Illinois OKs Sports Wagering In Expansive New Gaming Law

Fox Rothschild LLP

Fox Rothschild LLPA bill recently passed by the Illinois Senate will significantly expand the gaming landscape in Cook County and the surrounding areas and modify certain fee and tax structures. Most notably, the bill will permit sports wagering (including online and via mobile applications), a number of new casinos, video gaming terminal and casino expansions and will increase fees and tax rates. Passed by the Senate on June 2, the bill is expected to be signed by Gov. J.B. Pritzker within 60 days.

This alert details the bill’s key takeaways in the areas of sports wagering and its licenses, as well as amendments to the State Fair Act, horse racing, riverboat gambling and the Video Gaming Act that affect a range of gaming facility owners, operators and licensees.

Sports Wagering

The Sports Wagering Act outlines the following restrictions on sports wagering:

  • Must be 21 to make a wager
  • No wagers on minor league sports events
  • No wagers on an event involving an IL college team, or K-12 events
  • Must be physically located in Illinois to place a wager
  • Master wagering licensees may use any data source for determining results of all Tier 1 sports wagers (i.e. the final score of an event and the wager place before an event begins)

The law also outlines the parameters of a variety of licenses:

Master Sports Wagering Licensee
Taxed at 15 percent of the licensee’s adjusted gross sports wagering receipts. Another two percent of adjusted gross receipts will be collected from wagers made within Chicago.

Organizational Licensee – Race Track
Attempt diversity to the extent possible. The initial fee for the license is five percent of its handle from the preceding calendar year or the lowest amount that is required to be paid as an initial fee by an owner’s licensee – whichever is greater. No initial fee shall exceed $10 million. Those licensed on the effective date of the Act shall pay the fee by July 1, 2020. Those licensed after the effective date of the fee shall pay $5 million. This license is valid for four years and will have a renewal fee of $1 million. A track can conduct wagering at its facility, at its OTB, online or through a mobile application.

Owner Licensee – Casino
Attempt diversity in ownership to the extent possible. The initial fee for license is five percent of its adjusted gross receipts from the preceding calendar year. No initial fee shall exceed $10 million. The fee is due July 1, 2020 and the initial license is valid for four years. An owner licensee not licensed as of the effective date of this Act shall pay a fee of $5 million, but the amount shall be adjusted 12 months after operations begin and be based on five percent of its adjusted gross receipts for the first year of operations. This license is subject to four-year renewals with a renewal fee of $1 million. A casino may conduct sports wagering at its facility, online or through a mobile application. The brand must be owned by a casino or, if using another company, that company must own 80 percent of the casino.

Sports Facility – 17,000 Seats or More
The IGB may issue up to seven licenses to sports facilities or their designees. If more than seven apply, licenses shall be granted in the order in which applications are received. The initial fee is $10 million for a four-year license, with a renewal fee of $1 million that extends license validity for another four years. A sports facility can conduct wagering at or within a five block radius of the facility and may pursue online wagering at its facility or within a five block radius.

Online Operator Licensee
Following an open and competitive selection process, three licenses will be issued with the payment of a nonrefundable fee of $20 million. This license may be renewed every four years with a renewal fee of $1 million. Applications will be received by IGB 540 days after the first license is issued under this Act. The IGB shall provide public notice regarding the solicitations of applications and the submission deadline for applications will be 30 days after the public notice was issued. Applications will be opened in public, which means the names of the applicants and the summaries of their proposals will be public information. License winner(s) will be announced within 90 days follow application deadlines.

Following passage of the the Sports Wagering Act, the IGB is authorized to issue licenses in the six categories that follow. For license determinations, the Act requires that all officers and directors of a corporation, all members of an LLC and all partners of a partnership provide fingerprints. Any material changes to an application must be submitted to the IGB within 30 days.

Master Sports Wagering
Race track, casino, sports facility and three online operators are eligible to be awarded this license following a competitive bidding initiative.

Occupational License
Issued for those who work under other licensees.

Supplier License
Authorizes a person to 1) sell or lease sports wagering equipment, systems or other gaming items to conduct sports wagering and 2) offer services related to the equipment or other gaming items and data to a master sports wagering licensee. This is a four-year license with application and renewal fees at $150,000.

Management Services Provider
A master sports wagering licensee can contract with a services provider to conduct the wagering operation. Application and license fee is $1 million, and the renewal fee of $500,000 is for a four-year renewal.

Tier 2 League Data Provider
A sports league or organization or associate must be licensed to distribute Tier 2 league data.

Central System Provider License
Under the purview of Illinois State Lottery, this licensee may conduct a lottery pilot program following a competitive bid process.

Notably, the Sports Wagering Act will also create a lottery sports wagering program through which the Department of Lottery will control sports wagering lottery terminals. These terminals can be in 2,500 locations the first year and then another 2,500 locations in the second year.

State Fair Act

The IGB will license a concessioner who will operate VGTs at the Illinois State Fairgrounds and at the DuQuoin Fairgrounds. The license will be for three years after which a new licensee will be selected. Up to 50 VGTs will be allowed at the state fair and 30 at DuQuoin, and beer tents can have up to 10 VGTs. The tax rate is 35 percent of the Net Terminal Income (NTI).

Horse Racing

Licensed owners of race tracks can apply for licensure from the IGB to conduct gaming at their facility. The tracks would be permitted to have slots and table games. Applications could be submitted within 60 days of the effective date of this Act. The IGB shall make a determination regarding licensure within 120 days after receiving an application.

