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Governor J.B. Pritzker officially signed Illinois sports betting into law Friday in Springfield, the culmination of a winding and messy months-long process.
It often looked like it couldn’t possibly come together – until it did. The final days of the legislative session were a wild ride for Illinois sports betting.
Rep. Bob Rita and Sen. Terry Link seemed to be like Penn and Teller using sleight of hand to make you think sports betting was under one cup when it was actually under another. Not even the state’s casino industry knew what was going to be in the final bill until votes were called.
Legal Sports Report spoke with lawmakers and industry representatives to reveal how Illinois pulled off the trick of legalizing sports betting. It’s a story of misdirection, compromise, hurt feelings, unlikely alliances, and ultimately a bill few thought could get to the finish line.
By May 21, Reps. Rita and Mike Zalewski meet with Sens. Link and Anthony Munoz and agree to combine legal sports betting with a larger casino expansion bill the Senate had been trying to push for more than a decade.
Rita becomes the House chief sponsor of S 516, the Senate vehicle for the gaming expansion.
“It became evident that if we wanted to pass sports betting, it would have to be part of a larger package,” Rita said. “There were fears the bill would be too large to pass and topple on its own weight, but sports betting was the component everyone had interest in so it was able to glue everything together.”
Existing casinos in the state weren’t thrilled with the merger of bills.
“I think we’re all disappointed that sports betting got thrown in with the massive expansion bill because I think most casinos will probably lose more money under the massive expansion than they will make under sports betting,” said Tom Swoik, executive director of the Illinois Casino Gaming Association. “We’re doubling the number of casinos in the state.”
After working on sports betting all session as Chairman of the House Finance and Revenue Committee, Zalewski sent stakeholders and LSR the culmination of his efforts. It’s what he planned to be the end-game sports betting language for the state.
Nobody liked what they saw. Initial license fees reached as high as $25 million with a 20% tax rate.
His solution to a controversial regulatory waiting period for companies that had offered daily fantasy sports in the state under questionable legal circumstances was to make everyone wait 18 months before they could offer mobile wagering.
A day after beginning what was to be a $1 million ad campaign targeting Rivers Casino and its chairman, billionaire real estate magnate Neil Bluhm for trying to “use their political muscle to box out the competition so they can profit,” DraftKings and FanDuel agreed to pull the TV ads at the governor’s request.
The campaign was a response to a proposal backed by Rivers to prohibit the DFS sites from entering the Illinois sports betting market for three years. In ceasing the campaign, Kudon indicated that the companies were led to believe the Zalewski proposal without a penalty box was the sports betting language Illinois would pursue.
“That was the impetus to pull down the ads against Rivers,” Kudon said. “The governor’s office said this was what the language was going to look like and if they pulled down the ads they won’t get screwed.”
Speaking at a press conference with labor union representatives, Link says that all four caucuses are working with the governor to pass the gaming expansion bill with IL sports betting.
This is the first hint that sports betting is becoming part of something larger that has the political will to pass.
In the meantime, the House Judiciary Committee holds a hearing on constitutionality issues regarding a regulatory waiting period for so-called bad actors.
For the first time all session, representatives of DraftKings and FanDuel testify at an Illinois hearing. They are joined by lawyers for Rivers.
Zalewski long took the lead on Illinois sports betting talks, but Rita was closely involved. He chaired the three subcommittee hearings on sports betting in the House Sales, Amusement and Other Taxes Subcommittee.
Since Zalewski’s last proposal, negotiations on what to do with the DFS companies grew more accusatory.
Rivers opposed the language, and Zalewski’s character was called into question as a potential conflict of interest was brought up regarding Zalewski working for a law firm that lobbies for dozens of gambling companies.
Zalewski tweeted that he was stepping aside and letting Rita take over the negotiations.
“Certain interests said we think you are being unfair, and I said if you think that then I can stop,” Zalewski said. “My take was I’ll step aside and you can try to move forward with a different approach. I think it worked out. [Rita] came in with a fresh set of eyes and got the job done.”
Rita taking the bill across the finish line made sense once it was attached to the larger gaming expansion, as Rita had been the House champion for casino expansion in previous years.
While the focus switched to S 516 and people awaited language on the gaming expansion with sports betting to drop, Rep. Andre Thapedi was busy amending the old H 1260 for the second time in three days.
Any good magic trick needs a little misdirection.
