Bringing A Casino To Chicago Won't Mean Easy Money

The city of Chicago faces a $1.2B budget deficit, and with the possibility of getting federal stimulus dollars in 2021 looking slim, the Lightfoot administration is casting about for new sources of revenue. The state Legislature’s 2019 decision to expand Illinois gambling could provide the cash-strapped city a lifeline, and the mayor just began the process to finally establish a Chicago casino.

Before the city starts getting its share of gamblers’ losses, the mayor and her planning team need to decide where to place a gaming operation. Lightfoot has spoken of using a new casino as a way of pushing economic development in a deprived portion of the city, and that’s won her allies on City Council.

“I am behind building it with union labor and getting good-paying jobs for our ward,” 10th Ward Alderman Susan Sadlowski Garza said.

Others say the entire strategy is flawed and that a casino is unlikely to spur ancillary development or solve budget shortfalls.

Neighborhood developers have proposed planting a casino in Garza’s Far Southeast Side area, as one part of a resort-style development that would include a hotel, a golf course and other tourist attractions.

“There is no other place in Chicago that would offer these amenities,” she added. “It would not just be a casino, but a destination, and it would really transform the neighborhood. So, for me, it’s a no-brainer.”   

Garza said she’s tired of watching gamblers cross into Indiana and lose money at the Horseshoe Hammond casino, a 400K SF gaming center that opened in 1996.

“I can walk to the Horseshoe casino from my ward office, and we’re losing money every time someone goes over there,” she said.

But experts say attracting gamblers rarely drives wider economic development, as few ever leave the casino to patronize other businesses, and many won’t want to trek to an outlying location. That doesn’t mean a downtown casino is the answer either, as the Central Business District may not provide the space and parking needed. And the track record of casinos around the nation shows the dream of filling city coffers with money from tourists and convention-goers is unlikely, even with a downtown location.

That means the Lightfoot administration will have a very difficult needle to thread if it wants to get a casino up and running. The future shape of a casino will greatly depend on what developers propose, but before that happens, the mayor will need to decide if the goal is to maximize revenue and help fill budget holes or to pursue a neighborhood development strategy even if it ultimately means less revenue.  

In August, the city asked potential developers to submit information by October about how they might create a Chicago casino. Eleven groups responded, including Chicago Neighborhood Initiatives, Christiansen Capital Advisors, DL3 Realty, Hard Rock International, MGM Resorts International, MGM Growth Properties, R2 Cos., Wynn Resorts and Rush Street and its partner Related Midwest, the developer of The 78, a 62-acre mixed-use community just southwest of downtown.

So far, city officials aren’t saying much, other than giving out the list of names. Most of the respondents also won’t answer questions about what they propose.

“In an effort to move one step closer to making the Chicago casino a reality, the City released a Request for Information soliciting ideas and input from experienced casino-industry participants related to the development of the first-ever Chicago casino,” a mayoral spokesperson told Bisnow in a written statement. “We look forward to reviewing the responses and working towards this critical effort to shore up our city’s police and fire pension funds, as well as generating infrastructure funding and creating new jobs all across Illinois.”

“The formal Request for Proposal process may begin as early as first half of next year, dependent upon COVID-19 developments and the state of the capital markets,” the spokesperson added.

Chicago Neighborhood Initiatives, a nonprofit development group on the city’s South Side, touts the potential for a casino near the Harborside International Golf Center in Garza’s ward at 111th Street and the Bishop Ford expressway. Its leaders envision gaming as just one component of a resort on the more than 60-acre site owned by Illinois International Port District.

“There is no better place not only for a casino but for hotels, a conference center and restaurants than the city’s Southeast side: great existing transportation infrastructure, a large amount of buildable available land and a host of other existing and planned recreational amenities that would make it a major destination,” CNI President David Doig told Bisnow. “And putting jobs and development where they are needed, what could be better?”

Lightfoot also highlighted the Harborside location. In 2019, Las Vegas-based consultant Union Gaming Analytics analyzed the potential profitability of five casino sites suggested by city officials, including Harborside. The five choices showed Lightfoot’s emphasis on neighborhood development. All were outside downtown, including one on the former site of Michael Reese Hospital near 31st Street and the lakefront, and another on 19 acres owned by the Chicago Housing Authority at Pershing Road and State Street near Guaranteed Rate Field.

According to the gambling expansion signed into law by Gov. J.B. Pritzker in 2019, which approved five other casinos in the state and allowed sports betting, a slice of the revenue from a Chicago casino would go to support the city’s police and fire pensions.

