Marty Shanahan & Chris Spesia, Spesia & Ayers
After more than three years since passage of the Video Gaming Act (230 ILCS 40/1 et seq.), on October 9, 2012, video gaming went “live” in Illinois at sixty-five (65) licensed locations throughout the state. A total of two hundred seventy-eight (278) terminals became operational. The Video Gaming Act, enacted on July 13, 2009, legalizes the use of video gaming terminals in:
- licensed establishments, defined as any licensed retail establishment where alcoholic liquor is drawn, poured, mixed, or otherwise served for consumption on the premises;
- licensed truck stop establishments, defined as a facility (a) that is at least a 3-acre facility with a convenience store, (b) with separate diesel islands for fueling commercial motor vehicles, (c) that sells at retail more than 10,000 gallons of diesel or biodiesel fuel per month, and (d) with parking spaces for commercial motor vehicles;
- licensed fraternal establishments, defined as a location where a qualified fraternal organization that derives its charter from a national fraternal organization regularly meets and where alcoholic liquor is served for consumption; and
- licensed veterans establishments, defined as a location where a qualified veterans organization that derives its charter from a national veterans organization regularly meets and where alcoholic liquor is served for consumption.
A video gaming terminal means any electronic video game machine that, upon insertion of cash, is available to play or simulate the play of a video game, including but not limited to video poker, line up, and blackjack, as authorized by the Illinois Gaming Board, utilizing a video display and microprocessors in which the player may receive free games or credits that can be redeemed for cash. The term does not include a machine that directly dispenses coins, cash, or tokens or is for amusement purposes only.
As of October 10, 2012, there are over two thousand (2,000) pending establishment applications seeking licensure. The Illinois Gaming Board is processing the applications in the order they were received. Furthermore, the Illinois Gaming Board has reviewed approximately seventy-five percent (75%) of Illinois municipalities to determine if video gaming is allowed. See http://www.igb.state.il.us/VideoGaming/prohibit.aspx. As such, the process for the Illinois Gaming Board is ongoing.
230 ILCS 40/27 of the Video Gaming Act allows municipalities to prohibit video gaming, which states in part as follows:
A municipality may pass an ordinance prohibiting video gaming within the corporate limits of the municipality. …
No video gaming terminal may be placed in any licensed establishment, licensed veterans establishment, licensed truck stop establishment, or licensed fraternal establishment unless the owner or agent has entered into a written use agreement with a terminal operator for placement of video gaming terminals. A person may not own, maintain, or place a video gaming terminal unless he has a valid terminal operator’s license issued under the Video Gaming Act.
Video gaming terminals must be located in an area restricted to persons over 21 years of age the entrance to which is within the view of at least one employee, who is over 21 years of age, of the establishment in which they are located. Pursuant to Section 1800.810 of the Illinois Administrative Code, any licensed video gaming location that allows minors to enter where video gaming terminals are located shall separate any video gaming terminals from the area accessible by minors. A physical barrier to the gaming area, including but not limited to a short partition, gate or rope shall be required. The entrance to the gaming area must be visible by an employee who is over 21.
The burden is upon each applicant to demonstrate suitability for licensure. Each video gaming terminal manufacturer, distributor, supplier, operator, handler, licensed establishment, licensed truck stop establishment, licensed fraternal establishment, and licensed veterans establishment shall be licensed by the Illinois Gaming Board. The Illinois Gaming Board may issue or deny a license under the Video Gaming Act to any person pursuant to the same criteria set forth in the Riverboat Gambling Act.
To operate a video gaming terminal, each licensed establishment, licensed fraternal establishment, or licensed veterans establishment must possess a valid liquor license issued by the Illinois Liquor Control Commission in effect at the time of application and at all times thereafter during which a video gaming terminal is made available to the public for play at that location. A licensed truck stop establishment that does not hold a liquor license may operate video gaming terminals on a continuous basis.
A video gaming terminal must theoretically pay out a mathematically demonstrable percentage during the expected lifetime of the machine of all amounts played, which must not be less than 80% (compare to 91.58% payout by Harrah’s Joliet from July 1, 2010 through June 30, 2011 according to the Illinois Gaming Board). A video gaming terminal may not directly dispense coins, cash, tokens, or any other article of exchange or value except for receipt tickets. Tickets shall be dispensed by pressing the ticket dispensing button on the video gaming terminal at the end of one’s turn or play. The cost of the credit shall be one cent, 5 cents, 10 cents, or 25 cents, and the maximum wager played per hand shall not exceed $2. No cash award for the maximum wager on any individual hand shall exceed $500.
A tax of thirty percent (30%) is imposed on net terminal income, which shall be collected by the Illinois Gaming Board. The remaining seventy percent (70%) is divided between Scientific Games, the terminal operator, and location. Of the thirty percent (30%) tax, there is some confusion as to distribution of the funds. According to 230 ILCS 40/60, five-sixths (83.3%) of the tax shall be deposited into the Capital Projects Fund and one-sixth (16.67%) shall be deposited into the Local Government Video Gaming Distributive Fund (which is distributed in a proportional amount to the tax revenue generated from video gaming within the municipality compared to the tax revenue generated from video gaming statewide ~ see 230 ILCS 40/75). However, according to the Illinois Gaming Board Press Release dated October 9, 2012, “[o]f the state’s portion, five percent (5%) goes to the local government entity that issued the liquor license.” The percentages do not add up. If one-sixth (16.67%) is deposited into the Local Government Video Gaming Distributive Fund, and according to the press release, five percent (5%) is returned to the municipality, that leaves 11.67% of the thirty percent (30%) not allocated to a specific fund or location. Nevertheless, the amounts allocated to a municipality may be used for any general corporate purpose.
Video gaming terminals in a licensed location shall be operated only during the same hours of operation generally permitted to holders of a liquor license.
If a municipality wishes to allow video gaming, a municipality may impose a fee pursuant to 230 ILCS 40/65, which states as follows:
A non-home rule unit of government may not impose any fee for the operation of a video gaming terminal in excess of $25 per year.
This implies that a home-rule municipality may impose a higher fee for licensure.
There are also a few unanswered questions created by the Video Gaming Act. Some of the questions are as follows:
- Can a municipality allow video gaming, and then at some point in the future, pass an ordinance prohibiting video gaming?
- If a municipality allows video gaming then subsequently prohibits video gaming, do the licensed establishments have an entitlement or vested right to continue to allow video gaming? The anticipated revenue for licensed establishments is substantial; litigation after allowing video gaming and a subsequent prohibition is almost guaranteed.
- Can a municipality can allow video gaming in some establishments and not in others (e.g. allow video gaming in veterans establishments only)?
- Do violations of the gaming regulations permit the local liquor commissioner to take action on the licensed establishment’s liquor license?
- Will municipalities who do not allow video gaming be allowed to secure funds from the portion of the Capital Projects Fund funded by video gaming?
In difficult economic times, a municipality may increase its revenue by simply allowing video gaming within its borders. Are municipalities willing to take that “chance” despite the stigma and possible ill effects of video gaming? Will the state reduce the amount of the Distributive Fund percentage allocated to the municipality, leaving the municipality with all of the problems and reduced or no benefits? A majority of Illinois municipalities seem to be willing to take the “gamble”.