The Office of the Auditor General released this special report in April of 2014 regarding the Ontario Lottery and Gaming Corporation Modernization Plan. Below are the sections pertaining directly to the horse racing industry, to read the document in full click here.
5.5.4 Responsible Gambling in the Horse-Racing Sector
When the Slots At Racetracks Program was in place, OLG took responsibility for responsible gambling at slots at racetracks but not for betting on horse racing. Responsible Gaming Resource Centres were located in the slots at racetracks, which are in segregated areas of racetracks. Programs in these centres were available to anyone with a gambling problem, but horse-racing patrons would have to enter the slots at racetracks areas to use the centres. OLG has never had a mandate to apply responsible gambling programs to horse racing, and the betting done at the tracks has always been independent of OLG slots at racetracks. The federal Canadian Pari-Mutuel Agency has a mandate to regulate and monitor pari-mutuel betting at horse racetracks across Canada, but it does not have a mandate for addressing responsible-gambling activities. When racetrack owners received Slots At Racetracks Program funding, OLG did not obligate them to address responsible gambling for betting on horse races. There were opportunities to require racetracks to implement responsible gambling as recently as 2010, when OLG extended most of its site-holder agreements with operators.
Neither the ORC nor the AGCO have problem gambling mandates that apply specifically to horse racing, and, as a result, they have not addressed responsible gambling in that industry under their general mandates.
On October 11, 2013, the Ontario government released a five-year plan for a sustainable horse- racing industry that proposes that OLG integrate horse racing within its Modernization Plan, including the application of its responsible gambling expertise to the industry.
5.6 Cancellation of the Slots At Racetracks Program
The Committee’s questions in this area and our responses are as follows:
Was the impact of canceling the Slots At Racetracks Program on Ontario’s horse- racing industry measured? Did the province or OLG assess the economic impact on [various] industries, businesses and municipalities [impacted by the cancellation of the Slots At Racetracks Program] and factor that into their decision(s)?
Yes. The province and OLG were fully aware that the decision made in February 2012
to cancel the Slots At Racetracks Program, which provided $347.3 million in funding
to racetrack operators and horse people for the year ending March 31, 2012, would have a significant negative impact on the horse- racing industry and force it to be downsized (“rightsized” was the term used by the Ministry of Finance) to levels sustained solely by the betting revenues its horse-racing product generates and a provincial tax reduction on pari-mutuel betting. The government had sufficient information to know that without program funding, the number of racetracks could be reduced from 17 to as few as six. This would mean fewer race dates, less breeding, less employment and fewer economic benefits to the agricultural industry.
However, the province and OLG had general information that led them to believe that this program funding was not having the positive economic impact on horse racing and the agricultural sector that they had originally envisioned. For instance, as early as 2008, a panel appointed by the then Minister of Government and Consumer Services to examine the state of the horse-racing and breeding industry acknowledged problems with the Slots At Racetrack Program and recommended an overhaul of how its funds were distributed, with greater accountability for the use of funds by recipients. Concerns that some racetrack operators were not using program funding for its intended purpose of promoting live horse racing in the province and subsequently benefiting the agricultural sector in Ontario were ongoing when the government directed OLG to conduct its strategic business review in 2010 and ways to maximize its net profit to the province. OLG had not enforced racetrack operators’ compliance with a key program funding requirement—the establishment of “benchmark indicators” for the track’s live-horse-racing product (for example, increases in purses offered, attendance, number of race days and events)—and no targets for these indicators were set.
When OLG requested in 2010 that racetrack operators account for their use of the over $1.3 billion in funding they had received since 1998, the responses of racetrack operators gave no clear indication whether or how the funding had been used to improve the Ontario horse-racing experience.
By November 2011, when OLG presented the results of its strategic business review
to the Ministry of Finance, it had concluded that a new horse-racing funding model was needed and recommended the program be replaced entirely (but that there be a one to two-year transition period with no funding reductions). At the same time, work on the Drummond Report was concluding. The Drummond Report was commissioned to advise government on ways to eliminate the provincial de cit by 2017/18, including eliminating or redesigning programs that are no longer serving their intended purpose. It recommended re-evaluating program funding, which it characterized as a subsidy to the horse-racing and breeding industry and municipalities.
Shortly after the decision to cancel the Slots At Racetracks Program was announced in March 2012, as a supplement to the earlier Cabinet submission, the Ministry of Finance submitted to the government its “Economic Impact Note: Ontario Horse Racing Industry” estimating that, as a result of the program’s cancellation, 11 of 17 racetracks might have to be closed, Gross Domestic Product might be reduced by between $200 million and $400 million annually, and about 3,500 to 5,800 jobs might be lost annually.
