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Illinois Supreme Court Clears Way For Operator-Run VLTs In Bars And Taverns: July 11

Posted On: 7/11/2011

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Illinois Supreme Court, Illinois 2009 Video Gaming Act, HB 255, Pat Quinn, operator-run video lottery, VLT, video lottery terminal, video poker, amusement operator, amusement vendor, bar gambling machine, slot machine, Illinois Coin Machine Operators Association, Illinois Gaming Board, coin machine business

SPRINGFIELD, IL -- The Illinois Supreme Court, in a unanimous 7-0 ruling, today cleared the way for the 2009 Video Gaming Act to go forward, creating a potential multibillion-dollar market for operator-run video lottery devices statewide.

Industry members had hoped the VLT market could launch by late 2011. But delays resulting from the progression of this case through the courts will likely make that difficult.

Immediately following the high court ruling, Gov. Pat Quinn said the timeline for initial VLT operations is unclear. He cautioned that the Illinois Gaming Board should "take its time" and should employ all necessary precautions to ensure that the video lottery system will be run honestly and lawfully.

In the July 11 ruling, the high court specifically found that lawmakers did not violate the state constitution two years ago when they combined multiple pieces of legislation -- including the Video Gaming Act -- into a $31 billion omnibus package designed to fund statewide construction. Among other things, the omnibus bill also raised taxes on alcohol, candy, soft drinks and beauty products. The measure was also expected to trigger higher taxes on cigarettes.

In its opinion, the high court said the various fundraising elements bundled into the bill "clearly are connected to capital projects in that they establish increased revenue sources." | SEE RULING

The verdict makes it unnecessary for the state Legislature to attempt to re-pass the Video Gaming Act as a standalone measure. Such a move might have been difficult after two years of mostly negative publicity about the proposed VLT industry.

Quinn praised the July 11 ruling. The governor said it would allow the state's job recovery program to advance.

Industry members also hailed the ruling and congratulated each other on an important victory. The creation of an Illinois VLT industry is widely seen as a significant economic boon not only to the amusement industry, but also to the slot machine industry -- and not only regionally, but nationwide.

One industry analyst had estimated that Illinois VLT sales were expected to account for 40% of all U.S. slot machine sales in late 2011 and early 2012. International Game Technology, Bally Technologies and WMS Industries, among other manufacturers, plan to supply Illinois VLT operators. AGS LLC announced plans to supply Cherry Masters just days ago.

In addition, the Video Gaming Act was touted as a possible precedent for the creation of similar operator-run VLT markets in other states.

The Illinois Coin Machine Operators Association had lobbied for VLTs since the 1980s. Its goal was reached on July 13, 2009, when Gov. Quinn signed HB 255. That hybrid legislation included the Video Gaming Act, which created a new video poker market under the auspices of the Illinois Lottery.

The resulting VLT market is projected to comprise 40,000 to 50,000 networked poker games that would generate anywhere from $375 million to $500 million a year in taxes for the state.

Regulations call for separate roles for video poker manufacturers, distributors, operators, technicians and locations. The act permits up to five video lottery terminals to be installed in licensed bars, restaurants and truckstops, among other venues that permit on-premise alcohol consumption. Some 21,000 Illinois bars and restaurants serve liquor.

While the VGA sets no maximum daily, weekly or monthly payouts by machines, it does cap cash winnings at $500 on a single play with a $2 maximum bet. VLT revenues will be taxed at 30%. Operators will collect 35% of adjusted gross receipts and licensed establishments will receive 35%.

If the maximum number of machines per location is installed, the state could make $100 in taxes a day off one VLT on as many as 50,000 machines, if each terminal earns more than $300 per day in gross revenue.

According to the new law, VLTs for the Illinois market must be brand-new, conform to state regulations, support connectivity and be equipped with data tracking software. The cost of one machine to the operator could be between $12,000 and $15,000.

To participate in the Illinois market, businesses must meet a state residency requirement or must have been doing business in the state for a specified minimum period of time.

The nonrefundable application fee is $5,000 for VLT manufacturers, distributors and operators, and $2,500 for components suppliers. Once a license is granted, each licensee must also pay an annual renewal fee. Annual fees are $10,000 for manufacturers and distributors, $5,000 for operators and $2,000 for component suppliers.

The Video Gaming Act was also designed to phase out existing video pokers. Law enforcement officials have long estimated that some 30,000 gray-area poker machines are operating in downstate Illinois alone. The new law requires that all amusement-only devices that currently have a valid state license shall remain legal for non-wagering use, but only for a limited time. Such devices were officially permitted to remain in operation until June 1, 2010, when stickers expired.

Soon after ICMOA began its celebrations over passage of the Video Gaming Act, the state's planned VLT market ran into major problems. Over the next year, some 80 Illinois cities and counties voted to opt out of participation in the planned VLT market.

The Illinois Gaming Board also criticized elements of the original act and follow-up enabling legislation, saying it would be too easy for convicted criminals and organized crime to get involved in the VLT market.

The most serious challenge to the omnibus bill came just six weeks after Quinn signed the measure. On Aug. 25, 2009, the new law was challenged in court by the well-connected owners of a large liquor distributorship that objected to one of several tax hikes contained in the measure. The plaintiffs were Wirtz Beverage Illinois LLC and its owner, J. Rockwell "Rocky'' Wirtz, who is also an investor in the Chicago Sun-Times Media Group and the owner of the Chicago Blackhawks.

The state's Appellate Court ruled on Jan. 27, 2011, that the 2009 legislative package was unconstitutional because the Illinois constitution forbids lawmakers to bundle unrelated bills together in a single vote.

This appeals court verdict threw the Illinois VLT market and its planned participants into deep uncertainty. By then some 100 Illinois amusement operators, distributors or manufacturers had already spent $5,000 each on applications for VLT licenses, state officials said.

The Illinois Gaming Board is in the midst of conducting background investigations on applicants in preparation for awarding licenses. But according to the Chicago Tribune,, a casino expansion bill passed earlier this year contains a measure that would force the IGB to grant licenses even before investigations are complete. The casino bill is now awaiting Gov. Quinn's signature. | SEE STORY

In June, Quinn told lawmakers that he might seek a revision to the Video Gaming Act that would change it from an "opt-out" status for individual jurisdictions to an "opt-in" requirement for cities, counties and towns to permit licensed, operator-run video poker. | SEE STORY