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Video poker by September no sure betFeb 27, 2012 (Chicago Tribune - McClatchy-Tribune Information Services via COMTEX) -- The first video poker machines in Illinois to legally pay winners could be plugged in as soon as September, but only if gaming officials overcome steep staffing shortages to approve thousands of licenses. Even when the games are finally running after nearly three years of delays, more than 35 percent of the state's population live in areas where the games remain illegal, a Tribune analysis has found. That's because 77 communities have voted to ban the games since the law passed, and Chicago appears unlikely to overturn its existing prohibition on gambling machines -- which together could cost the state nearly $200 million in revenue, projections show. But before any money is made, there are plenty of hurdles to clear, the Tribune found. Among them: -- The Illinois Gaming Board has completed its review of only 46 of 144 license applications received from manufacturers, distributors and "terminal operators" -- the owners of the games who will place them in establishments. -- Gaming officials have yet to accept applications from thousands of bars, restaurants, truck stops and fraternal organizations that plan to offer the games, or to start investigations needed to approve those licenses. -- Game manufacturers have yet to be given final technical specifications from the state and still must have their games tested by independent laboratories to ensure they meet state law. Complicating the work is the fact that the Gaming Board's staff is more than one-third smaller than it should be, said board Chairman Aaron Jaffe, leaving him reluctant to offer a hard timeline for when video poker finally will start making the state money. The board's official position is that the games will be available by the third or fourth quarter of this year, but the year's end is a safer bet for the rollout, experts say. The uncertainty hasn't deterred manufacturers, operators, lawyers and some bar owners from working to out-maneuver each other to cash in on the gambling gold rush, with a flurry of agreements inked -- or at least shaken on -- daily. "It's been very cutthroat," said Zack Stamp, a lobbyist with the Illinois Coin Machine Operators Association, which represents video poker machine owners. "These guys are doing whatever they can to get their deals." Board blames staffing Before the deals, there was plenty of waiting. The Illinois General Assembly passed the Video Gaming Act in May 2009, legalizing up to five video poker machines at truck stops, fraternal organizations and establishments that hold a liquor license. Before the law, bars were allowed to have so-called gray games -- video poker machines that were legal for amusement only but were also often known to pay illegal cash jackpots. More than 66,000 of those machines were scattered statewide, according to a legislative estimate. Those machines were supposed to be removed. Under the measure, video poker games will have to be licensed with the state, which will be entitled to 25 percent of the game's net profits. The money is slated to help fund billions of dollars worth of infrastructure projects. Local communities will receive 5 percent of the revenue, while operators and establishments will split the rest. Soon after Gov. Pat Quinn signed the legislation, a court challenge made its fate uncertain until the Illinois Supreme Court upheld the law in July. While video poker stalled in court, it also faced delays at the Gaming Board, the state agency responsible for regulating the games. The board had limited manpower to focus on the budding industry, because until July its primary task was opening a new casino in Des Plaines. Gaming officials also made an error in bidding out a crucial video poker contract. Gaming officials signed a contract in June 2010 for a central computer system capable of monitoring up to 60,000 video poker games in the state, but had to void that deal because of errors in the bidding process. After rebidding the work, officials signed a contract last month with Alpharetta, Ga.-based Scientific Games International that could net the company up to $400 million over 10 years, depending on poker revenue. Industry experts viewed that deal as crucial. "Until that contract was signed, I was doubtful for a while this would ever happen in Illinois," said Elaine Hodgson, president and CEO of Incredible Technologies, an Arlington Heights-based gaming firm that has begun manufacturing its first line of video poker games, which will be unveiled in Illinois. "There was a lot of wasted time with the delays. ... Now, it's real talk about real deals." Jaffe said the computer system is expected to be finished by September, but the number of license applicants approved by then will depend on the board's ability to hire. The Gaming Board has 225 employees, which Jaffe said is far shy of the 350 the Legislature funded for it to regulate casinos and video poker. Jaffe said some positions are in various stages of the state's long hiring process, which he said can take six months to a year, while others have not been given the go-ahead from Quinn's administration. "If we had the 350 bodies we're supposed to, I could tell you we'd have this wrapped up by a particular date," he said. "But when you don't know who you will have to do what and when, there is no way to know when we'll be ready." In response, Quinn spokeswoman Brooke Anderson said, "We have worked and will continue to work with the Gaming Board to ensure they have appropriate staffing." 