Just two weeks ago, a $518 million bid to put a casino in the Chicago suburb of Rosemont earned Isle of Capri (NASDAQ:ISLE) Illinois' 10th and final gaming license. That decision is under review for various reasons, but if you ask me, Illinois ought to drop the probe and let Isle pay.
Which is something the casino might be loathe to do. Reuters reported that Illinois State Sen. Denny Jacobs will introduce a bill that would add two more gaming licenses in a bid to further cut the state's budget deficit.
Apparently, the new licenses are designated specifically for locations in northern and southern suburbs of Chicago. As a concession to the four existing Illinois operators in the nine-boat Chicagoland market -- Harrah's Entertainment (NYSE:HET), Argosy Gaming (NYSE:AGY), Penn National Gaming (NASDAQ:PENN), and Mandalay Resort Group (NYSE:MBG) -- the state will also raise the gaming position limit per license from 1,200 to 2,000.
It's funny.
When a trio of operators reduced operating hours and started charging admission in response to prohibitive taxes (topping out at 70%), Illinois governor Rod Blagojevich accused the casino operators of playing the states -- Indiana and Illinois -- off each other for more favorable treatment. Now the state is using its legislature to play the casinos off of each other.
Factoring in the three new casinos (including Isle's), a total of 9,200 gaming positions will have been added to the Illinois side of the Chicagoland market, almost tripling the current 4,800-position limit. Overall, the legislation will increase the Chicagoland market's gaming capacity by about 60% -- perhaps stealing tax dollars from Indiana in the process.
According to Reuters, Jacobs also expects to raise another $1 billion through the sale of the two licenses -- a figure clearly based on a pair of $500 million-plus bids for the "final" license just two weeks ago. Of course, that won't happen because (1) those companies were bidding on the final license; (2) new licenses means more competition; and (3) as I wrote before, you'd have to believe that Isle had the increase in gaming positions baked into its $2.6 billion revenue promise over the first five years.
In the end, if such legislation should pass, the state will have used the "final" license tag to sucker Isle of Capri into forking over $518 million for a license for which two other casino operators (perhaps Harrah's and privately held Midwest Gaming, the other two top bidders) will now pay far less.
Illinois is clearly playing somebody. If it really wants the most money, it should just drop its probe into Isle of Capri. After all, I'd put far better odds on Illinois banking that $518 million than on it getting $1 billion for the next two licenses.
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Fool contributor Jeff Hwang owns none of the companies mentioned above.
