State lawmakers have worked over the past decade to bring various forms of gambling out of the shadows and onto the tax rolls, from legalizing video poker at bars and restaurants in 2009 to authorizing sports betting this spring.
But the latest turn in a sprawling federal probe into public corruption from Chicago to Springfield has shined a light on a type of gambling that has flourished in a gray area of the law.
Chicago Democrat Luis Arroyo, who resigned from the Illinois House on Friday after being charged with bribery Monday, is alleged to have offered kickbacks to an unnamed senator in exchange for the veteran lawmaker’s support for legislation that would regulate and tax so-called sweepstakes machines.
Arroyo was being paid $2,500 a month as a City Hall lobbyist for a sweepstakes company run by an ex-Chicago police officer who was fired for associating with a major drug trafficker, the Chicago Tribune reported last week.
The allegations laid out in the criminal complaint against Arroyo evoke some of the worst fears about the potential for abuse as the state moves forward with a massive expansion lawmakers approved this spring that includes six new casinos, slot machines and table games at horse tracks, and more video gambling terminals.
Rep. Kelly Cassidy, a Chicago Democrat, acknowledged that people will attempt to skirt the rules, and it’s up to the regulatory framework “keep up with or stay ahead of” them.
“That’s ongoing work,” Cassidy said. “It’s never-ending.”
The prominent role the largely unregulated sweepstakes machines played in the criminal complaint against Arroyo has led to a renewed push to ban or regulate the machines, which closely resemble video poker machines.
Gov. J.B. Pritzker has asked the Illinois Gaming Board to work on legislation “to tighten gaming regulations, including barring sweepstakes,” Pritzker spokeswoman Jordan Abudayyeh said in a statement on Friday.
“The governor also looks forward to reviewing any proposals from the General Assembly to further regulate gaming to ensure the process is transparent and fair,” Abudayyeh said.
The Gaming Board has maintained for years that sweepstakes machines are illegal gambling devices, and the board supported previous efforts in the legislature to prohibit them, Administrator Marcus Fruchter said in a statement.
“This type of unregulated gambling puts the public at risk, undermines public confidence in legitimate gaming, and diverts needed revenue away from licensed locations as well as the state and local governments,” said Fruchter, a former U.S. Securities and Exchange Commission attorney Pritzker hired earlier this year to oversee the state agency that regulates gambling.
“No tax revenues are raised from play on the sweepstakes machines, and sweepstakes machines are direct competitors to the legal video gaming terminals which the state regulates and taxes.”
Lawmakers for years have grappled with how to deal with the machines, which supporters say are akin to the promotional sweepstakes run by fast-food chains and soda companies but opponents say are a clear attempt to skirt laws regulating the video gambling terminals that have proliferated across the state since they were made legal a decade ago.
At a House committee hearing in May, Cory Aronovitz, an attorney representing clients who own and operate what he called “electronic product promotion kiosks, also known as sweepstakes devices,” said the machines aren’t gambling devices because they allow “a consumer to buy a legitimate product or certificate applied toward the purchase of a product.”
“And with each purchase, the customer is awarded participation in a promotional sweepstakes where they can win cash prizes,” Aronovitz told lawmakers on the committee who included Arroyo. “There is no purchase required to participate in this contest.”
Because no purchase is required, Aronovitz contended, the machines are permitted under the same state law that allows for McDonald’s Monopoly game.
In support of his argument, he pointed to a change lawmakers approved in 2013 that effectively said the state’s video gambling law doesn’t apply to “games of skill or chance where money or other things of value can be won but no payment or purchase is required to participate.” At a 2013 committee hearing, Aronovitz described the change as a “technical cleanup.”
Opponents of sweepstakes machines have said that loophole has allowed the machines to proliferate in places including Chicago that have banned video gambling, as well as in locations like gas stations and laundromats that aren’t allowed to install traditional video gambling terminals because they don’t serve alcohol, as required by state law.
The machines also allow people who likely would be rejected by the Gaming Board for a video gambling license a way into the business.