Did the province or OLG properly consult or consult various industries, businesses and municipalities impacted by the cancellation of the Slots At Racetracks Program?
No. As part of the strategic business review it conducted between July 2010 and June 2011, OLG met with key stakeholders from the horse-racing industry and discussed the expansion and sustainability of the industry with the help of gaming at racetracks. At these meetings, the stakeholders emphasized the importance of the Slots At Racetracks Program for the continued success of the industry, and they raised concerns about the negative impact that expanding slots-only facilities to locations other than racetracks would have on racetrack slot revenues and betting. Industry stakeholders conveyed to us that at no time was cancelling the program discussed. OLG employees confirmed this. OLG had agreements in place with all racetracks to continue the program until at least 2015, with two having agreements to continue the program to at least 2021 and one to at least 2023. Stakeholders indicated that having these agreements gave the industry a sense of long-term stability. OLG used early termination provisions in those agreements when it cancelled the program. The horse- racing industry and municipalities advised us that they were unprepared for this to happen.
Have certain communities been impacted disproportionately as compared to other communities?
Yes. Rural communities where horse people (horse owners, trainers and breeders) live and work have been negatively impacted. This is especially true of communities where horse people involved in standardbred and quarter-horse racing live and work. The Ontario Horse Racing Industry Association estimated in July 2013 that 3,000 owners had left the horse-racing industry since 2011; 9,000 jobs had been lost, primarily in rural Ontario; and breeders’ activities had dropped by about 60%. The Ministry of Finance and the Ministry of Agriculture and Food have not prepared an analysis on the actual job losses in the industry since the cancellation of the Slots At Racetracks Program.
In the year ending March 31, 2014, following the cancellation of the program, horse people’s overall key revenues decreased by 53%. Racetrack operators were less affected and lost 12% of their previous year’s key revenues. The projected key revenues for the years ending March 31 from 2015 to 2019 will be distributed to provide racetrack operators 22% less in key revenues and horse people 33% less in key revenues than they received prior to the cancellation of the Slots At Race- tracks Program.
With the closing of the slots at racetrack at Hiawatha Horse Park, Sarnia has lost its municipal hosting fees as of April 1, 2013. This amounted to $1.5 million annually (2.6% of Sarnia’s 2012/13 tax revenues).
As well, Fort Erie lost its municipal hosting fees as of April 1, 2013, with the closing of the slots at racetrack at Fort Erie Racetrack. This amounted to around $1.4 million annually (6.9% of Fort Erie’s 2012/13 tax revenues).
Although the slots at racetrack at Windsor Raceway were also closed, the City of Windsor’s hosting fees increased overall as a result of the new hosting fee formula applied to Caesars Windsor.
Will the Liberal government’s decision to end the program be offset by the changes in the new Modernization Plan?
Initially, no. The government decided in February 2012 to end the $347 million in annual funding from the Slots At Racetracks Program as of March 31, 2013, without providing any financial support to offset the loss of this pro- gram’s funding to the horse-racing industry.
The Modernization Plan also did not include funding to the horse-racing industry to offset the loss of this program. OLG planned to pay only rent to operators for slots at racetracks that were to remain at racetracks. OLG advised the Minister of Finance in November 2011 that it should no longer administer payments to the horse- racing industry. OLG also recommended that slots-at-racetrack performance should be decoupled from funding to the horse-racing industry and that a new funding model should be established.
An industry and public outcry followed the cancellation, including speculation that, with the loss of program funding, thousands of rural agricultural jobs would disappear and racehorses might be slaughtered. In June 2012, the government announced the establishment of a Horse Racing Industry Transition Panel (Panel) and $50 million in transition funding to the industry over three years. From June 2012 to October 2012, the Panel consulted with and took submissions from several industry experts and stakeholder groups to determine the amount of public investment needed to transition the industry to a sustainable base of public funding. In October 2012, the Panel recommended that the $50 million in transition funding over three years announced in June 2012 be increased to $180 million. The Ministry of Agriculture and Food signed short-term transition funding agreements with 13 racetracks that accepted the funding conditions, and it paid out about $57 million to racetrack operators in the year ending March 31, 2014. The Ministry of Agriculture and Food also gave over $4 million to the Horse Improvement Program.
