What Can Pennsylvania Learn From The Illinois VGT Industry?

Martin Derbyshire May 10, 2018
Illinois state capitol

Video gambling terminals (VGTs) began spreading across Illinois in the 2013 fiscal year. That’s right after Illinois lawmakers authorized any establishment licensed to serve alcohol in a municipality where video gambling machines are permitted to house up to five of the slot-machine-style games.

Now, Chicago, the largest in the state of Illinois, doesn’t permit VGTs. However, they appear almost everywhere else across the state.

A statewide industry that started with 61 machines in September 2012 has grown exponentially over the past five years. In fact, at the end of the last fiscal year on June 30, there were as many as 26,873 VGTs operating in Illinois.

VGTs make tax revenue history

What’s more, for the first time since VGTs were authorized, the machines actually generated more tax revenue for the state than Illinois’ 10 riverboat casinos last fiscal year.

According to the Illinois Commission on Government Forecasting and Accountability, Illinois VGTs paid $296 million in tax revenue to the state during the 2017 fiscal year. In contrast, casinos paid just $270 million over the same period.

In the 2012 fiscal year, the one before VGTs actually came to Illinois, these riverboat casinos paid $340 million in tax revenue.

There’s no doubt the Illinois casino industry has seen revenue numbers decline with the rise of VGTs. However, the idea put forth by casino lobbyists that the revenues have simply shifted from one side of the gambling industry to another may not be completely accurate.

The state is receiving less money in tax revenues from riverboat casinos. However, the increases in taxes paid by VGTs have more than offset that decline. In fact, in the 2017 fiscal year, Illinois took in the most tax revenue from gambling in over a decade.

Including taxes collected from riverboat casinos, VGTs, the Illinois Lottery, and horse racing, Illinois pulled in a total of $1.31 billion in gambling taxes.

That number increased nearly eight percent over 2016’s fiscal year. It marked the most since 2007. In 2007, the state collected $1.37 billion in tax revenue from gambling.

Reviving the gambling industry

The state was coming out of a recession prior to the authorization of VGTs. Tax proceeds from gambling were down with fewer people visiting the riverboat casinos and lottery ticket sales waning.

The authorization of VGTs at liquor-licensed establishments was meant to revive the industry and turn declining tax revenues around. By all accounts, it has worked.

Taxes from VGTs grew 160 percent over the past four years. Plus, they surpassed those generated by riverboat casinos for the first time in 2017, helping generate a 10-year high in overall state tax revenue from gambling.

Why not in PA?

Turning our attention, why can’t the same thing happen in Pennsylvania?

Well, strict limits on VGTs in the state will ensure the legal side of the industry grows nowhere near the size of Illinois’. That said, it is estimated there are already as many as 40,000 illegal VGTs operating in Pennsylvania bars, restaurants, and social clubs.

State lawmakers were considering authorizing legal VGTs at these establishments, mostly in an effort to stamp out the illegal activity. That would also mean the state could start collecting taxes on what was already a budding industry.

However, lawmakers compromised in putting together the comprehensive gambling expansion package approved in October. Ultimately, they authorized VGTs at truck stops only.

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Truck stop VGTs

Plus, not every truck stop in the state is eligible.

Eligible truck stops must:

  • Be equipped with diesel islands and sell an average of 50,000 gallons of diesel each month for the past 12 months
  • Have at least 20 parking spaces for trucks;
  • Have a convenience store
  • Maintain at least a three-acre parcel of land not owned by the Pennsylvania Turnpike
  • Be licensed as a lottery sales agent

Critics say VGTs at a few truck stops will do very little to derail the illegal VGT market. Plus, there’s probably only 120 truck stop sites in the state that will qualify.

As a result, only a small amount of tax revenue will be generated, particularly when compared to what would have been generated if VGTs were authorized at liquor-licensed establishments statewide.

In fact, experts estimate up to 8,000 of the state’s 12,000 liquor license holders might have applied to install VGTs. Had that happened, VGTs in the state may have been able to overtake casino gambling and help increase overall gambling tax revenue.

Protecting the casino industry

This is a situation that seems to suit the state’s casino industry just fine. Pennsylvania’s casinos generated more than $3 billion in gambling revenue every year for the past seven.

In fact, the industry broke records in 2017. It pulled in $3,226,910,816 in total gambling revenue. They paid a total of $1,332,202,319 in taxes.

It’s something of which the industry is quite protective. Part of that protection included successfully lobbying against VGT expansion to liquor-licensed establishments. At the same time, they guaranteed VGTs in the state won’t cannibalize the existing casino industry, nor will they overtake casino gambling the same way they have in Illinois.