15 February 2012

Drummond Report Regarding Horse Racing and Gambling

My quick take on this report and what is feasible:  I don't see cuts in track or horsemen shares in slot revenues.  There looks like there will be more competition though.  Most likely online slots, poker and sports betting.  I highly doubt that we will see new casinos sprouting up except maybe downtown Toronto.  Percentages from slots won't drop but profits most likely will.  The government is asking tracks to focus on their core product and start making money on the betting side (which tracks may start to do as slot revenues drop coupled with the scare they just received from the report).  Tracks may actually now begin to woo Horseplayers and compete with the government...they may be forced to.

The first mention of horse racing is in Chapter 11 (Business Support):

The horse racing industry is another area where subsidies to racetracks and horse people require a review and adjustment to realign with present-day economic and fiscal realities. Ontario has more racetracks than any other jurisdiction in the U.S. or Canada. In addition to revenues from wagering, since the late 1990s the industry has benefited from a provincial tax expenditure (a reduction to the provincial pari-mutuel tax) and a percentage of the Ontario Lottery and Gaming Corporation’s gross slot revenues that together are worth an estimated $400 million in 2011–12. Over the past 12 years, approximately $4 billion has flowed through 17 racetracks to support purses, racetrack capital improvement and operating costs. Ontario’s support is 10 times that of British Columbia, which has six racetracks, and 17 times that of Alberta, with five racetracks. Ontario’s approach is unsustainable and it is time for the industry to rationalize its presence in the gaming marketplace. For more on the horse racing and breeding industry, please see Chapter 17, Government Business Enterprises.

Recommendation 11-11: Review and rationalize the current provincial financial support provided to the horse racing industry so that the industry is more appropriately sustained by the wagering revenues it generates rather than through subsidies or their preferential treatments.

The second mention is in Chapter 17 (Government Business Enterprises):

Ontario Lottery and Gaming (OLG)

The OLG provides significant net income to the province, but operational efficiencies could be explored to improve the company’s margins while continuing to respect social responsibility and meet its conduct and management requirement for the operation of all lottery schemes. For example, a number of questionable business practices should, at a minimum, be reviewed from a value-for-money perspective.

  • OLG maintains two head offices, one each in Toronto and Sault Ste. Marie;
  • OLG continues to operate Casino Niagara despite the opening of the permanent and considerably larger5 Niagara Fallsview Casino Resort in 2004;
  • The Slots at Racetracks Initiative, which allows slot machines to be co-located at racetrack facilities only, earmarks a share of revenues generated from slots for racetrack owners and horse breeders. This amounted to $334 million in 2009–10.6 Municipalities that play host to a racetrack also receive a share — five per cent of proceeds from the first 450 slot machines at the facility and two per cent for each machine over that. This totalled $78 million in 2009–10,7 and
  • OLG purchases and provides lottery terminals to point-of-sale locations.

Finally, OLG should continue to seek new and innovative ways to deliver gaming in Ontario to increase its revenues. These include expanding existing business lines, creating new business lines (as it is doing for Internet gambling), and leveraging further private-sector involvement. In all such ventures, the OLG must remain mindful of its mandate to promote responsible gaming.

Recommendation 17-3: Improve the Ontario Lottery and Gaming Corporation’s efficiency through, at a minimum, the following measures:

  • Close one of the two head offices;
  • Close one of the two casinos in Niagara Falls;
  • Allow slot machine operations at sites that are not co-located with horse racing venues; and
  • Stop subsidizing the purchase and provision of lottery terminals to point-of-sale locations and begin to introduce other points of sale for lotteries.

Recommendation 17-4: Re-evaluate, on a value-for-money basis, the practice of providing a portion of net slot revenues to the horse racing and breeding industry and municipalities in order to substantially reduce and better target that support.

Recommendation 17-5: Consider directing the Ontario Lottery and Gaming Corporation to expand its existing business lines, develop new gaming opportunities and make effective use of private-sector involvement.


bullring said...

I've read some misinformed and frankly, hilarious comments about this issue at places such as Standardbred Canada.

Why these people within the industry feel the government is obligated to support them goes beyond reason. They feel if the subsidies are taken away (and yes, they ARE subsidies) that are owed some sort of gambling monopoly in return.

Why do racetracks feel they are owed slot money? What does a slot machine have to do with a horse race?

