The lottery is still the state’s biggest source of wagering revenue but video terminals in casinos, bars, restaurants and stores are poised to challenge that top spot, according to a report by the Illinois Commission on Government Forecasting and Accountability, a bipartisan group that provides economic analysis for the state legislature.

Illinois’s tax collections from gaming climbed to a record of almost $2 billion in the year that ended June 30, according to data going back almost five decades. Video gaming currently represents about 41% of wagering revenue, while lottery makes up nearly 44%.

Collections from video slot machines posted the biggest gains this year, rising 6.8% to $814 million, the report said. Lottery revenue increased 4.7% to $872 million. “Ever since its inception, video gaming in Illinois has been on an upward trend,” the report said.

There are now more than 45,000 video gaming terminals in Illinois. During the initial years of implementation, the state estimated the number of terminals would plateau at about 20,000, the report said, noting “the popularity of video gaming has spurred so much interest that the State has sailed past this mark.”

Illinois’s gaming revenue could keep climbing, however, any growth depends more on new casino openings and the installation of more video terminals than the amount played on average at each site, Lucy Dadayan, principal research associate at the Urban Institute Tax Policy Center, said.

Last month, Bally’s Corp. opened a temporary casino in Chicago, the city’s first, as it seeks Illinois Gaming Board approval to build a $1.7 billion gambling and entertainment complex by 2026.

This week, operator Circa Sports began offering its mobile app in Illinois and its wagering service in a brick-and-mortar site in suburban Waukegan, where a temporary casino will run until a permanent one is built in roughly three years.

Circa Chief Executive Officer Derek Stevens said he’s “bullish” given the increases in sports viewership as well as the types of bets consumers like to place. Sports betting, which was legalized roughly three years ago, is the latest entrant into the Illinois market and state tax revenue from it has grown through the pandemic from $7 million in fiscal 2020 to $143 million in the last fiscal year.

Still, with the gambling options increasing in Illinois and competition from numerous casinos across the border in states such as Indiana and Wisconsin, wagering revenue growth may be modest, according to the commission.

States across the US have continued to expand gambling as a source of revenue, albeit a small one, said Josh Goodman, who helps lead research on fiscal management and long-term budget sustainability for The Pew Charitable Trusts, adding that it’s a way to tax a discretionary activity rather than a necessity. In fiscal 2023, Illinois’s tax revenue from gaming sources amounted to less than 5% of state general fund revenue.

While much of that revenue goes toward education and capital projects, governments should be careful to count on gaming for any ongoing expenditures such as salaries, Goodman said.

“They are not a sustainable and reliable source of revenue,” Sarah Wetmore, acting president of fiscal watchdog group the Civic Federation, said regarding casinos and other gaming options. “They go up and down with the economy.”