14 February 2012

Getting Rid Of Slot Subsidy To Ontario Tracks: Not Very Likely

Dwight Duncan, Ontario's Finance Minister, scared the bejeevers out of Ontario's racing industry yesterday by stating that the government is going to reevaluate the $345 million subsidy that tracks and horsemen receive from slots operations.

We'll find out more details tomorrow when Duncan goes into more detail about what Don Drummond recommended.  Duncan has already stated that he will not get rid of all day kindergarten, which means that none of the recommendations are carved in stone.  The one having to do with getting rid of the horse racing subsidy seems unfeasible to me.

Right now, tracks receive 10% of slots, while horsemen receive another 10% (two exceptions, are Ajax which has a different split for horsemen, and Fort Erie, which gives more than 10% to the track to keep it alive).  For the most part, the government gets the other 80%, and of course there are expenses to keep the slots going, buying slot machines, and wages (but these are jobs that are kind of nice to have out there).

What are slot revenues really?  That is money lost by mooches, mostly Ontarians, but in border towns like Fort Erie and Windsor, some comes from US mooches.  At Woodbine, since it is close to the airport, they too get their share of international mooches as well.

The slot revenues last year generated at Ontario racetracks (Racinos) was approximately $1.7 billion.

OK, so why can't the government just grab that other $345 million and use it on health care and education?

Where will they earn that money?  Privately owned racetracks will have no incentive to allow slots to operate on racetrack property.  Even a smaller cut will be questioned because of the cannibalization which occurs when people choose slots over betting on horses.  For example, when someone loses $200 at slots under normal churn, the track only gets $20 and the horsemen another $20.   If that same gambler loses $200 on horses under normal churn, the track gets around $90 and the horsemen get $90 too.  Makes you wonder why racetracks haven't gone after slot players more aggressively the past 14 years, but that is another story.

The government isn't likely to give up on $1.4 billion and all the jobs that go with that.  In fact, the shutting of Racinos, even Fort Erie where the government gets the lowest cut, would be ludicrous.  It is way too risky to believe that the money lost at Fort Erie on gambling would go to Niagara Falls, for example.  It is just as likely that it either won't be lost, or perhaps go to Bingo or Buffalo or online to an offshore casino site.  They could also buy more lottery tickets which would be a push for the OLG in that particular circumstance.

What is true in Fort Erie is also true in the Kawarthas.

So what are the alternatives?

Build casinos close by where the Racino is.   A government looking to make cuts and find money isn't about to spend money building casinos.  No chance, except maybe a full scale casino in Toronto.

Close the Racinos or some of them, with the hope that gamblers will go to the non racetrack casinos.  Again, this is too much of a risk.  The government is in no position to risk it.  There is also Goodwill factor where the gambler feels more at home gambling within a certain distance to their residence, and more comfortable going to a racetrack structure to bet (also, when live racing is on, it isn't unusual for one spouse to play the ponies while the other hits the one armed bandits).

Take slots out of Racinos and put them in bars and gas stations.  I for one would probably think of moving out of the province if that happens.  Crime in Ontario isn't very horrible, but I could see a lot more robberies and shootings if slot machines were found everywhere.  The other thing is that there is no way they'll come close to matching the revenues a casino with its allure has going for it.

Sell the slots operations.  Now there is an idea that has some legs.  These slot outlets are still gold mines, though they might not be as lucrative in the future.  I could see the individual racetracks buying them and handing over the government a nice lump sum to help reduce the deficit.  It makes sense too, when considering that a government shouldn't be in the gambling business in the first place.  They should be collecting taxes on those who are in it and that is where the relationship should end.  So selling off the OLG in parts should be a recommendation (but I don't think it is).

Drop the cut from 20% in total to 10% for example.  Besides the fact that some tracks have deals that go for another 5 or 6 years at 20%, when taking cannibalization into account, at 10% in total, many tracks may tell the government forget it, it isn't enough.  The government is not about to face a lockout when it comes to keeping slots open, anywhere.

It is hard to justify losing 60,000 jobs potentially (a number most like inflated) if one wants to have a remote chance of getting elected again.  But the number is really a lot higher when you take into account the business that are propped up in communities that have Racinos.  From mom and pop hardware stores to Walmarts to Tim Horton Donut shops, killing a Racino could mean killing quite a few businesses that aren't even horse racing related.  And killing these jobs would also create a depression in the rural real estate market as well.

The Ontario government has already announced that they are going to start taking wagers on poker, slots and sports online in the near future.  This is going to cannibalize slot revenues and probably racetrack wagering at least a tad anyway.  But if implemented properly, it will probably mean even more revenue for the government.   So I'm definitely not saying that racing shouldn't worry, I just don't see that when the facts on the ground are examined, that this government grab is going to leave the starting gate.

I could be wrong, but I doubt it.  We'll know more tomorrow.

This could either be a not very well thought out recommendation or a devious way to create a compromise in order to get a full scale casino in Toronto without giving Woodbine squat.  BTW, Woodbine and Mohawk receive close to 50% of the $345 million, so making them exempt while killing rural jobs makes no sense either.   At least in the rural communities the majority of the money that is distributed to horsemen goes back in the Ontario economy (this is exactly true with a good percentage of dollars won in purses at Woodbine, again, another story).

Edit:  One more thing.  Are we talking subsidy or talking government tax dollars.  It isn't tax dollars but government business revenues.  People are losing after tax dollars gambling.  They have choices where to spend those after tax dollars.  Take away slots, and they'll spend those dollars elsewhere.  As for slot revenues being a subsidy?  Mostly.  It is more money than racing would receive if it were just relying on horse racing related revenues, but as stated, there is a lot of cannibalization that occurs when a casino is put into a racetrack, and one could argue that since these slot machines are located at a track, it attracts more business than what the government would generate if located elsewhere, so yes, most of the revenue is subsidized revenue, but not nearly all of it.



Anonymous said...

If you notice rural is usually PC government!! What a great way to save face as a liberal and hit the PC areas again!!!

That Blog Guy said...

I am certainly not in the position to know anything about this with certainty as I am not Canadian. I remember reading something that said they wanted to move the casinos to be closer to the city instead of at the tracks.

One thing you did not consider is having private companies build new casinos and having them operate them. No one says the slots need to come out right away.

As a Devil's Advocate, could the Ontario government be making a decision as in Quebec that racing is not doing anything to improve their business and the province is just saying the slot subsidy program is throwing good money after bad?

Anonymous said...

Ontario has the best horse racing program in all of Canada, possibly North America. Breeders from across Canada breed to Ontario Stallions in hopes they too will own a horse competitive enough to race in Ontario's Sire Stakes. Owners from across Canada and the United States attend Ontario Yearling Sales to purchase yearlings and pay Ontario Trainers to train them for 2-3 year old stake races. Owners fly into Ontario to watch and bet on their horses spending money in restaurants, shops and motels car rentals ect
Horse racing is a family friendly rewarding sport. Our children have learned that caring for horses and training them to race is a very rewarding lifestyle. You get out what you put in and it's hard work, 7 days a week morning and night, in all kinds of weather. It's a more responsible way to make a living then sitting in front of a slot machine 'hoping' To cash in big.