The jobs excuse is equally bogus. I can't think of many industries that WOULDN'T create jobs with an additional $400 mil a year.

It's time industry folk wake up. Alter your product to become self sufficient. The lot of you should not be standing around with your hands out screaming "GIVE ME, GIVE ME", rather you should be finding innovative ways to increase churn.

René Hunderup said...

I agree 100% to your reading of the Report and what is stated - ie one of two Slots should go which may infer that Fort Erie may go and some SB tracks may be forced to close inferred from proposed realignment of funds. Fiscal responsibility and yard-sticks have been an integral part of QH racing since day one of our current program. Nothing new there. The QH Program is under the new Model with a contracted allocation of funds at a specific amount, supported by our Budgets, and not at the Industry (historic) standard 10%. We live with a working Model - and one that works and is "contracted" through 2016. Our biggest task is to prove we can meet the base criteria stated in our Development Plan.

Cangamble said...

Bullring, historically this slots deal was a way to kill two birds with one stone: get more government revenues (through gambling with the people's approval) and help horse racing. I wouldn't say it is a complete subsidy based on that or the cannibalization that occurs from having slots at a track. That being said, I do agree that the betting aspect has been totally neglected and a real entitlement mentality has developed amongst tracks and horsemen.

Rene, I didn't mean one out of two casinos will close. I can't see the government giving up any revenues. However, in Niagara Falls, they would probably get as much gambling dollars bet if they just had the one casino, so as far as expenses go, it probably makes sense to close one....as long as not too many jobs have to perish.

Anonymous said...

Wow, Mr. Bullring, you are 99% correct!! The 1% where you err, is in calling the slot-payments to horsemen a "subsidy". The payments are not sudsidies,they are simply WELFARE payments. Given to horsemen without any legitinate rationale or justification.

As for the number of jobs being created via these payments, the 60,000 number being thrown around is totally fictitious. Anyone spouting this nonsense should be required to produce a list of the specific jobs in question. If no list is produced, then shut TFU.

When a very prominent WEG harness driver AND trainer was recently asked about the slot-enhanced purses,he was quoted as follows: "My goal is to make as much money as possible and as fast as possible". [This individual is driving (and winning) at WEG every single night] Clearly this shows the typical mindset of a horseman, which is: "the hell with growing the business, I want it now, I'm entitled to it and I'll take it whenever and however I can". This same horseman voted NO to taking a small % out of purses to market the game.

Clearly Ontario should stop all slot enhancements to purses. If a track cannot fund itself from betting handles, then it should close down. Only when the threat of complete closure exists, will the horsemen realize that marketing and competitive racing is necessary for their survival.

Anonymous said...

Its about time they stopped this stupid welfare payment so a bunch of out of province losers can make an extravagant living playing a game no one wants to see...

Anonymous said...

Sometimes you just can’t see the forest for the trees! Mr Drummond is a genius, not because he has given us the solutions to the province’s deficit problem but because he identified the areas that need to be addressed.  It’s up to us to cultivate the ground-work he has done and plant the solution seeds!

One of the problem areas Mr Drummond identified for us involves the revenue sharing agreements with the horse racing industry. Millions and millions of dollars have been paid to the race track operators and the Ontario race horse breeders over the past 10 or so years under the OLG Slots at Racetrack agreements.  The 2010 payments totaled $334 million alone. Half of that goes to the track owners and operators and half goes to the horse people.

The horse people use those funds to improve the breeding stock in the province and support race purses to attract quality breeders to the tracks.  This side of the current formula supports 55,000 jobs (according to the HLT Report on Horse Racing) in Ontario and generates tons of tax revenues and spending for and in the province.  It would be like shooting yourself in the foot to tamper with this part of the arrangement so leave it alone. The industry derives its income from three sources: wagering on horse races, the sale of Ontario-bred racehorses and slot revenue. The Ontario Horse Racing Industry Association (OHRIA) manages the use of the slot revenues.

The second part of the formula involves payments to the track owners and operators.  These payments to the 17 Slot at Track partners totaled $169 million in 2010 and many millions in previous years. The agreements anticipated that improvements would be made to racetrack infrastructures, they did not specifically require improvements to be made and benchmarks and controls were not put in place by OLG to ensure that this would happen. Most track operators did initially make improvement to their racing facilities to accommodate the slots, some more than others. With some exceptions, much of these millions of dollars paid to the track operators simply evaporated and most certainly have not been used to improve the facilities.

