… has got to be the fate of gaming expansion in Illinois, which has been close to the brink of passage many times before, most recently at the spring legislative session which ended in late May. There, a measure that would have included new casinos for Chicago and four other towns plus slot machines at race track gaming facilities around the state met the same disappointing fate as its predecessors.

 This bill, as well as the continued appetite for new gaming tax revenues, was addressed early last month at the inaugural Midwest Gaming Summit, a Casino Journal-produced event that took place at the Westin O’Hare in Rosemont, Ill. In a session entitled, “Midwest Gaming by the Numbers,” led by Alex Picou, managing director and senior banker, J.P. Morgan Private Banking, here’s what some of the leading financial analysts covering the sector had to say: 

• Dennis Farrell, senior casino debt analyst, Wells Fargo Securities: “One of the more important aspects is where do we go from here? Where do states looking for more tax revenue look and how do they compensate the existing operators? We’ve seen a lot of other states where there has been more competition on the come and there has been tax relief; Maryland is a good example. While you create job growth with new projects, if the tax rate stays the same and there’s cannibalization at existing operations, you’ll have job loss there. If you get the tax rate right you can grow the top line and preserve the bottom line for existing operators. There’s a lot still to come, especially here in Illinois. The gaming expansion is significant. But if they don’t compensate existing operators it could lead to a significant amount of job loss.

“I think the expansion in Illinois is too much based on what was proposed in this past session. If that passed down the road, getting financing is going to be a challenge. Rivers did very well when it opened, but it was also at the expense of a lot of other operators. As you start to add properties throughout the state and in downtown Chicago people will be skeptical and that will hamper what people can build in the state. You are not going to see $500 or $600 million projects here if the expansion is going to be that widespread and I’m not sure that’s what the state wants.”

• John Kempf, managing director, RBC Capital Markets: “Illinois has been successful in spite of itself. The regulatory uncertainty in the state has really kept the industry from being bigger than what it is. Most of these casinos have not done major expansions or done things to grow. The uncertainty of whether we’re going to have five new casinos including one in Chicago and more gaming positions at existing operations coming up every single year has really dampened investment in this market.

“The question in Illinois shouldn’t be how many more casinos do we need but how many more positions can we handle? Can we do this within the casinos that we have now? I’m not sure people in Illinois want to see casinos become like chain restaurants. Elgin was like Rivers is now. The numbers coming out of Elgin were fantastic, but because of the regulatory uncertainty and the 70 percent tax rates at the top end they didn’t invest in that property, so they were prone to losing a lot of that market share when Rivers came in.”

• Brian T. McGill, managing director, Casino Gaming & Lodging, Janney Montgomery Scott: “I don’t think anything is inevitable in Illinois with respect to gaming legislation over the last 10 years. In the Chicago metro-area you have 9.5 million people and a $2.5 billion market presently. You saw St. Louis earlier, which has 2 million people and it’s a $1 billion market, so how much money are they really leaving on the table here from a tax standpoint? You’re still limited to 1,200 positions. You see how successful Rivers can be in the right location with the right product. It’s hard not to see the Chicago market three or four times its current size if they wanted it to and to be a little bit more stable. The Chicago market could handle several new licenses given the depth and size of the market. “

• Matt Sodl, managing director, Innovation Capital: “There were two good things in the bill; there are pockets in the state that could use licenses. Danville is a great market opportunity with a broad range that it could pull from, particularly from Indiana, and getting the gamers who play over there. And Rockford’s another pretty good market. These are border markets that can help keep customers in the state as opposed to going across lines and spend those dollars elsewhere. Iowa has it right. When they look at expansion they ask, ‘is it a market growth opportunity or is it going to cannibalize existing properties.’