Illinois Gambling Operators Sue State Over Profit-Sharing Regulations

Posted on: April 6, 2017, 09:00h. 

Last updated on: April 6, 2017, 09:41h.

Casino.org Staff Writer Read More
Expertise: Commercial Gaming.

Illinois gambling operators who own and manage video gaming terminals in restaurants and bars are suing the state over what they believe are unfounded profit-sharing regulations.

Illinois gambling video gaming machine parlor
Illinois gambling operators that own gaming machines at restaurants and retail businesses want to keep more of their generated money. (Image: File/State Journal-Register)

In a lawsuit brought by Laredo Hospitality Ventures and Illinois Cafe & Services Co. against the Illinois Gambling Board, the video gaming companies argue that they should be permitted to negotiate their own revenue-sharing contracts with land-based establishments. Under the Illinois Video Gaming Act passed in 2012, the operators must split their proceeds evenly with the local businesses.

The two gaming operators claim they would be better positioned to invest in improving the consumer’s video gaming experience with more robust bottom lines. They also reason that since the gambling companies are responsible for maintaining and repairing the machines, they should receive the lion’s share of revenue they generate.

“The amount in profits the Video Gaming Act divvies out to each party is not rationally related to the contributions or investments each party may make toward the business or the amount each party has at risk,” the lawsuit contends.

Illinois is home to some of the most liberal gambling laws in the United States. The Land of Lincoln has commercial riverboat gambling, pari-mutuel wagering, charitable gaming, and a lottery.

One of Laredo’s investors is Andy Bluhm, son of billionaire Neil Bluhm, who owns Rush Street Gaming. Rush Street controls four casinos including the Rivers Casino in Des Plaines, Illinois.

Change Requested

Laredo Hospitality Ventures and Illinois Cafe & Services together own over 100 Illinois gambling parlors. In addition to restaurants and bars, some retails centers have video terminals in Illinois.

The companies have roughly 500 employees who manage the machines and establishments. In the lawsuit, the two operators say the profit-sharing law is hindering their growth.

“I can think of no other industry where, by law, a business is forced to give up 50 percent of their profits and is strictly prohibited from even trying to negotiate better terms,” attorney Dan Webb told the Associated Press. The Illinois Gambling Board hasn’t issued comment on the pending litigation.

Net revenue generated from the machines is taxed at 30 percent. The state receives 25 percent, with the local county where the money was collected taking the remaining five. Once the tax obligations are met, the operator must split the remaining funds with the host.

Webb says his clients invest some $200,000 per location. Illinois’ more than 5,700 gaming parlors netted over $1.1 billion in 2016.

Gaming Expansion

The video gaming operators’ complaint comes at a rather conspicuous time.

On February 28, the Illinois Senate passed Senate Bill 7, a piece of legislation that would authorize the construction of a land-based casino in Chicago. The state’s largest city is presently is seen as a coveted market in the US, regardless of its violent neighborhoods.

The parlor gaming lawsuit was filed in Cook County, which encompasses Chicago.

Laredo Hospitality Ventures and Illinois Cafe & Services own numerous gaming parlors in the Windy City. One example is the Dotty’s Café chain of restaurants, many of which are located in the Chicago metro.