Maybe Don Drummond saw this loop-hole in the Slots at Track program or maybe not but this is where a change and a new solution should be found; a solution that will NOT affect the revenue to the horse owners.

Here is my solution to the later problem!  Transfer the ownership of the racetracks to OLG so that 50% of this subsidy or whatever you want to call it goes back to the government to help pay down the province’s staggering deficit. There is more!  Close some of the 17 racetracks and build Super-tracks with full service casinos at geographically disbursed locations, like Woodbine, Mohawk, Ajax Down, Fort Erie, Rideau and Sudbury. Oh, did I forget some of the tracks? Yes, because we need to eliminate some to consolidate.

Now for the bite that will hurt the most but will help both the horse people and the industry. Close the Windsor, Sarnia, Dresden, Clinton and Western Fair tracks and add a Super-track to the Dealtown Casino Initiative where the government already owns a 250 acre parcel of prime real estate and where they already have a 650,000 sq ft resort facility that can be transformed into the Dealtown Casino Racetrack and Retirement Village AT NO COST TO ONTARIO TAXPAYERS! The casino and racetrack will be paid for by one of the major gaming and hospitality developers, like Penn National or Delaware North who have impressive track records in both racetracks and casinos, or partners like Paragon Gaming of Las Vegas or Donald Trump who both have solid track records in Canada.

Thank you Mr Drummond for identifying the problem!  Now it’s time to implement the solutions!

By Brian Keenan, Chairman of the Dealtown Casino Initiative

Cangamble said...

Brian, there are major problems with your idea. First, privately owned tracks are not obligated to sell to the government, nor are they obligated to have slots. Buying them out would cost the government a lot of money (and I can't see them spending money in light of the deficit, and I can't see them closing down any casinos as it would mean less revenues).
Also, by bringing in gambling partners that you suggest, well isn't that what the government is trying to cut out right now by giving the tracks and horsemen the shaft?

MrBekeen said...

Renegade Liberal Offers Solution to Controversial Slots-at-Racetrack Program…
Dealtown, Ontario – March 4, 2012… The board of directors of the Dealtown Casino Initiative unanimously approved a proposal from Chairman, Brian Keenan, to incorporate a Super-Track Plan (STP) into current design and thinking for the Dealtown Casino Hotel & Retirement Resort in Southwestern Ontario.  Chatham-Kent’s mayor, Randy Hope, and local Conservative MPP, Rick Nicholls have met repeatedly with Keenan to discuss the proposal.  Both support any plan that would transform the deserted Southwestern Regional Centre (SWRC) in Dealtown into a bustling resort that would provide more than 3,000 new jobs to economically devastated Chatham-Kent.

Keenan says, “The idea to add a super racehorse track to the Dealtown Casino plan came to me after reading all the horse manure being flung by the Ontario Liberal government and the Ontario Horse Racing and Breeding industry over the antiquated and controversial OLG Slots at Racetracks program.”  Don Drummond, in his Drummond Report, identified this agreement and several others areas under the domain of the Ontario Lottery and Gaming Corporation (OLG) as areas that could, and should, be changed if the Minister of Finance, Dwight Duncan, was going to “maximize profits” from the gaming industry in Ontario.

There is no disputing that the 10 year old OLG Slots at Racetracks program is broken and seriously flawed. Most of the 17 agreements have recently expired and unless someone at OLG seriously screwed up, those agreements have not yet been renewed since everyone at Queens Park and OLG were anxiously awaiting the Drummond Report before making any changes. During the initial 10 year term, more than $3.5 billion dollars was doled out to the Racetracks and Horse People; as the two groups are referred to by OLG. An additional $600+ million was paid directly to the municipalities in which the 17 racetracks are located.

The first and most serious flaw deals with the nearly equal payment of 10% to both the Racetracks and Horse People of the slot machine revenues at these sites. The payments to the Horse People appears to have been used, as intended, to improve the breeding stock in Ontario and to support race purses at these tracks which in turn helps attract quality breeders to our province to share in the race purses. This was confirmed in the 2008 report to the Minister of Government and Consumer Services that dealt with the strategic vision and direction for the Ontario Horse Racing and Breeding industry. This same study confirmed that the payments to the Racetracks (owners and operators) seriously lacked any controls or accountability to OLG. Therein is the $1,750,000,000 problem!