At first glance, his amendments seemed identical to previous sports betting proposals offered earlier in the session, which was even more confusing. Why is this lawmaker regurgitating old amendments on a dormant bill?
It turns out that Thapedi was trying to get language in the legislation to instruct the Illinois Gaming Board to conduct a study evaluating race and gender-neutral programs to address the needs of minority- and female-owned businesses seeking to participate in the sports wagering industry.
Since Thapedi wasn’t involved in the discussions for the new bill, he tried to make his point visible by attaching the language he wanted to see to the old bill. It didn’t work, as the language didn’t make the real vehicle.
The governor previously included $217 million from sports betting in his budget for the next fiscal year. After receiving $1.5 billion more than expected in income tax revenue in April, Illinois no longer needed that money in the budget.
The tax-revenue windfall meant that funding for the next fiscal year was covered, opening it up for gaming revenue to go into Pritzker’s $41 billion capital improvements plan.
“I think once it got included in the capital bill, it was a done deal,” Swoik said. “I think that was the turning point. I don’t think there was anything we could do to stop it at that point. There hadn’t been a capital bill in close to 10 years.”
Lawmakers knew this change was coming since the end of the previous week.
“There were a number of taxes proposed for the capital plan that were more controversial, a politically tougher sell,” said Sen. Steve Stadelman. “The administration realized they could use a larger gaming package for the capital plan.”
The gaming expansion and IL sports betting portions for the capital bill finally are released.
Rita’s solution to the bad-actor issue is to permit DraftKings Sportsbook and FanDuel Sportsbook to participate from the beginning, but only as partners to casinos operating under their own brand. After 18 months, the sites could apply for the three online-only licenses available for $20 million.
“We had both sides with their heels dug into the ground for 100% of what they wanted when I got involved. I took the approach of what is right for the state and how do we have a compromise where FanDuel and DraftKings could still be a part of operating a sportsbook but also addressing that the brick and mortar not get swallowed up by them taking 80% of the market at the switch.”
Other major changes to the sports betting language include:
With the change in bad-actor language, Rivers supported the whole bill, including the casino/gaming expansion it had opposed in the past.
“We think the General Assembly came up with a fair approach that we were able to accept even though it wasn’t exactly what we wanted,” said Paul Gaynor, a lawyer representing Rivers. “What we proposed was that, for 18 months, [DraftKings and FanDuel] couldn’t do anything.”
FanDuel and DraftKings didn’t agree that the opportunity to participate from the beginning under a casino brand was a middle ground.
“I don’t know who the compromise was between,” Kudon said. “I’m happy someone thinks there was a compromise. There was no compromise on our part.”
“I think it was [Rita’s] idea of a compromise,” Zalewski said. “I think the fantasy companies genuinely feel upset. I get the vibe they feel aggrieved with how it all shook out. It’s understandable. But I also think this was the only bill that would be able to pass. I 100% think the penalty box issue could have derailed the bill.”
House Speaker Mike Madigan opts to extend the session through the weekend. Legislative rules require that any bills passed after the deadline need to do so with 60% of the vote rather than a simple majority.
At an Executive Committee meeting, House Republicans make clear that they do not support the budget or capital plan.
With House Republicans not on board, Zalewski tweets that he believes the vertical capital bill needs to pass Friday night or it won’t happen, but he says that was before he realized that the sides were working out a deal.
Over the next several hours before the House returns to session to pass the budget, Madigan, Pritzker and Senate President John Cullerton worked out a deal with Republicans to include pro-business tax credits in the budget and capital bills.
“House Republicans were never not going to support it,” Rita said. “It’s part of the process. The capital plan was something everyone on both sides of the aisle (was) interested in seeing.”
Even though the House Republican caucus was back on board, the vertical capital plan did not move Friday night after Chicago Mayor Lori Lightfoot came out saying she opposed the sports betting proposal out of concern for the impact sports wagering at stadiums would have on a Chicago casino.
The capital bill was too big to fail, but that didn’t mean Illinois sports betting couldn’t still be dropped from the legislation.
With the mayor of the most prominent city in the state as an opponent, IL sports betting suddenly was in doubt entering the weekend.
“When the mayor came out in opposition, we wondered, is this really going to go now?” Rita said. “There was talk of pulling sports betting out if there were so many issues. It wasn’t a done deal up until Saturday.”
