Chicago Casino Commies

Okay, I've reported on a lot of gambling battles across the country, but I've never seen one like this.

The week I arrive in Chicago, the mayor is talking about a new casino on the lakefront owned by the city, and the governor is talking about seizing all the existing casino licenses and having the government run the gambling joints. (This could, among other things, revolutionize the civil service system: "High- Roller Casino Host, Asian Marketing, Baccarat and Pai Gow, Grade 12B, Full Benefits.")

But Governor Rod Blagojevich is a reasonable man. If he's foiled in his effort to create his own chain of casinos overnight, by seizing the assets of seven public corporations, he says he'll settle for a mere 70 percent tax on the casino's gross. That would be all the casinos, past, present and future.

My question, to the several casino executives I spoke to, was basically, "Uh, what is going on here?"

"You mean Fidel?" said a casino head who shall remain nameless. "Are you talking about our governor, Fidel Blagojevich?"

No one wanted to talk about this on the record, but suffice it to say that the gaming industry, from Vegas to Wall Street, now regards Illinois as the first Communist jurisdiction. And the two most powerful politicians in the state--Blagojevich and Chicago Mayor Richard Daley--are discussed with the sort of acerbity normally reserved for Osama Bin Laden.

Actually, I can't remember a populist anti-corporation movement like this since the sixties. The rallying cry of politicians statewide is Tax 'Em, Hammer 'Em, Regulate 'Em and Seize 'Em. The New Deal lives! And these are some big publicly- traded Wall Street corporations, too--Harrah's, Argosy, Penn National--the kind of solid bottom-line employers that most communities would kill to have in their midst. There are parts of the country where companies this large are given moratoriums on taxes, just for showing up.

To give you an example, here's what Mayor Daley said recently to Fran Spielman of the Chicago Sun-Times: "The taxpayers of Illinois should own every gambling license right now. They should own it all and get all the profit. Hire someone to manage it. . . . Instead of giving the profit to the private sector, the state should take it. Simple as that. Very simple."

Well, uh, no. Not so simple. For one thing, how would a government-owned casino deal with the age-old problem of table- game volatility? There are days, weeks and even months when certain games lose money. Do you make an announcement that garbage collection will be suspended because a Hong Kong high- roller won $3.6 million at the baccarat table? Do you tighten the slots every time you need to build a new school? The competing casinos in northwest Indiana would love it, of course, because they could easily beat the odds, ride out the highs and lows, and drain off all the gamblers. Illinois would be left with the equivalent of the old sawdust joints on the Nevada-California state line, where only degenerates stopped to play.

Then there's the whole concept of the excise tax--the very institution that distinguishes a capitalist country from a socialist one. Socialist countries want to own industries, capitalists just tax them. If the government is going to take over casinos, then why not, say, amusement parks--basically the same economic principles are at work--or, for that matter, Baskin-Robbins franchises?

I don't know exactly what's happened in the last decade to make the Illinois casino companies so unpopular, because in many respects they've been poster boys for exactly what riverboat casinos were set up to do. In Joliet, for example, the two casinos--Harrah's and Empress--have turned a crime-ridden, grimly depressed, deteriorating city known only for its state prison, into a prosperous little suburban community with clean new streets and continually rising real estate values. In Aurora, the Hollywood Casino has turned the Paramount Theater across the street into a major performing arts destination and redeemed the city center. Everywhere you find them, the casinos support hospitals, Little League baseball teams, high school band trips. And a casino operation is so labor-intensive that they also tend to be the biggest employer in town.

That was, in fact, the original plan in Illinois. The whole idea was to award ten licenses to the most distressed communities in the state--some were more distressed than others, hence the awarding of two licenses in Joliet--and write the rules so that the casino was forced to plough money into urban redevelopment. (When the plan was first proposed in 1989, every county with a navigable lake or river was eligible to apply for a license, so Cook County could have sought one, too, but Mayor Daley said he didn't want gambling in Chicago.) And in every state that legalized gambling in the nineties, including Illinois, the original rationale was to have more money for education. You hardly even hear of that anymore. Far from earmarking the money for education, the philosophy now seems to be to just rake it into the general funds to battle deficits.