The Illinois Gaming Board released the Union Gaming study in August 2019, and the analysts found the city payout would mean operators had an effective tax rate of 72%, wiping out gains at even the most lucrative sites. Lightfoot convinced legislators this spring to adjust the rates. Union Gaming now estimates a Chicago operator’s effective tax rate will be roughly 40%, and said in a report that was “an attractive-enough effective tax rate to result in a successful RFP process.”

Union Gaming liked the Michael Reese site the best. The group estimated it would bring in $806M annually, nearly double the $441M brought in by Rivers Casino in suburban Des Plaines in 2018, while the 440-acre lakefront site of the former South Works steel mill at 80th Street would bring in $653M. A downtown location may be even better, the analysts wrote, potentially garnering more than $1.1B annually, due to better access to the tourism trade and other visitors.

Michael Wenz, associate professor of economics at Northeastern Illinois University, also favored the Michael Reese location, which a development team led by Farpoint Development is transforming into a mixed-use community. He said it struck the best balance between the goals of generating revenue and providing jobs to South Side residents.

“That was the one that made the most sense to me, because it’s easy to get to from downtown, and it’s easiest to get to for potential employees,” he said.

City officials say sites other than the five looked at by Union Gaming can be considered in an RFP process. Community resistance to building a neighborhood casino may force them to put more focus on a site closer to downtown.

A group of pastors from the South and West sides, including the late Rev. Leon Finney, criticized Lightfoot in 2019 for supporting a casino before a community benefits analysis was done, according to a Chicago Tribune report.

“We will absolutely work with the community in thinking about what that casino looks like, but the casino question itself has been litigated for 30-plus years,” Lightfoot said at the time.

More significant may be the opposition of 4th Ward Alderman Sophia King. Her narrow ward stretches down the lakefront from downtown to 49th Street and completely covers the Michael Reese site. The neighbors there have told her they strongly oppose a casino near their homes.

“We do not support a casino in the 4th Ward; that has been our stance, and it continues to be our stance going forward,” King’s chief of staff, Prentice Butler, told Bisnow.

Casino operators frequently have different goals than urban planners, and a casino does not guarantee the surrounding neighborhood will see much additional investment, according to Newmark Executive Vice President Bryan Younge, who helps lead the firm’s practice on hospitality, gaming and leisure. Gamblers tend to stay inside, rarely frequent other businesses and create little demand for additional development.   

“The operating model of a casino is to keep people inside the casino and never leave,” he said. “The multiplier effect of a gaming facility is not as potent as other uses.”

A major casino in an outlying area such as Harborside isn’t impossible, he added. A developer could create a critical mass of amenities and recreational activities attractive to tourists who would then stay for days, rather than quick in-and-out visits. But it’s a risk, especially in areas that have had a lot of industrial uses, like much of the South and West sides.

“A lot of work would need to be done to ensure it is optically appealing,” Younge said. “I’d be interested to see what the developers have in mind to detain guests for significant amounts of time.”

A sizable downtown casino would also be tough to create. Successful gaming facilities typically accommodate massive amounts of parking, a feature hard to find in the CBD, he said. A location along the perimeter of downtown is probably ideal, as long as a developer could access tax increment financing funds or other incentives to cut down on the high development and land costs in these areas.

Wherever it goes, or the number of jobs created, the tax revenues generated will probably not bring much new money into the state from tourists or convention-goers.  

“That’s not usually the way things work out,” Wenz said. “You usually raise tax revenue off the back of locals, and a lot of the time it’s the most vulnerable ones.”

Wenz points to what happened with the Harrah’s Casino New Orleans. It sits next to the city’s French Quarter, one of the nation’s top urban tourist attractions, but sightseeing tourists don’t seem to spend much time there, he said.

“If you walk the floor, you’ll see it’s mostly locals who are just getting off work.”

Younge agrees.

“It’s in a strong location, but it’s not the driver of success in that market,” he said. “Eighty percent or more of your revenue comes from people in a 50-mile radius.”

Las Vegas already dominates gambling tourism, Younge added, and counting on that sector to fuel Chicago’s casino could be a mistake.

“It’s relatively inexpensive to fly to Vegas, or even Atlantic City, and Atlantic City is struggling, so it’s not a slam dunk by any means.”

Younge said he will closely watch what plans are put forward in 2021 through the RFP process.

“We don’t yet know what the overall development idea is, so it’s a little difficult to know what the best formula would be.”