That’s when Pritzker intervened and addressed Lightfoot’s concerns. Nothing changed in the bill, but Lightfoot received assurances that the city would have oversight and control over what its stadiums could offer.
For their part, lawmakers read on the record their legislative intent that sports venue licenses wouldn’t interfere with her ability to regulate the city.
“He got everything he wanted,” Swoik said of Pritzker. “When he got specifically involved at the end, it made a difference.”
To reach a three-fifths supermajority, the capital bill needed 71 votes in the House. With the Republicans on board and the Chicago mayor in support, it easily exceeded that target with an 87-27 vote.
Once the capital bill passed in the House, there was little doubt that the Senate would follow suit the next day. Needing 36 votes, it passed 46-10.
A significant number of gaming stakeholders in the state weren’t happy with the final product.
The Illinois Casino Gaming Association, Boyd Gaming and Penn National Gaming opposed the bill to the end. Once Rivers and Lightfoot withdrew their opposition, the political will was there for the capital improvements plan.
“I still think the rates are too high, both the tax rate and the initial license fee,” Swoik said. “When you look at the bordering states, Iowa and Indiana, they’re right around a $100,000 fee with significantly lower tax rates. Those states will probably be able to offer bettors better odds than we can.”
“My client and others are making the decision to be in this business, so they think they can make money,” Gaynor said. “My client supported the bill because they thought they could operate in it and be successful.”
Link and Zalewski both indicated that if the parameters for sports betting aren’t cutting it, the legislature can revisit them.
“In fairness to the state, I think there will be enough of a pent-up demand that it will look mildly successful,” Kudon said. “But until we have full mobile without having to go anywhere to sign up, it’s not going to be the largest market in the country like it should be.”
The in-person registration requirement for the first 18+ months is perhaps the biggest speed bump that will slow Illinois sports betting from reaching its full potential, and it’s a bit of a mystery where the stipulation came from.
Swoik indicated that none of the nine casinos in the Illinois Casino Gaming Association wanted in-person registration. The remaining casino, Rivers, supported the final language with the requirement but did not ask for it in the proposal it pushed for all session.
Rivers’ pitch for sports betting language never wavered from Amendment 5 in the first batch of five amendments early in the session. Amendment 2, introduced by Rep. Katie Stuart, was the only one to include an in-person requirement.
Stuart, whose district Fairmount Park Racetrack, intended the amendment to be favorable to horsemen’s associations and racetracks.
When the first batch of amendments came out, Zalewski told LSR that the only previous example of legal mobile wagering in Illinois was on horse racing, through which bettors had to be physically at the racetrack.
“I think there is concern in our caucuses about mobile as a policy idea,” Zalewski said at the time. “I think it’s worth having a conversation on if we have a mobile platform, what it’s going to look like in the initial stages. That’s the only amendment that has [in-person registration] as a requirement. It’s a starting point to see the comfort level of my colleagues.”
The in-person requirement wasn’t a point of serious discussion in any of the hearings and didn’t appear in any other amendments, until it showed up in the final bill. The lawmakers considered it part of the bad-actor compromise to permit mobile wagering from the beginning and start everyone on a fair playing field.
“I know no one likes it and it’s perceived as antiquated, but I also know we were getting down to the end and there was a desire to put something out there that would not be objectionable to the masses. People probably find this objectionable, but it ended up passing. A lot of effort went into deciding what online would initially look like. It had to be casino branded and have a nexus to the person physically going to a casino. That’s the only way the bill wasn’t going to collapse on itself.”
It’s possible that, as Zalewski intimated, in-person registration was done more for the comfort of the legislators than anyone in the industry.
Kudon noted that he had a discussion with Link early in the session, referred to by The New York Times in a January article on national sports betting legislative efforts, in which Link stressed that he felt it was important for casinos to have in-person signup.
As sports betting joined the larger gaming expansion, it made sense to some lawmakers to use sports betting to drive people to the casinos. It could be harmful for sports betting but good for the broader Illinois casino ecosystem.
“The in-person registration requirement and branding restrictions will hurt advertising,” said Kudon, who added his belief that Wrigley Field and United Center will be the two most successful brick-and-mortar spaces.
“Sports betting will always have a lot of interest, as you saw in Mississippi and Delaware on Day 1, but it’s not going to have a New Jersey-level of activity. In fact, I’d go so far as to say that I’m willing to bet that at the end of 12 months, Tennessee will have a higher handle than Illinois does.”