The second flaw in the current slot program was the belief and anticipation that locating the slot machines at these racetracks would somehow attract an increasing number of people to the track when the horses were actually racing. Unfortunately, almost the opposite happened in that the people, who were attracted to the slots, seldom, if ever, take in the horse racing which in itself is seasonal. They come to the track, morning, noon and night 365 days a year for the sole purpose of playing the slots. If the slots were relocated to another more convenient location in these same communities, as the Drummond Report suggests, slot revenues to OLG from these 17 locations would most certainly increase; and in all likelihood double or even triple.  

For those unfamiliar with horse racing, you should understand that the 17 racetracks involved with the OLG Slot Program operate an average of only 88 days each year, with 9 tracks open for racing less than 88 days and 4 of these 9 operating less than 30 days a year. You should also know that there is more money spent playing Bingo than there is being bet on pari-mutual wagering in Ontario.


MrBekeen said...


The light went on after talking with Ontario racehorse owners and trainers and listening to the pleading by the Ontario Horse People to save the nearly 60,000 direct and indirect jobs associated with this largely rural based industry! Keenan believes that there is a Win, Win solution that can save all those jobs, put millions, if not billions, into Finance Minister Duncan’s deficit reduction bank account, and put another 3,000+ unemployed people back to work in Chatham-Kent and an equal number in several of the other Super-Track centers.

Here are the key recommendations of Keenan’s Super-Track Plan:
1.      Terminate the Racetracks (owners and operators) subsidy currently paid to all 17 locations which amounted to $170 million last year and approximately $1.75 billion since the program started. If that money was used to improve the facilities at the respective racetracks then Ontario must have 17 of the finest tracks in the world and should not need further subsidies.  If past payments from OLG under the Slots-at-Track program were used to subsidize the operation of unprofitable tracks or line the owner’s pockets, as the finance minister suggests is happening, then the subsidies must stop anyway since the government can’t keep throwing good money after bad!
2.      Continue to operate the Slot facilities at the current 17 locations until the smaller tracks are closed because they will no longer be self-sufficient without subsidies.
3.      Continue to pay the Horse People 10% of the Slot revenue from the current 17 locations and expand the program to include additional slots added to the Super-Tracks equal to the number of slots currently installed at the smaller tracks that cease to operate.
4.      Allow the sponsor municipalities to relocate the slot centres to more suitable locations if the track closes or if a move might generate more revenue for the community, the Horse People and the government through its OLG arm.
5.      Designate the three race tracks that currently operate more than 150 days a year as Super-Tracks (Woodbine, Rideau and Flamboro).
6.      Build a forth Super-Track at the proposed 250 acre site of the Dealtown Casino that would provide service for Horse People if and when the tracks in Windsor, Sarnia, Dresden, Clinton and London close for economic reasons. 
7.      Add additional days of track operations at the Super-Tracks to support closure of the smaller tracks in their respective regional areas.
8.      OLG should offer the current Racetrack Owners & Operators loans to transform the tracks that close and submit redevelopment plans for their facilities.

To help you better understand the economics of this proposal, you must understand some of nit-ti gritty stuff.  For example, the owner/operator of the small racetracks in Windsor, Dresden and Woodstock received an estimated $78 million over the past decade under the slot program while the numbers for London’s Western Fair exceeds $100 million during the same period.  If the Keenan’s proposed plan is implemented, the Horse People will see an increase in revenue to support their industry!  OLG will contribute an additional $200+ million a year toward the current deficit.  The new Dealtown Casino and Super-Track will be built entirely by private investment and yet contribute nearly as much as the other major Ontario casino’s to the government treasury.

Now doesn’t that sound like a winning proposition for everyone? But more importantly, it will pump several hundred million of capital construction into Southern Ontario.  It will create over 3000 new jobs in Chatham-Kent and the surrounding municipalities! It will increase the tax base in CK and thus lower our property taxes.

Imagine, this is all possible because an economist named Don Drummond was asked to point out what the government could do to reduce its deficit without reducing the level of health care, education and other services that the folks in Ontario need. 

By Brian Keenan

Cangamble said...

Why not make that other Super Track Windsor or London? Why should the government go partners with another company on a casino to share revenue with (or in your words to give a subsidy to)? Your project makes no sense whatsoever.