Aug. 29 (Bloomberg) -- The Sweet Pop Fizz Candy Bar in East Dundee, Illinois, offers gelato, hand-painted chocolates -- and slot machines, two of them, ready to play between sips of a craft beer.
Since the state authorized bars and other places that serve booze to install slot machines two years ago, the number has skyrocketed to more than 18,000 and now exceeds those in the state’s 10 casinos by 60 percent. The count is rising by several hundred a month, even with some cities, including Chicago, barring them.
The rapid growth is bad news for the $1.6 billion Illinois casino industry and operators such as Caesars Entertainment Corp., Penn National Gaming Inc. and Boyd Gaming Corp., which are losing customers to the new, more convenient competitors. The Illinois Casino Gaming Association, representing casinos, is fighting legislation that would double the number of machines in truck stops and is now pushing to restrict the expansion.
“We underestimated the kind of impact it was going to have,” said Tom Swoik, executive director of the Springfield-based association. “We thought by putting a limit on the number of devices it wouldn’t hurt us much.”
The Illinois Video Gambling Act of 2009 allowed establishments that serve alcohol to install as many as five slot machines per location. The goal was to raise taxes, help struggling bars and fraternal organizations, and thwart illegal machines, according to state Senator Dave Syverson, a Rockford Republican who supported the measure.
At the time, casinos were fighting efforts that would have increased the number of traditional gambling halls and added slots at racetracks, Swoik said in a telephone interview. The casinos saw a few machines in taverns as a minor threat.
A taxpayer lawsuit and the development of regulations stalled the introduction until late 2012. Since then, businesses have put slot machines in more than 4,400 locations, according to the Illinois Gaming Board, including a scuba store, a shop that sells swimming-pool supplies and a florist, all of which serve alcohol.
The Sweet Pop Fizz Candy Bar in East Dundee, about 40 miles northwest of Chicago, is “an adult candy store” with slots like Reel Rich Devil that offer customers a little extra fun, said owner Robert “Buzz” Doyle, who doesn’t advertise the devices.
“They are here in case the guests do want to try them,” Doyle said.
Slot machine manufacturers, including International Game Technology and Bally Technologies, have reported higher sales in Illinois. So have the tavern owners.
Tony Mossuto, owner of the Double Play Saloon in the Chicago suburb of Blue Island, said bars have struggled to cope with higher liquor taxes and a 2008 smoking ban. His five slot machines have attracted a new, older clientele that is keeping his establishment open and 10 employees working.
“It’s saved our industry,” he said.
Casino revenue in Illinois fell 5.3 percent in 2013, the first full year with the new competition. Sales fell similarly in July, marking 11 straight months of decline, according to Bloomberg Intelligence data. The first casino opened in the state in 1991.
Las Vegas-based Boyd, which owns the Par-A-Dice Hotel Casino in East Peoria, cited the burgeoning competition as one reason for a shortfall in second-quarter profit.
“And it is not ending,” Chief Executive Officer Keith Smith said on a July 31 conference call.
Casino operators are now focused on keeping truck stops from having more than five machines and developing restrictions that limit the competition to places like bars and social clubs.
One proposal would limit slots to stores that get at least 60 percent of their revenue from food and beverages, according to Swoik. That would prevent slots from popping up in gas stations and other types of retailers that weren’t meant to offer gambling under the original law, he said.
Syverson, the legislator who sponsored the truck stop expansion bill, said long-haul drivers, many of them from out of state, are waiting in line to play the limited number of slot machines. Still, he said he’s willing to work with the casinos to establish some limits and will reintroduce legislation in the next session.
“I’m trying to reach a compromise,” he said.
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