Local Government: Illinois’ New Video Gaming Act: Implications for Municipalities
 
August 20, 2009
 

Governor Pat Quinn signed the Illinois Video Gaming Act (the “Act”) into law on July 13, 2009. The Act, which is part of Public Act 96-0034,¹ allows video gaming machines in certain business establishments throughout the State. In this Alert, we have set forth a brief summary of the Act, including its revenue impact on municipalities, a discussion of the express authority granted by the Act to municipalities to prohibit video gaming, and recommended steps for municipalities in reaction to the Act.

1. Summary of the Act

The Act is lengthy, because it includes a multi-tiered licensing scheme and detailed provisions regulating licenses, the gaming machines, and betting records, among other things. Here are key provisions of the Act:

• Licensing: The Act requires separate licenses for video game machine manufacturers, distributors, operators, and technicians. Separate licenses also are required for the establishment in which the machine is located and for the machine itself.
• Authorized Establishments: Video game machines are authorized only in select establishments, including bars, fraternal clubs (such as American Legion posts and Elks and Moose lodges), truck stops at least three acres in size, and veterans’ organizations. Machines may not be located at racetracks or off-track betting parlors; nor may they be placed at any establishment located within 1,000 feet of a racetrack, off-track betting parlor, or riverboat casino, or within 100 feet of a school or place of worship.
• Maximum Number of Machines in One Establishment: No more than five machines may be operated at any individual establishment.
• Machine Specifications: The Act allows video gaming only on machines that are first “tested and approved” by the Illinois Gaming Board (the “Board”). All machines must pay out at least 80 percent of their income and must use a random selection process to determine the outcome of each game.
• Internal Machine Records: Each machine must retain the record of all bets and winnings permanently. Each machine also must be capable of displaying a complete history for the 10 most recently played games.
• External Auditing: Each machine must be wired into a central communications network, so that the Board can audit the machines for compliance with the Act.
• Wagering Limits: The maximum allowable wager on any single hand is $2. The maximum payout per hand is $500.
• Age Restrictions: Video gaming machines may not be used by anyone under age 21. All machines must be placed at a specific location within the licensed establishment that is accessible only to patrons of at least 21 years of age.
• Revocation of Liquor License as Penalty: All State of Illinois liquor licenses issued to a business owner are automatically revoked if the owner allows a video gaming machine to be operated in violation of the Act.

2. Revenue Implications for Municipalities

Under Section 60 of the Act, the Board is to collect a tax equal to 30 percent of the net income derived from each video gaming machine. One-sixth of that 30 percent amount (that is, 5 percent of the net income) is to be distributed to the municipality in which the machine is located. Under Section 75(b) of the Act, the municipality may use its share of the tax revenues “for any general corporate purpose.” Municipalities that have prohibited video gaming, either by ordinance or referendum, are not eligible to receive any portion of the video gaming tax revenues.

If video gaming is not prohibited, then a non-home rule municipality may impose a fee of up to $25 per year for operation of each video gaming machine. The Act does not set forth a similar cap for home rule municipalities.

3. Municipal Authority to Prohibit Video Gaming

Section 27 of the Act expressly provides that “a municipality may pass an ordinance prohibiting video gaming within the corporate limits of the municipality.” The Act does not specify any particular form of such an ordinance. The prohibition could be incorporated into the municipality’s zoning regulations or inserted into the existing gambling provisions of its local municipal code.

Alternatively, Section 70 of the Act establishes a procedure to ban video gaming by referendum. The referendum process is initiated by the filing of a petition signed by at least 25 percent of the legal voters of the municipality.

4. First Steps Under the New Act

As a threshold matter, we suggest that each municipality determine whether, and to what extent, video gaming is a desirable use within its boundaries. Each municipality also should examine its current ordinances to determine whether video gaming as contemplated by the Act would be permitted or prohibited under existing local laws. Then, the corporate authorities can adopt an ordinance banning video gaming machines or, alternatively, amending its existing codes to adequately regulate video gaming.

If you are contemplating a regulation or prohibition affecting video gaming, please feel free to contact Mark Burkland at 312-578-6557 or Hart Passman at 312-578-6634, or any Holland & Knight attorney with whom you normally work, for further guidance on the Act.

¹ The Act will be codified at 230 ILCS 40.

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