A 2012 plan to modernize the Ontario Lottery and Gaming Corporation (OLG) and generate higher profits for the province was “overly ambitious” and “overly optimistic,” Auditor General Bonnie Lysyk said in a special report released late last month.
The Ontario Lottery and Gaming Corporation’s Modernization Plan Special Report also found that the “abrupt cancellation” of a program that gave the horse-racing industry a share of slot-machine revenues at racetracks had a significant impact on the industry.
“OLG developed its Modernization Plan without sufficiently consulting such stakeholders as municipalities and the horse-racing industry,” Lysyk said. “The profit estimates should have been more realistic, and the abrupt impact on the horse-racing industry could have been mitigated had more people been consulted beforehand.”
Lysyk also noted that the Modernization Plan anticipated that OLG could complete significant downsizing, restructuring and privatization within 18 months, a timeline she described as “overly ambitious.”
The Legislative Assembly’s Standing Committee on Public Accounts passed a seven-part motion asking the Auditor General to look at various aspects of the Modernization Plan, including the cancelling of the Slots At Racetracks Program. The Modernization Plan was approved by Cabinet and made public in 2012.
The Modernization Plan, Lysyk found, presented an “ambitious best-case scenario,” including a significant number of changes designed to raise OLG profits by a total of $4.6 billion between 2013 and 2018. Delays, policy changes and the lack of several municipal approvals resulted in OLG having to dramatically reduce its profit projections.
For example:
As of March 31, 2014, OLG lowered its original projection of an additional $4.6 billion in gaming profits between 2013 and 2018 by 48%, or about $2.2 billion. Lysyk estimates the reduction could be “as much as $2.8 billion,” or about 60% less than forecast.
The government was fully aware that cancellation of the Slots At Racetracks Program, which provided $347 million to racetrack operators and horse owners, horse breeders and others involved in horse racing in 2012, would have a significant impact on Ontario’s horse-racing industry. Nonetheless, the program was cancelled with one year’s notice, as allowed by existing agreements.
Thirty-five standardbred horse breeders have filed a $65-million lawsuit against the Ontario Lottery and Gaming Corporation (OLG) in response to the 2012 cancelation of the slots revenue program at Ontario racetracks.
The claim, filed at the Superior Court of Justice in Guelph on March 10, seeks $60 million in damages for negligence and $5 million in punitive damages.
The claimants state in the lawsuit that the cancelation of the Slots at Racetracks Program (SRP), which generated about $345 million annually for the industry, “was arbitrary, capricious, irrational and demonstrates bad faith by the OLG and Ontario.” Initially, there was no plan to provide any transition and support funding for the industry. After an outcry from the horse-racing industry and affected communities, the government introduced new transition and support funding that will provide $500 million in purses at race tracks over the next five years.
The Modernization Plan’s projections for jobs related to the gaming industry were overstated and highly dependent on a new GTA casino; there will likely be a net loss of gaming jobs in the province instead of the projected gains. In addition, the initial projection that the private sector would spend $3.2 billion in capital investment has been reduced to only about $940 million, most of which would be realized from the sale of OLG’s existing gaming assets, said OLG board chair Philip J. Olsson in response to Lysyk’s report.
By 2010, the pressures were clear: government needed new revenue; stakeholders were seeking improvement to the way OLG operated; and customers were looking for more convenience in technology, distribution channels and products. Under Cabinet direction, OLG moved to revitalize Charitable gaming, to develop an iGaming platform, and to conduct a Strategic Business Review of both lottery and gaming, said Olsson
As a result, OLG designed its plan, modernization, in order to ensure that the corporation could deliver higher and more sustainable revenue to government. It is a plan to transform virtually all aspects of the business model while preserving the legal obligations to conduct and manage gaming. The plan, unprecedented in size and scope, introduces private sector investment and innovation for the improvement of the product for customers.
At nearly $2 billion annually, OLG provides the Ontario government with its largest source of non-tax revenue. This money goes directly to hospitals and other government priorities.
Without substantial reform, it should be noted, Ontario’s lottery and gaming business requires about $1 billion of public capital investment for maintenance alone. In addition, without action to address the current trends, the $2 billion annual dividend to government would slowly and steadily erode.
The original plan was based on sound business research and stakeholder consultations. OLG’s extensive review helped to develop a sound business model that maximized return to the Province while maintaining public control, Olsson added.
“However, as your Report points out, once the decision to end the Slots-At-Racetrack Program (SARP) was made, OLG was not authorized as part of its mandate from government to consult with any stakeholder groups on specific policy decisions that were being contemplated as part of modernization. The policy direction for modernization (and its associated financial outcomes) flowed from the Provincial Budget process, which is completed under strict confidentiality,” he said in an OLG News release.
The report has sparked condemnation of the Liberal government’s handling of the horse racing industry from Conservative MPP Randy Pettapiece.
Ontario’s auditor general confirmed what critics, led by the Ontario PC caucus, have said all along: that the government knew that cancelling the Slots at Racetracks Program (SARP) would harm the province’s horse racing industry.
“This report confirms what we have said from the beginning,” Perth-Wellington MPP Pettapiece said in today’s question period. “The Liberal-NDP move to terminate SARP was done with no consultation or consideration of the enormous damage it would do to people in the industry.”
Pettapiece, who serves as the PC critic for rural affairs and the horse racing industry, took Premier Kathleen Wynne to task over the auditor’s findings:
“Why did the government deliberately and heartlessly sacrifice the horse racing industry in favour of a pie-in-the-sky scheme to build glittering casinos in Toronto, the Premier’s backyard?” he asked.
“We now have racetracks closed, lawsuits against the province and thousands of jobs destroyed. Does that even bother the Premier?” Pettapiece said.
“The government’s ‘modernization plan’ depended on the construction of new casinos in Toronto and Ottawa, which obviously didn’t happen,” said Pettapiece. “Tragically, they were prepared to sacrifice thousands of horse-racing jobs and the interests of rural Ontario.”
