SPRINGFIELD — Gov. J.B. Pritzker is counting on $200 million in licensing fees from legalized sports wagering to help plug a $3.2 billion hole in next year's state budget.
But years of failed efforts to expand gambling in Illinois suggest his plan is no sure thing.
In his first budget address Wednesday, the new Democratic governor acknowledged the issue's history, calling on lawmakers to set aside the squabbles over new casinos and expanded betting options at horse tracks that have derailed previous gambling expansion measures, and pass a stand-alone bill to legalize wagering on sporting events. If lawmakers act quickly, Illinois could be the first Midwestern state to do so after a U.S. Supreme Court ruling last year overturned a prohibition on state-sanctioned sports betting.
"Expansion of gambling is a perennial effort in this state, and often these proposals get bogged down in regional disputes and a Christmas tree approach," Pritzker said in his speech to a joint session of the Illinois House and Senate. "But in those instances, we were talking about adding more riverboats or adding into other regions.
"Sports betting is different. This is a new market created by a recent U.S. Supreme Court decision. Every day we argue about who's in and who's out is money that goes to other states and to the black market."
Despite the governor's words, casinos, horse tracks and video gambling terminal operators already are lining up for a piece of the action -- and hiring well-connected lobbyists to make their cases to lawmakers. Professional sports leagues and players unions also have a stake.
Lawmakers have been attempting to expand gambling in Illinois for much of the past decade. Former Gov. Pat Quinn vetoed two measures that would have created licenses for new casinos in Chicago, the suburbs and downstate, and allowed slot machines at horse tracks, saying they contained "loopholes for mobsters." More recently, negotiations have broken down because legislators haven't been able to reach a compromise among the competing interests of casinos, racetracks and daily fantasy sports websites.
"The history is that it's hard to keep these (gambling bills) clean," said Kent Redfield, an emeritus professor of political science at the University of Illinois at Springfield. "But the history is also that, more often than not, when they become a Christmas tree, they collapse under their own weight."
The state's last major gambling expansion was approved in 2009, when Quinn signed a bill authorizing video gambling at bars, restaurants and other liquor-serving establishments. Due to a series of technical and regulatory challenges, it took more than three years for betting machines to go live. When video gambling was approved, lawmakers estimated it would generate $300 million to $750 million in state revenue annually. Revenue didn't surpass the low-end estimate until last year, when the state brought in $347.2 million.
Pritzker's proposal has yet to be put into bill form, but the governor's budget plan calls for creating 20 licenses for in-person or online sports betting that the state would sell for $10 million apiece. That would allow the state to rake in $200 million upfront for the budget year that begins July 1. To help recoup some of the cost, the companies granted licenses would be able to deduct up to $1.8 million from what they owe in sports wagering taxes for the first five years. Operators also would pay a $5,000 annual renewal fee.
The governor's plan calls for a 20 percent tax on sportsbooks' gross wagering revenue, which the administration estimates would generate $77 million to $136 million per year. Because it will take time to establish regulations and review license applications, the budget plan is only counting on $17 million in tax revenue from bets, of which $5 million would be devoted to administering the program.
Who would be eligible for a license remains open for negotiation, Pritzker spokeswoman Jordan Abudayyeh said.
If the state creates 20 licenses as the governor has proposed, each of Illinois' 10 casinos and three horse tracks could be licensed to take bets on sporting events. Video gaming terminal operators, existing sportsbooks in other states and sports teams also could vie for licenses.
The Illinois Casino Gaming Association, which represents nine of the state's casinos, has opposed the creation of licenses for new casinos in Chicago and elsewhere, and fought against allowing slot machines at racetracks. But the association want to see sports betting legalized -- if members get a piece of the action.
"My members are in favor of sports betting as long as the casinos can participate in it," said Tom Swoik, the association's executive director. "We think that it's one of the few markets left out there where expansion will help the industry and help the state, as opposed to additional casinos or slots at racetracks. That's just going to shift money around."
Swoik said he would like to see the legislature deal with sports betting separately from other gambling-related issues.
"It wouldn't bother us if it was part of a package deal, but on the other hand, we'd just as soon see sports betting separate with the potential of having internet sports wagering as part of that platform," he said.
One of the biggest questions is whether video gambling establishments would be allowed to offer sports betting. Since gambling terminals went live in bars and restaurants in late 2012, machines have been installed at nearly 7,000 locations, and increased revenues from video gambling have helped offset stagnant state revenues from casinos and horse racing.
Ivan Fernandez, executive director of the Illinois Gaming Machine Operators Association, said his organization's members -- which own and operate the gambling terminals in bars, restaurants and betting parlors -- should be allowed to offer sports betting. It's unlikely that would be possible if lawmakers go along with Pritzker's proposal to create 20 licenses.
"We would hope ... as terminal operators that we would be eligible to obtain a license and then be able to offer sports betting at our customers' locations," Fernandez said.
The association also would like to see online or app-based sports betting restricted by geographic location so that gamblers would only be able to place bets on their laptops or smartphones within the confines of licensed establishments, he said.
But allowing sports betting at any business that has video gambling terminals raises concerns about oversaturation of the market. State Rep. Mike Zalewski, a Riverside Democrat who chairs the House Revenue Committee and serves as point man on sports betting legislation, said policymakers need to find a middle ground.
"We have to balance the amount of people interested in offering it versus concerns about oversaturation, and that's a very tricky balance," Zalewski said.
"It would be really early in the process to say, 'Yes, a hundred percent, we can do whatever the stakeholders want,' or 'No, there's no way we would allow any of these different interests to get what they want,' " he added.
Zalewski said he plans to file a bill by mid-March that would serve as a starting point for negotiations.
While Pritzker has put down "a reasonable marker" for what he'd like to see, "I do get the sense he's very willing to let us try to work it out for him and try to get to a place where we're comfortable and he's comfortable and we can get a bill on his desk," Zalewski said.
Lawmakers have an incentive to act quickly on sports betting. The more than $200 million in revenue Pritzker is banking on is a key piece of his plan to patch the state's budget hole while he pushes for an amendment to the Illinois Constitution that would allow for a graduated income tax, under which higher earners would pay a higher rate. That can't go on the ballot for voter approval until November 2020 at the earliest.
Meanwhile, Illinois also has the opportunity to be the first state in the Midwest to legalize gambling on sports after a U.S. Supreme Court ruling last year overturned a prohibition.
Seven states --Delaware, Mississippi, Nevada, New Jersey, Pennsylvania, Rhode Island and West Virginia -- currently have legal sports betting, and it's also allowed at tribal casinos in New Mexico, according to the National Conference of State Legislatures. New York and Arkansas have passed laws allowing it, but casinos aren't yet taking wagers. Illinois and 20 other states -- including Indiana, Iowa, Michigan, Missouri and Kentucky -- currently are considering legislation that would make it legal.
"Illinois could be the first state in the Midwest to seize on this opportunity, which of course could bring bettors in from neighboring states," said Frank Manzo, policy director at the Illinois Economic Policy Institute, a nonpartisan think tank with ties to organized labor and the construction industry.
The state would create the greatest number of jobs and bring in the most revenue by not placing overly restrictive limits on the number of available licenses, Manzo said.
For his part, Pritzker is optimistic that lawmakers will be able to deliver a sports betting bill to his desk this spring without it getting bogged down in other gambling issues.
"I believe we can get it done relatively quickly," the governor said Thursday at an unrelated event.
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