Gambling Cafes Blast Illinois Profit-Sharing Rules

CHICAGO (CN) – A group of in-state gambling establishments claims Illinois’ Video Gaming Act unfairly favors the owners of video gaming terminals to the detriment of businesses where consumers hope to hit the jackpot.

Dotty’s Café, Stella’s Place and Shelby’s – video gaming cafes that collectively operate over 100 strip mall locations in 21 counties in the state – sued the Illinois Gaming Board in Cook County Circuit Court on Tuesday, claiming two provisions of the act and a board policy are unconstitutional and are hurting their businesses.

The industry has boomed since the Video Gaming Act was passed in 2009 and video gambling operations began in 2012. According to the cafes’ complaint, there are now over 5,800 licensed video gaming establishments in Illinois.

Formerly relegated to riverboat casinos, businesses in the state can now have up to five terminals for customers to play video poker, blackjack, slots and other games.

“Video gaming has been a success in Illinois. Its success and popularity conceal a lost opportunity, however, because the Video Gaming Act places a disincentive on local establishments to improve their consumers’ video gaming experience,” the complaint states.

State regulations stipulate that businesses cannot hold dual licenses to be both a gaming establishment and a terminal operator, meaning a gambling café cannot own any of its video terminals and has to outsource for them with a licensed terminal operator.

The law not only forces locations and operators into separate businesses, but at the same time forces them into profit-splitting joint ventures, stipulating who pays for what and who gets what percentage of profits.

A mandatory 50 percent of after-tax profits from each machine goes to the terminal operator, and a board policy also controls the amount of marketing and advertising costs operators have to pitch in, according to the lawsuit.

“The act arbitrarily forces two statutorily separated parties – licensed locations and terminal operators – into contracts with each other; mandates that they split the profits of video gaming without taking into account their relative investments, expenses and efforts; and then forbids them from freely negotiating the terms of their legislatively imposed joint venture,” the complaint states.

The lawsuit further alleges, “There is no rational basis for these provisions of the act or the board policy, and they work together to unfairly restrict the parties’ freedom of contract.”

This profit and cost-sharing method favors terminal operators, the plaintiffs say, because the gambling establishments have to put in all the effort in attracting, hosting and keeping gaming customers.

Dotty’s Café, Stella’s Place and Shelby’s claim the Illinois Gaming Board does not have the authority to determine how profits and business costs are split between two independent businesses. They allege violations of the due-process and equal-protection clauses of the Illinois and U.S. Constitutions.

“The profit diversion provision, dual licensing prohibition and advertising and promotions policy are unconstitutional on their face and unfair to the business owners and entrepreneurs that own and operate establishments across the state,” the complaint states.

Striking those provisions from the law “will permit the participants of the video gaming industry to freely negotiate, contract and compete,” according to the plaintiffs.

The gambling establishments are represented by Dan K. Webb of Winston & Strawn LLP in Chicago.

The Illinois Gaming Board told Courthouse News it has no comment on the lawsuit.

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