Illinois has over 45,000 video gaming terminals (VGTs), far more than any other state. The machines are in over 8,200 locations, including restaurants, bars, truck stops, and other small businesses. And while VGT revenue is growing, so is the number of sites. That is oversaturating the market and causing many locations to start seeing a decline in VGT income.
VGTs resemble slot machines and are simple in design. That simplicity and vast availability make them very popular in Illinois. In 2022, the machines took $31 billion in wagers and generated almost a billion in tax revenue. This year, the numbers are even higher. That makes VGTs the undisputed king of gambling in Illinois.
While the terminals are becoming increasingly important for state and local tax revenue, oversaturation is hurting some small businesses. That could hurt iGaming legalization chances in the state.
Decline in Revenue Per Machine in Suburbs
A recent analysis by the Daily Herald compared VGT revenue in 70 suburban locales in the state. The Herald found that machines in 27 towns generated less revenue than in the prior period. The news outlet compared Aug. 2022 – July 2023 vs. Aug. 2021 – July 2022.
The highest decline was in the village of Sleepy Hollow, about 40 miles northwest of Chicago. The number of VGTs has stayed the same there, but the revenue per machine dropped 30%. Six other municipalities saw a decline of over 10% per machine:
- Crystal Lake
- East Dundee
- Long Grove
- Third Lake
Semi-retired gaming industry expert Kevin McGourty told the Daily Herald that there are too many machines. That creates an oversaturated market. He added:
You can only pull so much from so many people until it diminishes the returns.
McGourty also said that regulation changes contributed to these numbers. Some of those changes include:
- Increasing the number of machines allowed in truck stops to 10
- Increasing max wager to $4
- Increasing taxes to 34%
Some business owners are evaluating whether to keep the machines. Jim Iverhouse from the Copper Fiddle Distillery in Lake Zurich told the Herald that his machines are making half of what they used to. He added that he’s monitoring them and might remove them as the costs, including electricity and licensing fees, might outweigh the benefits.
Some Municipalities Want To Limit the Number of VGTs
Market oversaturation is catching the attention of some state municipalities. Decatur city officials are conducting a study to get residents’ opinions on proposed VGT changes. Officials believe there are too many machines and want to reduce the number. While over 84% of respondents support limiting the number of VGTs, many of them are against the city’s proposals to increase taxes on them.
Elsewhere, the mayor of Murphysboro is gathering information on whether the city needs more VGTs. Mayor Will Stephens said that adding more terminals would not necessarily mean more demand and tax revenue. Stephens added that he asked the public’s opinion in a recent Facebook post. Most respondents said there’s no need for more VGTs.
Stephens also said that expanding the number of VGTs could lead businesses to make irrational decisions. He mentioned one applicant who is considering whether to remove its pharmacy to put in VGTs.
Oversaturation Could Be Bad News for iGaming Hopes
How is VGT oversaturation impacting Illinois’ chances of online casino legalization? Undoubtedly, passing an iGaming bill will need to please the VGT industry. The machines’ supporters and lobbyists have long opposed legalization due to the fear of cannibalization. Some lawmakers feel the same, and adding business owners to the list would further lower legalization chances.
Many small businesses are heavily dependent on VGTs at their locations. In the proposed VGT changes, Decatur would require businesses to prove that at least 40% of their income comes from other sources than VGTs. That proposition was met with a lot of opposition. Many owners said that other revenue streams are suffering.
A recent survey by the small business network Alignable supports that. The survey found that 61% of Illinois small businesses earn less than before the pandemic. The state led the nation in that metric.
With diminishing VGT income, some business owners may feel that legalizing online casinos in Illinois will further contribute to the decline. That is why iGaming supporters must educate the public and allay the fears of cannibalization. If a bill is to succeed in 2024, conversations must start early.