shea, the gaming board spokesman, said part of the delay is due to would-be licensees not filling out paperwork properly. The board conducts background checks on every applicant, and multiple ownership of entities seeking licenses can complicate the process, he said.

“A lot of the applications we’re getting are incomplete,” O’Shea said. “Our licensing analysts have to go back to the locations and straighten things out. It’s proven to be time consuming.”

Rep. Brauer predicts that there will eventually be the same amount of video gambling as there was in the days of gray machines. He said he would prefer that video gambling not exist, but that’s not realistic.

“I think it’s something that goes on today that has gone on forever, and so I think it’s really silly for these establishments to be operating illegally when they actually want to operate legally, which increases revenue to the state,” Brauer said.

Sen. Larry Bomke, R-Springfield, who also voted for legalization, said that a progambling vote is a tough one in the Springfield area, which has a conservative bent. Like Brauer, Bomke said that his support was pragmatic.

“The state needs the revenue,” Bomke said. “It just seemed to me that they’re (machines are) already there. We ought to be taking advantage of them.”

Bomke said he’s heard from fraternal organizations concerned that they will not make as much money as in the past due to the five-machine limit. He said he’s upset with municipalities that have enacted video gambling bans even while standing to benefit from public-works projects funded in part by gambling proceeds. And he expected the state to reap financial rewards far sooner than it has.

“The anticipation was, it would be up and running within a year,” Bomke said. “Obviously, that has not occurred.”

Contact Bruce Rushton at [email protected].