VGT Industry Is Booming, Which Could Bust Illinois Online Casino Prospects

In September, Video Gaming Terminals (VGTs) produced $71.9 million in tax revenue for state and local governments in Illinois, a figure in line with past months.

In Illinois, proponents of online casinos see Video Gaming Terminals (VGTs) as their main hurdle. Illinois has the largest VGT industry in the nation, routinely providing a substantial and flashy source of revenue for the state administration. Simply stated, some lawmakers are reluctant to tamper with this successful formula.

During the summer, State Sen. Dave Syverson communicated with Play Illinois, stating:

“Disposable gaming income is limited. Many restaurants, bars, and VFWs in Illinois rely heavily on revenue from video gaming to remain operational. If that source of income were to dwindle suddenly, it would result in significant damage.”

The VGT industry is apprehensive that online casinos may erode their market. Previously, the concern was the opposition from the traditional casino industry towards expanding online gaming. However, it appears that most land-based casinos are now supportive of this move.

Who Supports and Opposes the Most Significant Gaming Proposals in Illinois?

In July, a report scrutinizing various aspects of online casinos was released by the Illinois Senate. One of the key areas of investigation was the validity of gaming cannibalization.

The report includes the following excerpt on Page 22:

History demonstrates that the establishment of new gambling outlets, such as a fresh casino or video gaming terminals spread across the state, tends to result in a drop in revenue for pre-existing gaming venues. Although online gaming may attract new gamblers and boost the State’s income, it’s probable that a substantial chunk of these internet gaming revenues would be sourced from the current gaming zones.

The authors of the report also calculated the potential revenue that online casino games could have generated over the 16-month period of the pandemic.

When it comes to state and local taxes, they are minimal compared to VGTs.

How much tax revenue could online casinos produce in Illinois?

The authors of the report estimated that between $622.4 million and $1.249 billion could have been generated by online casino gaming in Illinois for operators during the 16-month period starting from February 28, 2020.

It would then hinge on the tax rate applied to the revenue. Considering the bills we’ve observed, the suggested tax rates are roughly in the teens.

So, this is the projected tax revenue over the 16-month period according to the report:

• Between $75 million and $150 million: 12%
• Between $93 million and $187 million: 15%
• Between $100 million and $200 million: 16%
• A tax rate of 15% applies to the first $25 million, while a rate of 20% is applied to the remaining amount for earnings between $105 million-$230 million.

If we omit the “and local” from the September VGT tax revenue report, VGTs still produced $61.3 million in state tax revenue for Illinois in July.

Despite the high tax rates for online casinos, VGTs would require approximately four months to generate the same state tax revenue that is anticipated for online casinos over a period of 16 months.

Could VGTs and online casino coexist?

Even though online casinos may not surpass VGTs as a source of revenue for the state, it doesn’t imply that both cannot prosper. Hypothetically, despite online casinos potentially cutting into VGT revenue, the introduction of an additional revenue stream could simply produce more gaming tax dollars for the state.

That being said, incorporating online casinos into a robust VGT market like this one would be a first. This is largely due to Illinois having the biggest VGT industry in the US.

No other state can be accurately compared to this. Consider Pennsylvania, for example, that not only has a thriving online casino market but also has VGTs.

In August, VGTs generated a total revenue of $3.6 million, not including tax revenue. While there are merely hundreds of legally operating machines in Pennsylvania, Illinois boasts tens of thousands.

Passing online casino legislation would require a leap of faith from Illinois lawmakers, given the absence of any precedent. Our affiliate site, Online Poker Report, has reported that it’s unlikely online casino legislation will be discussed in the current veto session.

In January, we will receive more information about this, but will the online casino in Illinois truly take off? Supporters certainly hope it will, however, it may be challenging to surpass Video Gaming Terminals (VGTs) in the coming year and beyond.