Take Arroyo’s lobbying client, V.S.S. Inc. The company’s president is John Adreani, who was fired from the Chicago Police Department four years ago for associating with a major drug trafficker, according to Chicago Police Board records.
That background likely would be a red flag during a Gaming Board background check, but no such checks are required for sweepstakes operators.
In fact, the state doesn’t have an accurate count of how many of the machines are out there.
While the machines are supposed to be registered with the Department of Revenue, the agency doesn’t track them separately from other coin-operated amusement devices like pinball machines and dart boards.
“Sweepstakes machines are a concern due to a loophole that exempts them from oversight under the Gaming Board and paying the same taxes as other gaming devices,” Sen. Antonio Munoz, a Chicago Democrat, said in a statement. “Now is as good of a time as any to revisit the issue and regulate these machines to protect consumers.”
The Senate unanimously approved a bill Munoz sponsored in 2015 that would have banned the machines, but it went nowhere in the House.
Cassidy, who is among the sponsors of another sweepstakes machine bill, said it’s “really important to start this conversation.”
Cassidy said she and Rep. Tim Butler, a Springfield Republican, had been talking about “an appropriate response” to addressing the sweepstakes issue before the allegations against Arroyo surfaced, because it’s become clear that “prohibition hasn’t worked.”
“In the case of Chicago’s opt-out (of video gambling), we’ve seen pretty widespread use of these sweepstakes machines as a way to get around it,” Cassidy said. “This is clearly a way for folks who we as a state decided as a public policy shouldn’t be involved in gaming to be in there anyway.”
Other states like Texas and Alabama have grappled with sweepstakes machines, which don’t fall within the traditional definition of gambling, said Jennifer Roberts, associate director of the International Center for Gaming Regulation at the University of Nevada-Las Vegas.
A legal decision may be required to clarify whether the machines fit the definition of gambling. If not, the question is how they can be regulated and what kinds of consumer protections can be established for the machines, Roberts said.
The Illinois attorney general’s office issued an opinion in 1998 that slot machine-like devices that sold phone cards qualified as illegal gambling. But Aronovitz, the sweepstakes attorney, argued at the May legislative hearing that the more recent change in state law negated that determination. A state appeals court ruled on one case involving sweepstakes machines in 2017 but said explicitly that it was making no decision on the legality of the machines.
The massive gambling expansion that Pritzker signed into law earlier this year was among the major pieces of legislation on the first-year governor’s ambitious agenda that the General Assembly with a Democratic supermajority passed this spring.
One of the remaining question marks is the tax structure for a Chicago casino, which a feasibility study concluded would be unattractive to investors with the current rates.
The criminal complaint against Arroyo identified a cooperating witness, or “CW-1,” as a state senator, whom a source identified for the Tribune as state Sen. Terry Link, who is a Vernon Hills Democrat and one of the primary sponsors of the gambling legislation. The complaint alleges the senator was wearing a wire for the FBI to record Arroyo when he allegedly sought to bribe the senator.
Link has adamantly denied being the cooperating witness.
Link remains the point person on gambling in the state Senate, as Chicago Mayor Lori Lightfoot continues to push for state lawmakers to retool the casino tax structure during their fall veto session, which resumes Nov. 12. The path forward for a casino proposal in the remaining three days of the fall session is unclear, though, and details of the most recent Chicago casino proposal are unknown. Lightfoot and key lawmakers have expressed optimism about reaching a deal.
The bribery charge against Arroyo and the revelation that Link wore a wire for federal authorities are indications that lawmakers shouldn’t rush through any gambling bills in the three remaining days of the veto session, said anti-gambling activist Anita Bedell, executive director of Illinois Church Action on Alcohol and Addiction Problems.
“They shouldn’t do anything in the veto session concerning gambling after all that’s come up,” Bedell said.
The includes legislation banning sweepstakes machines, which she would support, she said.
“There’s not enough time,” Bedell said. “When they do things quickly, it usually doesn’t turn out well.”