19 April 2012

Hasty Decision To End Slots Program Must Be Reversed

The horse racing industry in Ontario is now in the homestretch regarding the slots at the racetrack program that has been in place since 1998.  Even though, the Liberals and the OLG have already decided to end the program, the official sign won't be posted until next week when the budget is voted on.

The fate of thousands in Ontario who rely on the horse racing industry to butter their bread is in the hands of NDP leader Andrea Horwath.  Horwath seems hell bent on making a deal with the Liberals to get the budget through and avoid another provincial election, that many Ontarians would love to have, but many would like to avoid.

One of the deal pieces is the slots at the tracks deal.  This morning, Horwath already conceded giving up on the removal of HST on home heating bills, one that won't cost her any votes.  However, she stands to gain a lot of popularity if she can get the government to increase income taxes 2% on those making more than half a million dollars, something that over 70% of Ontarians agree on.

The racetrack deal is probably second or third demand left on her list (which also includes not accepting a wage freeze on public sector employees, most of whom are overpaid to begin with).   The racetrack deal is crucial to her to win future votes from the Liberals, and stay true to her party's line which frowns upon destroying livelihoods and cutting the job force.

Since Tim Hudak and his PC Party has opted out of negotiations regarding the budget, the horse racing industry is relying on Horwath to get the decision to cut slot revenues out of the purse structure equation to be reversed, or if not reversed to vote against the budget and cause an election soon.

Poll numbers indicate that the PC's would win a minority government, but the NDP is a very close second, and depending on how this comes down, they could very well win the election, as the PC's have shown zero personality throughout this process.  One thing is for sure, the Liberals would finish third, and Finance Minister Dwight Duncan's political career would be over.

Horwath has to realize something the Liberals don't seem to get, that the Liberals are not a majority, so everything that they proposed is not carved in stone.

Hasty Decision
The decision to end the slots program looks like it was made by someone with a vendetta, and not a responsible decision.  There is even speculation that McGuinty was pissed off at the OHHA for campaigning against him last election.

How in the world does OLG President and CEO, Rod Phillips, not know why the successful slots program was cut?   It was obviously not his move, nor was the ending of the program recommended in the Drummond Report (only that it should be re-examined on a track to track basis).

No, this has vendetta and/or corruption written all over it.

Minister of Finance Dwight Duncan has come across as either a liar or an idiot or a mixture of both with his statements regarding the slots partnership with the racetracks, first by calling the revenues tax dollars (when anyone in Ontario pays income taxes or GST, not one dime goes to the tracks), to calling it a subsidy (if MGM gets a casino in Toronto, will their profits after cutting in the Ontario government and paying expenses, be considered a subsidy too?).

But the biggest thing that makes Duncan look like an inept fool is doubting the industry and government claim that there is 60,000 jobs in Ontario that either rely fully or rely somewhat on the horse racing industry.  Whether that number is 1, 60,000, or 250,000 I think it would be expected that a government that "makes a tough choice" would know exactly how many jobs would be affected and what the impact on the communities would be as well.   Especially the Minister of Finance.  The government is supposed to weigh in maximizing revenues versus social impact and job creation.  Duncan or the Liberal government doesn't have a clue how much social hardship, unemployment and welfare ending the slots deal will create.

Duncan has completely alienated himself from his home riding in Windsor, and thus killed his political career regardless how this plays out.  I doubt he could even get a job mucking stalls at Flamboro Downs after the dust clears.  He might be in line to get back in the rehab business especially with all the casino gamblers he is hoping to create.

The Modernization of Gambling In Ontario plan is full of holes and questions.  This is another reason why ending the slots deal makes very little sense.

First some background.  Last year over $1.7 Billion dollars was lost at Racinos in Ontario.  Tracks and Horsemen received 20% in total, municipalities around 5%.  The remaining $1.28 billion was left for the OLG to pay casino and OLG wages, and casino and OLG expenses and upgrades, etc.   The balance is used for a variety of government expenditures.

As for the tracks portion, many tracks in Ontario are non profit which means they are mandated to reinvest the monies back in the track (monies that go back in the economy).  The Horsemen share mainly goes towards purses, most of which stay in Ontario.  A misconception (attempted to be perpetuated by the Liberal Spin Boys) is that the monies go to rich owners.  First off, there are many owners who in the middle class, and secondly, even with slots monies inflating purses, most horse owners (outside of trainers who own their own) lose money.  In fact, because  they collectively lose money, they contribute more money to the economy than they receive in purse monies.

True, there are international (mostly American) outfits which come to Ontario to race, but they spend a lot of money here, and conversely, Canadian owners and trainers frequently bring back monies from the USA, or at least receive and spend money in the USA too.

The plan going forward is to privatize gaming in Ontario.  In other words, the OLG will no longer pay for slot employees, casino expenses, etc.   Personally, I have no problem with privatization.  The government should not be involved in the gambling business, though that is not exactly what is happening here.

Privatizing will take away from the OLG's risk going forward, and the new slots operator to start anew when it comes to employee wages, something that appeared to be getting out of hand at racetrack casinos.  Still, I would expect the new operator who assumes the risk would expect the equivalent of around 20% of all revenues to make it worth their while.

The OLG and Liberal government are hoping for RFPs (Requests for Proposals) from private businesses (which can include racetracks) to take over or move slot operations.  They are also looking to have the new operators add table games, and perhaps sports betting.  However, there is no real mention of how much of a take they expect from the new operators.  There has been speculation that the OLG wants 100% of the slots revenues.  Meanwhile, at Caesar's in Windsor, the OLG takes 20% of total revenues (the revese of racinos), and the casino operators still lost money last year.

What I'm stating here is that in order to attract non fly by nighters to operate casinos who are willing to build and expand, the OLG must offer them a significant chunk of the total gaming revenues including slots.  Table games are very expensive to operate versus slots.

I'm not even sure if anyone can say, what the heck, I'll operate a casino.  I'm sure there are some regulations that make it that a company must have a strong balance sheet and assets before entering an agreement to run a casino.   There is also the question of who assumes the risk of problem gamblers who may turn around and sue because they put themselves on the self exclusion list.  That could cost a casino operator a pretty penny just to defend such a case.

And then there is government uncertainty.  Just as an inept government can come along and end the slots program, a new government can come along and start it up again.

How would you like to be a casino operator and have the government change the rules on you with one stroke of the pen?  It happens.  And don't kid yourself, it will be part of both the NDP's and PC's platform come next election, whenever that is, if the slots program officially ends.

Let not forget that most municipalities will vote against a casino that is not at a racetrack if a referendum is called.  This includes Toronto, which is speculated to be a major reason for the governments quick movements to end the slots program.  Racetracks are the only places deemed acceptable for casinos in most instances, that is why they got the partnership deal in the first place.

What this all means is that the government will have to give their new partners far more than 20% of the slots revenues they are giving to tracks today (again, the idea it is a subsidy is laughable).   And there is no guarantee they will find partners dumb enough to do business with them either, or locations they can either move to or start up in.

The government could easily make less money bottom line with this new initiative, and regardless, they will never live down the job losses caused or the social hardship that this "tough choice" will create.  Economics 101 suggests that the deficit will actually increase if the decision isn't reversed.

See also Sportsman: Fight For Our Future  and Pull The Pocket: Strategic Problems and Bad Policy

No comments: