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Time is Running Out for Online Gambling Regulation in Illinois

Posted on by John Lathram

IllinoisWith a month to go until the end of this year´s legislative session, plans to regulate online gambling in Illinois are being jeopardized by commercial interests.

Back in February, Illinois´ new Governor J.B. Pritzker gave his first budget address, during which he implored the state´s legislators to work together in order to find ways of addressing a $3.2 billion budget deficit. The Governor said he wanted legislators to consider legalizing marijuana, introducing a tax on healthcare insurance companies, and regulating online gambling in Illinois.

Bills to legalize marijuana and tax healthcare insurance companies are well-advanced and expected to be passed by the legislature when it returns from its Spring break on May 1st. However, plans to regulate online gambling in Illinois have got as far as a placeholder bill (HB 3308) consisting of just the bill´s title “The Sports Wagering Act”. There´s nothing else.

What Have Illinois´ Legislators Been Doing?

Although it may seem that there´s been no progress made towards online gambling regulation in Illinois, discussions have been held in several committees and sub-committees about what the bill´s content should consist of. There were concerns that last year´s proposed comprehensive expansion of gambling was too much, too soon, and last year´s proposals have been dismantled so legislators can look at the options one by one.

The current “option-de-jour” is to regulate sports betting first, see how the regulated market performs, and then introduce other gambling options in future legislative sessions. However, there is still no consensus about whether regulated sports betting should be land-based only or online as well. This seems to be a common problem among legislators unfamiliar with the volume of action already happening online through unregulated channels.

Then There´s the Issue of Bad Actors

Bad actor clauses are nothing new in Illinois´ online gambling bills. In 2013, it was suggested online operators that had provided a service in the post-UIGEA era should be banned for ten years; and, in 2017, a bill passed by Illinois´ Senate contained language prohibiting any operator that had ever taken an online bet applying for a license. At the time, most observers felt the language would be amended to more closely match the 2013 bad actor clause. Apparently not.

During a recent hearing of the House Revenue and Finance Committee, Representative Bob Rita – who was one of the leading sponsors of last year´s online gambling proposals – introduced an amendment mirroring the bad actor language of the 2017 Senate bill. In the context of the “option-de-jour”, the amendment clearly has the objective of prohibiting two Daily Fantasy Sports operators – DraftKings and FanDuel – from applying for sports betting licenses in Illinois.

What Prompted this Bad Actor Clause in the Sports Betting Bill?

Over the years, we become used to bad actor clauses in online poker bills. But in a sports betting bill? That´s unheard of. However, what´s prompted this bad actor clause is that potential sports betting operators – i.e. Illinois´ casinos and racetracks – have seen how DraftKings and FanDuel have built on their existing client database to dominate the regulated online gambling market in New Jersey. As one potential operator put it “who´s going to pay a $10 million license fee to get a minimal market share?”

Although DraftKings and FanDuel did not contravene UIGEA (Daily Fantasy Sports was given a carve-out in UIGEA), their operations were judged to be illegal under Illinois law in 2015 by (then) Attorney General Lisa Madigan. The two companies ignored the AG´s opinion and continued operating in Illinois – building up a substantial client database. There was no enforcement action taken against either DraftKings or FanDuel because – considering the popularity of DFS – it would have been political suicide.

Pritzker Needs to Knock a Few Heads Together

Illinois´ legislative session ends on May 31st, and – if the state´s legislature is going to pass a sports betting bill before then – Governor Pritzker needs to knock a few heads together. He first of all needs to tell Illinois´ casinos and racetracks that, if they feel they can´t compete against DraftKings and FanDuel, not to bother applying for a license. The state may lose out on a few license fees, but it would be better than yet another lost opportunity to generate tax revenues.

He also needs to tell legislators such as Representative Bob Rita not to be swayed by commercial interests. Illinois could have regulated Daily Fantasy Sports, online casinos, and online poker in 2013 – but didn´t – and over the past six years, various commercial interests have stuck their oars in to prevent legislation moving forward. It´s about time their whims were ignored; but it´s going to have to happen quickly because time is running out for regulated online gambling in Illinois.

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