Illinois Considers Rolling the Dice on Owning a Casino

The clatter of tokens tumbling out of slot machines cuts through the smoky, neon-lit air of the Alton Belle Casino. Even on a weekday afternoon, the place is packed with people risking a few bucks in the nickel slots, or considerably more at the blackjack tables.

Illinois takes a hefty cut of the Alton Belle’s profits, nearly $32 million last year. Indeed, the state’s casino tax is the highest in the nation.

Gaming regulators are considering a proposal that could give Illinois an even bigger jackpot -- by letting the state own a casino.

Struggling with a $2-billion budget deficit, Gov. Rod Blagojevich has said he’s open to the concept of state-owned slot machines and roulette wheels. The Illinois Gaming Board will announce a preliminary decision Monday and make a final call in mid-March.

If the deal goes forward, Illinois would be the first state in the country to own a casino.

It may not be the last.

Kansas Gov. Kathleen Sebelius has proposed building at least three state-owned casinos. And several Minnesota legislators are pushing a similar proposal.

Some politicians like the idea because it cuts out the middleman: Instead of collecting 20% or 50% or even 70% of a casino’s winnings in taxes, the state gets to pocket every penny of profit.

But critics say it’s morally wrong for the state to own -- and woo gamblers to -- craps tables. They worry, too, about practical issues: Can the state be trusted to regulate its own gaming hall? Will it root out, and shut down, rigged games? Will state politicians pressure casino managers to give freebies to big campaign donors?

“It’s just a bad idea,” said Rick Kraut, 40, a machinist who was slipping into the Alton Belle on a frigid afternoon for the buffet lunch.

“Maybe the crooks will have to work a little harder to find politicians to grease if they’re not all working out of the same office.”

The proposal before the Illinois Gaming Board comes as the regulatory body prepares to auction off the rights to build a new casino, the state’s 10th.

Earlier this month, seven companies -- including big names in the gaming world, like Caesars and Harrah’s -- bid for the casino license. Six bids were straightforward development deals: Corporations said they’d put up $205 million to $375 million for the right to build a casino.

The final bid, from Penn National Gaming, had a twist.

The company, based in Wyomissing, Pa., offered $506 million for the license, way more than any other bidder. Then it pledged to build a world-class gaming complex near Chicago’s O’Hare Airport and sell it back to the state for $1. Under the terms of the proposal, the state would own the casino forever. But it would hire Penn National to run it for at least the next two decades, for a fee of about $50 million a year.

Penn National officials say the deal is good for them because it guarantees a steady cash flow with minimal risk. For instance, the state, not the company, would be responsible for paying off the estimated $700 million in loans required to construct the gaming center.

And the company could count on a generous management fee each year; its profit margin would not be at the mercy of legislative decisions to raise or lower casino taxes.

Penn National, which owns casinos and racetracks in seven states, touts the deal as good for Illinois as well.

Company lawyer Cezar Froelich estimates the state would reap nearly $300 million in annual profit, even after paying the management fee, debt service on the construction loan and other expenses. Froelich says that’s at least $60 million more than the state would collect in taxes on a privately owned casino.

Blagojevich, a Democrat, has suggested the proposal “is something that we seriously have to take a look at.” Many of the gamblers heading into the Alton Belle agreed. As long as the jackpots keep coming, they said, they don’t care who owns the slot machines.

“The idea doesn’t bother me at all,” said Lisa Mosley, 33, a telecommunications worker.

“I think it would be good, as long as the state took the money and used it for public schools,” said Oliver Piper, 80, who favors the $2 slots.

Outside analysts are more skeptical. Bill Thompson, a gambling expert at the University of Nevada at Las Vegas, says he can’t buy Penn National’s rosy win-win forecast.

“If it’s too sweet, it’s too sweet,” he said. “It’s not true. I don’t think the numbers are going to come out that favorable to the state.”

State-owned casinos are popular in Canada, the Netherlands, Austria, Germany, Italy and the Philippines. And in the U.S., Native American casinos are owned and operated by tribal governments. Bill Eadington, an economics professor at the University of Nevada at Reno, says the state-owned gambling halls he had studied around the world “run the full gamut of competence and corruption.”

All, however, share a common vulnerability: “There’s a perception of conflict of interest,” Eadington said. “The state is supposed to be protecting its citizens, but at the same time, it’s trying to extract money out of them [by exploiting] their weakness for gambling.”

He and others worry that the state could be vulnerable to lawsuits from citizens who blame the government for addicting them to gaming.

“Instead of the Land of Lincoln, we’ll be known as the Land of Dealers,” said the Rev. Tom Grey, who founded the National Coalition Against Legalized Gambling and now works out of Rockford, Ill. “This is a complete collapse of the state’s role in regulating gambling.”

Penn National officials respond that Illinois already promotes gambling through the state lottery. It already permits casinos to offer dozens of enticing games of chance. And it already counts heavily on gamblers’ lost millions to fund public services and balance the budget.

Said Eric Schippers, Penn National’s vice president of public affairs: “To say there’s a distinction between the state taking 70% of our profits in taxes and the state owning the business outright