Sports gambling, a multibillion-dollar industry that mostly relies on the black market, may soon go legit in Illinois.
Backed by Gov. J.B. Pritzker and a host of gambling interests, Illinois is looking to join New Jersey, Pennsylvania and a growing number of states to legalize sports betting, turning the widely practiced but illicit activity into a bounteous source of tax revenue.
Don't lose your bookie's number just yet, however. To get it done, lawmakers and businesses face a series of hurdles.
Illinois legislators, for one, need to figure out where sports betting should take place, how much to tax bettors and whether to limit it to bricks-and-mortar locations or allow more lucrative online betting as well.
No less challenging will be determining who gets a limited number of licenses, with businesses from casinos and racetracks to video gaming terminal operators already angling for a piece of the action.
"The big obstacle in many states, including Illinois: You have a wide array of stakeholders who want in on sports betting, but may have conflicting visions for how regulated sports betting might look," said Chris Grove, managing director of sports betting for Eilers & Krejcik Gaming, a California-based research and consulting firm.
Churchill's latest bet
Churchill Downs, the Louisville-based casino and racetrack owner, whose properties include Arlington International Racecourse in Arlington Heights, has more than a rooting interest in seeing Illinois legalize sports betting.
On Friday, the Illinois Gaming Board conditionally approved Churchill Downs' $407 million purchase of a 62 percent stake in Rivers Casino, with the transaction expected to close next week. Adding sports betting at the Des Plaines casino – the state's largest – would no doubt sweeten the deal for Churchill Downs.
"Legalized sports betting would certainly be beneficial to Rivers and something the customers would very much want," Churchill Downs CEO Bill Carstanjen said in an email.
The transaction met with some resistance from the gaming board over concerns that minority investment in the casino would fall from 17 percent to 3 percent. To get the deal done, Churchill Downs agreed to make a good faith effort to sell up to 10 percent of the equity value in Rivers – at the same price – to minority investors within 90 days. After that, the board will review their results.
"We just want to make sure there are really strong, good faith efforts to include this group," gaming board member Dee Robinson, who raised concerns about the sale, said at the meeting.
Grove said that if it is done right, Illinois sports betting could generate $762 million in annual wagers, tap into pent-up consumer demand and reverse declining revenues at the state's 10 riverboat casinos. Those revenues peaked in 2007 at $1.98 billion, before sliding 31 percent to $1.37 billion in 2018 as video gaming became more prevalent.
Early returns for sports betting in other states have been promising, with Grove projecting the legal sports betting market to top $1 billion in revenue quickly - perhaps as soon as this year - depending on how many states come online.
Getting in early
Legal sports betting is still a nascent industry in the U.S., available only in Nevada until a Supreme Court ruling last year struck down a 1992 federal law and opened it up to other states. New Jersey and Pennsylvania were among the first to create legislation and offer sports betting last year at casinos, racetracks and other locales.
Illinois is among more than a dozen states considering legalized sports betting, with Pritzker already counting on $200 million in revenue from the industry in next year's proposed budget. While no specific legislation has been introduced, the governor's plan calls for 20 licenses for in-person or online sports betting, sold for $10 million each.
"The governor looks forward to working with lawmakers to begin regulating sports betting, after the Supreme Court decision allowed other states to capitalize on what is currently happening on the black market," Pritzker spokeswoman Jordan Abudayyeh said in an email.
Rivers Casino in Des Plaines, the largest casino in Illinois, with gross receipts of $442 million in 2018, is all-in on adding sports betting.
"It's something we're certainly interested in doing in Illinois," said Greg Carlin, CEO of Midwest Gaming and its corporate parent, Rush Street Gaming, owners of Rivers Casino.
But any sports book would have to find accommodations at Rivers without displacing the more lucrative slot machines and other gambling positions, he said.
'Here in Illinois there are already capacity constraints," Carlin said. "We wouldn't want to reduce the number of gaming positions that we currently operate."
Already, Rush Street Gaming added sports betting in December at its Philadelphia and Pittsburgh casinos in temporary quarters. Carlin said the impact was immediate.
"In Pennsylvania it's been a positive for the overall business," Carlin said. "We've seen some new folks who haven't been to the casino. We've seen an increase in our food and beverage revenue, our slot revenue, our table revenue. Sports betting revenue isn't huge in itself, but as a package, it's been a positive."
Likewise, Churchill Downs saw a "nice uptick" at its Mississippi casino after launching its sports book there in August, Carstanjen said. Improved performance included direct sports betting revenue as well as increased foot traffic at table games and slots, he said.
Competing with bookies
Sports betting in the U.S. is already a multibillion-dollar industry, Grove said. Most of that betting is illegal, however, done through offshore online platforms such as Bovada, BookMaker and 5Dimes. Others prefer the old-school method, placing bets with their bookies.
Getting Illinois customers to switch to legal sports betting shouldn't be that hard, Grove said - if the state offers a reasonable tax rate and online platforms.
Online betting accounts for about two-thirds of sports wagering revenue in the states where it is allowed, Grove said. The mobile apps include geotracking that prevents wagering outside the state.
Grove said projected annual gross sports betting revenue in Illinois would drop from $762 million down to $333 million if online wagering was excluded.
"If available, Rivers would pursue the online product given the significant market access that product provides," Carstanjen said. "We view the online alternative as crucial to the success of the sports betting product long-term."
No less important is the tax structure, given that illegal sports betting is essentially tax-free.
The Illinois plan has penciled in a 20 percent tax rate on sports books' gross wagering revenue, which would generate an estimated $77 million to $136 million per year in tax revenue for the state.
"If the tax rate is too high, it will be tougher for regulated, licensed sports book operators to compete with some of these offshore sites that don't pay tax," Carlin said.
Online vs. bricks-and-mortar
State Rep. Mike Zalewski, a Riverside Democrat who heads the House Revenue Committee, is expected to help craft the state's proposed sports betting legislation, aiming at a May 31 deadline to get it to the governor's desk for a signature.
Zalewski said lower sports betting tax rates in New Jersey, which launched in June with an 8.5 percent tax on casino wagering and a 13 percent tax online, may offer an "instructive" guideline. He likewise favors a "healthy mix" of online and bricks-and-mortar platforms.
He said the odds of getting a sports betting bill passed in Illinois were "more likely than not."
While competing interests may present challenges, Grove also liked Illinois' chances to make sports betting legal.
"The demand is there," Grove said. "People would rather bet legally than illegally. As long as you have a reasonable tax and fee structure and you're allowing both retail and online, this should be a tough one to mess up."
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