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Drummond's Recommendations For Racing

Published: February 16, 2012 2:14 pm ET

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On Wednesday, February 15, the much-anticipated report commissioned by the Ontario government seeking recommendations to reduce its $16 billion deficit was released with the horse racing industry being one of economist Don Drummond’s many targets.

The 500-plus page report makes four recommendations specifically regarding the horse racing industry and its partnership with the Ontario Lottery and Gaming Corp. (OLG) in the Slots at Racetracks program.

In the report’s Executive Summary, Drummond states that, “Slot machines are directed to racetracks, where subsidies are provided to the horse racing and breeding industry and municipalities, rather than locations that would be more convenient and profitable; OLG would make much more money if slots were permitted elsewhere, as they should be.”

Trot Insider has included excerpts from the report pertaining to the horse racing industry below. To view the report in its entirety, click here.

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.

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.

(With files from the Commission On The Reform Of Ontario's Public Services)

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