'Wild West' deals As the Gaming Board struggles with staffing, gambling manufacturers, distributors and operators have jockeyed for position in a fresh marketplace. Some of the industry's large Las Vegas manufacturers, such as Bally Gaming, American Gaming Systems and International Game Technology, are retrofitting machines for Illinois, gambling observers said. That work includes setting wagering limits to $2 and payouts to $500 to comply with state law. Other companies are developing new games for Illinois. Most offer multiple versions of poker and slots with as many as 15 types of games on one machine. Brentwood, Tenn.-based Video Gaming Technologies has built its Vegas Jackpots game specifically for Illinois, said James Starr, the company's senior vice president of sales. He said delays in the state's rollout gave the company more time to develop its product, but also hurt its bottom line. "We have absorbed more costs than we expected without any revenue," Starr said. As operators receive licenses, they have started signing deals with manufacturers and securing loans, said Cory Aronovitz, whose Casino Law Group in Chicago handles licensing applications and contracts for about 35 operators and 150 locations. Aronovitz said 75 percent of his operators have deals with manufacturers, but none has hired employees to deliver the games or collect their revenue. Establishment owners, he said, aren't doing much. "From a bar, tavern, VFW, truck stop perspective, no one is making any investments or making any improvements to their bar to make room for the games," said Aronovitz, also an adjunct professor of gambling law at the John Marshall Law School. "They're just waiting." Gaming officials have posted notices, reminding establishment owners that there are no deadlines to securing agreements with operators. Gene O'Shea, a Gaming Board spokesman, said several operators falsely have told establishments they have licenses. "All this time caused by the delays has allowed people out there to try to capitalize on what's coming in unscrupulous ways," said Stamp, the video poker lobbyist. "The sooner this business is up, licensed and running, the sooner that Wild West stuff ends." Several video poker operators contacted by the Tribune declined to discuss their business, citing a fear to speak publicly because they have licenses pending before the state or could face future inspections. One Chicago-area operator, who asked not to be identified, said he has had difficulty reaching deals with bar owners, some of whom he has worked with for 20 years, supplying jukeboxes and pool tables. "There has been a total lack of information and communication from the Gaming Board. The bar owners don't know what they'll be allowed to do," he said. "They've had so many people walking bar to bar, offering them games and trying to get them contracts that they don't trust anything right now. They're afraid to do anything." The operator said he already has paid $10,000 in state fees and $15,000 in legal costs. The games, he said, are going to cost $15,000 to $20,000 each, and he estimated spending another $10,000 to $15,000 on required security, cameras, vaults and cages to house machines. "All of this before I make a dime," he said, estimating it will take three years before he will turn a profit. "Plus, so many cities have opted out and don't want the games and Chicago still can't have them, so even if everything goes through, there won't be as much money to go around for us as everyone thought." Local bans to cut state's take Most of the 77 communities banning video poker are in suburban Chicago. Add to that Chicago's prohibition on gambling machines, which predates the video poker law, and 4.7 million of the state's 12.8 million people live in areas that have outlawed the games. That doesn't include Cook, Lake, DuPage and McHenry counties, which have banned the games in unincorporated areas. Estimates from the Commission on Government Forecasting and Accountability show the bans could cost the state $104.5 million to $192 million in revenue per year. When the video poker law passed, the state was projected to earn $288 million to $534 million from 45,000 to 65,000 machines. With the bans factored in, that estimate ranges from $184 million to $342 million generated from 28,845 to 41,665 gaming terminals. But Rep. Lou Lang, D-Skokie, who was an author of the video poker bill, called those revenue numbers conservative and predicted the games would still generate $300 million to $400 million per year, which he said is consistent with the amount forecast to fund capital projects. Whether video poker is rolled out fairly is more of a concern to Lang. The Gaming Board has yet to accept applications from locations that will offer the games, and though that process will be handled online, Lang said he is worried the state will start video poker before everyone is licensed. "I don't want a bar on one corner with all its machines going," he said, "but the one across the street can't get them yet." Lang said a date should be set and all applications received by that deadline should be vetted before the games go live. "When you have got thousands of people to license, somebody is going to get theirs ahead of somebody else," said Jaffe, the Gaming Board chief. As long as location owners don't have questionable backgrounds, their licenses shouldn't be held up long, he said. Aronovitz, the gambling lawyer, recommended the board roll out licensing regionally, allowing for a more orderly process. Just as bars and other locations are concerned about being licensed by the time video poker starts up, manufacturers are worried about their games getting approved by the state's independent testing lab. "This is going to be a Le Mans start where all of a sudden everyone is going to have video gaming," said Hodgson, CEO of Incredible Technologies. "Who gets their machines out first will win, and that's going to be the big deal." [email protected] Twitter @BillRuthhart ___ (c)2012 the Chicago Tribune Visit the Chicago Tribune at www.chicagotribune.com Distributed by MCT Information Services |