Still, Illinois has always gone its own way. There were always strange rules and high taxes here compared to the rest of the country. In Mississippi, for example, the philosophy was to tax low and let the market determine the number of casinos--and that state ended up with a very prosperous business based on a Nevada model. Illinois, on the other hand, started out with a 35 percent tax, highest in the nation, and set the exact number of licenses. They then created an approval process that's so byzantine that it took companies years and hundreds of millions of dollars to pass muster just for the license itself--before they had ever spent the first dollar on construction--with some strange results. For example, Jack Binion--who has thriving casinos in three other markets, and leads all three--was denied a license in Illinois and forced to sell the Empress, because he was deemed to have organized-crime ties. (The precise circumstances of the evidence are shadowy, involving a Mexican who gambled at the Horseshoe in Vegas and turned out to be a drug dealer, and it wasn't enough to bother Binion's licenses in four other states.)

Illinois also wrote into law all kinds of hindrances to the casino operator in order to create "limited gambling." You can only have 1200 gaming positions per casino, for example. (In other states, 2,000 positions is considered a small casino.) Until last year, your riverboat had to leave the dock and actually cruise--a major annoyance to customers who had to wait for the boat to return. Until very recently, the casino had to be an actual boat, not a barge, even if it never left the dock, making for cramped conditions.

All of these things are a pain to the operator, but they don't really limit gambling. The simplest way to limit gambling would have been to ban slot machines and allow table games only. But Illinois seems to love slot machines--so much so that various civic leaders have proposed putting them in O'Hare Airport. That would be pretty much a commitment to wide-open gambling, at least in a public-access sense. No one has to drive to the riverboat, but everyone has to walk through the airport.

Throughout this 10-year experiment in Illinois-style gambling, the state assessed the highest casino taxes in the country--topping out at 35 percent, compared to 6 percent in Nevada, 9 percent in Atlantic City, and around 20 percent in most other riverboat states. But that wasn't good enough. A year ago the Illinois legislature raised the tax from 35 to 50, pretty much slamming the door on any new development projects. (This tax, by the way, is on the gross, not on profits, and is in addition to a $3 "boarding fee" charged every time someone walks through the turnstiles.) The Wall Street analysts went crazy and basically advised any company against putting up hotels or other amenities in Illinois, right at the moment when the state had a chance to enter the big leagues.

Despite being a $2 billion market, the boats in Illinois don't really compare favorably to other states. They're crowded (because of the 1200 limit), most of them don't have any entertainment or hotels (if they do have hotels, they're tiny), and the high taxes means you don't get as much for your money if you gamble there. The only thing they have is easy access from major urban areas where people will put up with a certain level of hassle to be able to gamble at all.

The most desirable market is, of course, Chicago, which is why the most profitable casinos are scattered in neighboring suburbs like Aurora, Elgin and Joliet. There's one other license, originally assigned to Rosemont, that's been tied up in regulatory proceedings for years now. Its holders have been deemed unfit by the gaming commission (once again, mob ties is the charge), but they've been given a chance to sell it. A year ago MGM Mirage, largest casino company in the world, offered to pay $615 million for the license, but that offer was quickly withdrawn when the state tax rate went to 50 percent.

Now the situation is even worse for the suburban casinos. With Daley talking about a Chicago casino, with the horse racing tracks trying to get slot machines in Cook County, with the legislature disinclined to increase gaming position limits or lower taxes, the whole economic structure of the business could collapse. With Illinois constantly changing the rules, major investment plans have already stopped. And the Chicago Tribune recently called for an outright auction of all existing licenses, essentially going to a free-market open-gambling system.

"Those licenses," the Tribune editorialized, "thanks to the limited competition permitted by government, have made their owners rich."

Not really. Not compared to other states. But even if it were true, rich corporations used to be exactly what a city or state wanted. No one gets outraged in Washington state if Microsoft has a record year. Michigan doesn't get crotchety if Ford makes billions. It's only in Illinois that you have this "They're making too much money" thinking--when the system is already set up so that, the more money they make, the healthier the city, county and state budgets!

Everyone is waiting to see what happens next. It could be anything from years of litigation--by casino companies who believed they were buying a valuable license that turned out to be worthless--or some kind of cobbled-together compromise between the state, the city, the casinos, the horse racing tracks, and the cities in the rest of the state who feel like they've been left out of the gambling boom and now want part of the action.

One thing is certain, though. One interest group never represented in any meeting is the gambler himself. All he's expected to do is pony up.

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© Copyright 2003 United Press International and Joe Bob Briggs

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