Unpacking Pritzker's Tax Proposals: Gambling

Mar 6, 2019

Illinois Gov. J.B. Pritzker last month laid out his plan for a state budget.  But the Democratic governor is perhaps being too optimistic, counting on proposals for tax revenue sources that still need to be negotiated. One of those is the expansion of gambling and raking in the money from taxing and further regulating it. 

Less than a year after the U.S. Supreme Court allowed sports gambling outside of Nevada, eight states have jumped in on the opportunity to regulate and tax it. According to the American Gaming Association, at least 22 other states, including Illinois, have filed or will file legislation to do the same.

Pritzker has included sports gambling licensing fees to go toward what the administration calls "essential services". He is counting on $200 million from 20 licenses at $10 million each, with an annual renewal fee of $5,000. Wagers would also be taxed. But lawmakers have yet to settle on a bill they and other stakeholders, like the casino and video gaming industries, can get behind. 

And he’s not stopping there. His budget proposal also counts on $89 million dollars generated from a higher tax on video gaming. For years, the industry hasn’t supported higher taxes.  

To get the money, Pritzker’s administration will need a sports betting program up and running by the start of FY20 and video gaming stakeholders would have to approve a higher tax. 

There are are still many details to sort out—like the framework of a sports betting program, how technology can be deployed to make a seamless transition, and who gets to tap into the tax revenues. 

Casey Clark, vice president of strategic communications for the American Gaming Association, said states have used a mixture of in-person, online and mobile betting in their programs. He said there isn’t one perfect framework.

“It’s a case of each state and each jurisdiction having its own unique perspective on how this rolls out. There's not really a one size fits all approach here,” he said. 

State Rep. Mike Zalewski, a Chicago Democrat, plans to file language to a sports betting proposal as early as this month. He said he’s not ruling out a brick-and-mortar, online and mobile betting approach. 

Clark said whatever approach each state decides to take, it should be a market that’s able to compete with the illegal one that’s been around for many years. 

“We're starting at the premise of—how do we give people a legal alternative and bring this betting out of the shadows and into a legal framework where the right kind of protections are in place for consumers to do this responsibly?” he said. 

There’s also the question of who gets to take part in sports betting. In Illinois—as in many other states—the casino and video gaming industries want a piece. 

Tom Swoik is the executive director of the Illinois Casino Gaming Association, which represents nine out of the 10 operating casinos in the state. He said integrating sports betting with casinos is ideal to help the industry grow. This is in contrast with adding more casinos to the mix, which the association has long opposed.

“Sports betting and online gaming are two new areas that haven’t been tapped," said Swoik. "And it’s a different clientele to some extent, and we believe that that’s the only way we can generate some new revenue for the state.”

The video gaming industry feels the same way. Ivan Fernandez, executive director for the Illinois Gaming Machine Operators, said he sees an expansion that offers sports betting through the video gaming retail locations. 

“We see it as an opportunity to raise more revenues for everyone, including our 7,000 local retail partners,” he said. 

But Pritzker's current sports betting plan takes into consideration only 20 licenses. Fernandez said he hopes that number can increase to give video gaming retail partners an opportunity to apply. 

And as for a higher tax on video gaming, Fernandez said that idea could hurt the industry. “It’s definitely going to have a negative impact, especially on the locations that we do business with. And the ones that are on the 20 to 25% at the bottom would definitely be in jeopardy,” he said. 

Fernandez said the group hasn't had the opportunity to sit down with the Pritzker administration to discuss the different viewpoints. But he said the group has its own proposals that would avoid implementing higher taxes altogether and bring in more revenue than what Pritzker has proposed.