Key takeaways:

  • There is a $250,000 application and license fee, and a license is valid for four years.
  • Cook Country tracks may have up to 1,200 gaming positions, whereas tracks outside of Cook County may have up to 900 positions.
  • A licensee can operate a temporary facility for two years pending the construction of a permanent facility or renovations to an existing facility. The IGB may extend that time period for an additional year upon request.
  • A track may enter into a joint venture with a licensed casino owner to own, manage, conduct or otherwise operate the racino gaming facilities. But, a joint venture is prohibited if the track has a parent company or other affiliated company that is also licensed to conduct casino gaming.

Riverboat Gambling

Amendments to Illinois gaming law that affect IGB membership, riverboat gambling and casino expansion include the following changes, provisions and license stipulations:

  • New and more detailed criteria for IGB membership, including that no more than three members may be from the same political party.
  • New Ethical Conduct provisions for officials and employees (and their spouses and children) of the “corporate authority” of the host community:
    • Such government individuals shall not use or attempt to use their position to secure or attempt to secure any privilege or favor for themselves or others. Local officials cannot have an interest in (direct or indirect) in a casino in their community. They cannot accept any gift or service or thing of value. These officials cannot accept employment within two years after leaving office.
    • Any communication between an official of the corporate authority and any applicant for an owner’s license or an officer, director or employee of a riverboat or casino in the host community concerning any matter related to gaming shall be disclosed within 30 days to the IGB.
  • New casino applications and their renewals have a fee of $250,000 and an additional fee of $50,000 to defray investigative costs. If the investigation cost more than $50,000, the applicant shall pay the additional amount within seven days following the request. If the costs are less than $50,000, the applicant gets a refund. Licenses shall be issued within 12 months after the application submission or the IGB must explain the reason for rejection. The license renewal fee is $250,000.
  • Licensees outside of Cook County shall pay a minimum initial fee of $17,500 per gaming position and a licensee in Cook shall pay an initial fee of $30,000 per position. Also, each licensee will pay a reconciliation fee. This will be paid three years after the date operations begin and will be equal to 75 percent of the adjusted gross receipts of the most lucrative 12 months of operations minus the amount equal to the initial payment per gaming position paid by each licensee. Upon issuance of the license, each licensee shall pay $15 million reconciliation fee and the payment may be made in installments over two years. No reimbursement will be made if the calculation results in a negative amount.
    • IGB may issue new casino licenses in the City of Chicago (can be land-based) in Danville, Waukegan, Rockford, South Suburban townships and unincorporated Williamson County. Chicago-based casinos can have 4,000 gaming positions while all others can have 2,000. Chicago may use a portion of its 4,000 positions at the two airports as permitted by statute, and only slots are permitted in private clubs at the airport(s).
    • Except for Chicago, all applications must be submitted within 120 days after the Act’s effective date.
  • New Chicago Casino Expansion: Within 10 days of the effective date of the Act, the IGB (with the consent and expense of the City of Chicago) is required to engage a nationally recognized gaming feasibility consultant. The consultant shall have a report prepared for the Chicago casino within 45 days, and the IGB shall make a determination about whether the license should be modified within 90 days after receipt of the report. The IGB may being accepting applications for the owners license upon the determination to issue such a license. Prior to issuing the owners license, an impact study shall be completed to determine what location in the city will provide the best impact for job creation and tax revenue.
  • Existing Chicago Casino Expansion: Current licensees can add up to 2,000 positions. Licensees in Cook County must pay $30,000 per position while those outside of Cook County pay $17,500 per position. Current licensees shall reserve their gaming positions within 30 days after the effective date the Act. The IGB can grant an extension.
  • An owner licensee that operated prior to January 1, 2012, and obtains positions pursuant to this Act, shall also make a reconciliation payment three years after any additional gaming positions begin operating in an amount equal to 75 percent of the owner licensee’s average gross receipts for the most lucrative 12-month period of operations minus the initial fee paid for the additional gaming positions. This payment may be made over two years.
  • An owner of a new or existing licensee can conduct land-based gambling upon IGB approval and the payment of a $250,000 fee. They can utilize a temp facility during construction.
  • 24-hour gaming is now allowed.

Video Gaming Act

Provided below are key takeaways from amendments that affect the Video Gaming Act:

  • All locations may now have up to six VGTs. A location that qualifies as a Large Licensed Truck Stop may have up to 10 VGTs.
    • A Large Licensed Truck Stop is defined as a facility located within three miles from a freeway interchange that is at least three acres with a convenience store, has separate diesel islands for fuel, sells more than 50,000 gallons of diesel per month and has parking for commercial vehicles.
  • Maximum wager is increased to $4 (instead of $2) and maximum payout rises from $500 to $1,199. No cash award for the maximum wager on a jackpot, progressive or otherwise, shall exceed $10,000.
  • In location bonus jackpot games are permitted and IGB shall enact rules within 90 days of the Act’s effective date. In location bonus jackpot means one or more VGTs at a single location that allows for wagers on such VGTs to contribute to a cumulative max jackpot of up to $10,000.
  • Handlers are permitted to perform certain functions without IGB agents present: clearing random access memory and reprogramming; software upgrades; placement and connection to central system; and maintenance including temporary movement.
  • Restrictions on Licenses in Malls: A mall is defined as a building or adjoining buildings with four or more separate locations. The IGB shall not grant an application to become a licensed video gaming location if the IGB determines that granting the application would more likely than not cause an entity to operate the VGTs in two or more licensed locations as a single video gaming operation. In making this determination the IGB shall consider the physical aspects of the location, the ownership or management of the location, any arrangements involving the sharing of costs or revenues and the manner in which any TO describes these locations to the public.

Tax Increases

  • Beginning July 1, 2019, an additional tax of 3 percent is imposed on NTI. Total tax will rise to 33 percent.
  • Beginning July 1, 2020, an additional tax of 1 percent is imposed on NTI. Total tax will rise to 34 percent.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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