THE WATCHDOGS: Casino owners jump on video-gambling bandwagon

The number of video-gambling machines at Illinois bars, strip malls and other small venues is booming, growing from zero to more than 23,000 in the past four years, records show.

That’s nearly double the number of gambling spots the state’s 10 casinos have.

Which has casino owners, who once fought against video gambling, now taking a different tack: If you can’t beat ’em, buy ’em.

The latest example: A Canadian private equity firm that has a 40 percent stake in the state’s top-grossing casino, Rivers Casino in Des Plaines, announced a $32.5 million investment last month in Accel Entertainment Gaming, the biggest operator of video-gambling terminals in Illinois.

That investment comes after two companies that own four casinos in Illinois bought two other big video-gambling operators: Gaming & Entertainment Management and Prairie State Gaming.

“Regional casino revenue is down throughout the country, and Illinois is kind of the forerunner in what’s expected to be the next wave — if there is another wave — in gaming,” says Michael Gelatka, president of the Illinois Gaming Machine Operators Association.

The casinos “see another revenue source out there and see a way to hedge their bets on the future,” says Gelatka, who owns G3 Gaming, a video-gambling company in Lansing. “If you have a regional casino and you feel video gaming is eating your lunch, then you have the ability to be a part of it” by investing in the industry or buying terminal operators outright.

As of the end of May, there were 23,406 video-gambling terminals operating at 5,658 locations statewide — including bars, restaurants, truck stops, gas stations and so-called casino cafés, many of them located in strip malls.

Revenues from those video poker, slot and other types of gambling machines are split roughly in thirds among terminal operators, owners of the sites where the machines are placed and the state, with a portion of the state’s tax share going to local governments.

State law caps the number of terminals at five per establishment. It also places lower limits on wagering and payouts on the machines than the limits at casinos.

Last year, video-gambling terminals took in $913 million, the most yet in Illinois, with $274 million of that going to the state and host communities.

In the first five months of this year, revenues are up 25 percent over the same time last year, to $459 million. That’s almost the same amount as the state’s 10 casinos generated in the same period.

The casinos — limited to 1,200 slot-machine and table-game positions apiece — still took in more revenue last year than video-gambling spots, $1.4 billion, and provided more taxes to the state and local governments, $488 million. But their revenues and the number of people visiting them have been decreasing since 2012, when video gambling began taking root throughout the state.

Chicago is among 150 municipalities that ban video gambling, though industry advocates have been trying to convince Mayor Rahm Emanuel the machines would produce much-needed tax revenue for the cash-strapped city. Emanuel instead wants a Chicago casino, but plans for that have yet to materialize.

When the state law authorizing video gambling was approved in 2009, “The original intent was to help the bars, restaurants and some of the truck stops earn some revenue for themselves and for the state,” says Tom Swoik, executive director of Illinois Casino Gaming Association, which represents eight of the state’s 10 casinos. “I think what happened was with the advent of the cafés — and also with the liquor stores and gas stations — people realized there were ways it could expand. And it’s just gone crazy.”

Under the law, most establishments must have licenses to pour liquor to have video gambling. Some communities, hungry for video-gambling tax revenue, have issued such licenses to casino café chains — among them such now-common names as Dotty’s, Stella’s Place and Shelby’s — which collectively have hundreds of terminals operating at dozens of sites throughout the suburbs.

Others have granted liquor-pouring rights to liquor stores and fast-food restaurants so they can have video gambling. Machines also are going in at gas stations that technically qualify as truck stops under the law.

Originally, video-gambling terminal operators were prohibited from having “a substantial interest” in no more than 5 percent of the machines licensed by the Illinois Gaming Board. But lawmakers rescinded that provision in 2010.

That’s opened the way for small video-gambling operations to grow — and made them an attractive target for casino companies to buy.

Penn National Gaming, whose holdings include the Hollywood casinos in Aurora and Joliet, announced its acquisition of terminal operator Prairie State Gaming last summer. Delaware North, owner of Jumer’s casino in Rock Island, announced its purchase of Gaming & Entertainment Management in May. Those companies together have machines in a total of 13 percent of video-gambling sites statewide.

On June 22, Clairvest Group Inc. — the Canadian company that owns the 40 percent stake in Chicago real estate magnate Neil Bluhm’s Rivers Casino — announced it was making its $32.5 million investment in Accel Entertainment. Clairvest said that gives it a “minority interest” in Accel, which has machines at 20 percent of video-gambling locations in Illinois.

Bluhm, who long has opposed video gambling, had no role in Clairvest’s decision to invest in Accel, says Dennis Culloton, a spokesman for Rivers Casino.

Clairvest’s decision followed small investments by Bluhm’s son, Andrew Bluhm, and one of his top executives, Greg Carlin, in a casino café company, Laredo Hospitality Ventures — a development reported by the Chicago Tribune last year. A college roommate of Andrew Bluhm and Carlin runs Laredo, which operates Stella’s Place and Shelby’s cafés.

“There’s been another funding [call] for that company since that story, and Greg and Andy did not make an additional investment,” Culloton says. “They had a small percentage in the first place, and it’s even smaller now.”