Riverboat casino operators trade at a discount for a reason.

And it's really getting goofy in Illinois. First, Attorney General Lisa Madigan yanked Isle of Capri's (NASDAQ:ISLE) $518 million license to put a new casino in the Chicago suburb of Rosemont. Then, there's Chicago's mayor announcing a plan to build a city-owned casino.

A little history. Back in March, Isle beat outHarrah's Entertainment (NYSE:HET) in a bid for Illinois' "final" gaming license, even though Harrah's bid was slightly higher. The attraction to Isle was location, existing infrastructure, and a rather bold promise to bring in $2.6 billion in revenue in its first five years.

The latter would basically assure the No. 1 position in a 10-boat market inhabited by Harrah's, Mandalay Resort Group (NYSE:MBG), Argosy Gaming (NYSE:AGY), Penn National (NASDAQ:PENN), and Horseshoe Gaming. As I said back in March, that's a pretty bold promise, given that Isle doesn't claim the leading market share in any riverboat market where it faces more than one competitor.

And if you think that the casinos are plain money-grubbing, that's not entirely the case. They're just providing a service, supplying demand. Here, it's clearly the Illinois state legislature that is both greedy and desperate.

Consider, amidst a probe regarding the choice of Isle of Capri over competing bids, Reuters reported that Illinois State Sen. Denny Jacobs would introduce a bill that would add two additional gaming licenses. The hope was to raise another $1 billion to further cut the state's budget deficit -- a $1 billion I suggested the state wouldn't get. As a concession for adding competition to the Chicagoland market, the state would raise the gaming position limit from 1,200 to 2,000.

Which brings us to this week.

On Tuesday, Madigan said that she would take back Isle's license, citing the company's financial condition, as well as the influence of organized crime and its connections to Rosemont Mayor Donald Stephens. Not only won't Illinois get its money anytime soon, Madigan admits that it may be several years before the legal battle surrounding the gaming license is resolved.

And just the day before, Chicago Mayor Richard Daley proposed a city-owned casino that would have 3,000 gaming positions -- two-and-a-half times as many as its Illinois-side competitors are currently allowed, and on licenses that were actually paid for by publicly owned companies.

The funny thing is that these same bureaucrats look to the casinos to raise cash, then accuse them of being greedy. The legislative dancing -- and the risk that a state can raise tax rates any year without considering the economic consequences, as Illinois has done -- is troubling. And it makes the riverboat gaming industry that much more difficult to operate in.

Fool contributor Jeff Hwang owns none of the companies mentioned above.