In October 2013, the government released a ve-year plan for the horse-racing industry based on the Panel’s final report. Under this plan, instead of $180 million being provided to the industry as recommended initially by the Panel in October 2012, up to $400 million as recommended in the Panel’s final report will be provided to the industry over ve years, and horse racing will be integrated with the Modernization Plan. Integration with the Modernization Plan includes OLG conducting research into potential horse- themed lottery products and bringing OLG’s business, marketing and responsible-gambling expertise to bear on the horse-racing industry. On March 31, 2014, the government announced that up to $500 million, instead of the $400 million previously announced, will be provided to the industry over five years.
With the cancellation of the Slots At Race-tracks Program, OLG is paying racetrack operators, beginning in April 2013, new rent of $113 million per year for co-locating slots at racetracks. OLG did not establish any requirement in the lease agreements for racetrack operators to promote live horse racing and bene t the agricultural sector in Ontario. In contrast, agreements signed under the Slots At Racetracks Program included a requirement for racetrack operators to establish benchmark indicators and set annual targets for the use of the $173 million they received in annual program funding. Although racetrack operators were not initially required (nor monitored) by OLG to comply with this requirement, the intent was at least there in the agreements to hold them accountable for all Slots at Racetracks Program funding they received. Now, under the new arrangements, the horse-racing industry as a whole may be held accountable for only about 57% of the funding it will receive, through the accountability mechanisms that the Ontario Racing Commission will put in place.
Pari-mutuel betting on horse racing, Ontario’s first legal gaming activity, began experiencing competition with the introduction of lotteries in the 1970s and casinos in the 1990s. In the late 1990s, the Ontario government sought to further increase its gaming income, at the same time that horse racing was declining in the face of growing competition from other forms of gaming.
In 1996, the government significantly reduced the provincial tax on pari-mutuel betting to provide support funding to the horse-racing industry to help combat the decline in betting on horse races.46 The reduction—from 7.4% to 0.5%—put Ontario’s tax in line with other jurisdictions and has gener- ated about $50 million to $75 million annually since January 1, 2009. The industry allocates these funds to horse improvement programs, owner and breeder incentive programs, customer bene t initiatives at racetracks and purse supplements.
In 1998, the government determined that racetracks could be an excellent place to introduce slots-only facilities into communities. But because slots gambling at racetracks could reduce betting on races, OLG agreed to give racetrack operators 20% of the net revenue from slots at racetracks (after prize payout and before operating expenses). This resulted in total purses for races increasing from $120.2 million in 1997 to a high of $300.9 million in 2002. Purses have been consistently over $259 million every year since 2001. Figure 17 gives details on how revenue from slots at racetracks was shared under the Slots At Racetracks Program.
By the year ending March 31, 2012, slots-at- racetracks revenue provided to racetrack operators and horse people had reached $347.3 million.
5.6.2 Questions Over the Use of Slots At Racetracks Program Funds
Site-holder agreements, which gave OLG “free rent” for its slot facilities’ or space at racetracks and gave racetrack operators a 20% share of slot revenues, stated that the Slots At Racetracks Program “is intended to promote live horse racing in the province and subsequently benefit the agricultural sector in Ontario.” Two key features of the agreements were intended to ensure that funds were properly allocated to benefit the industry and to hold racetrack operators accountable:
As indicated in Figure 17, half of racetrack operators’ 20% revenue share had to be set aside for purses and other direct benefits for horse people.
At the beginning of each operating year, OLG, with the assistance of the Ontario Racing Commission (ORC), was to establish with the racetrack operators “benchmark indicators” for the track’s live-horse-racing product (for example, purses offered, attendance, and the number of race days and events) and targets to reach that year for each indicator. If the operator did not meet a target that year, the operator was to provide a plan of action to show how the target would be achieved within three years’ time.
However, OLG and the ORC never established these benchmark indicators under the site-holder agreements, nor did they use any other means to monitor how the operators were spending their Slots At Racetracks Program funding. Therefore, other than splitting this share with horse people (mainly to increase purses), racetrack operators were not held accountable for their use of program funds. The funds amounted to $343.1 million in the year ending March 31, 2013, and totaled $4.1 billion for the life of the program (from April 1, 1998, to March 31, 2013), with the racetrack operators and horse people each receiving over $2 billion.
We found in our discussions with horse people that they expected racetrack owners to use their revenue share to make the horse-racing experience better by investing in and improving their racetrack facilities and increasing race days; however, they observed that this was not the case for certain racetrack operators. Racetracks generally operated at a loss from their horse-racing activities and the owners grew reliant on their growing Slots At Racetracks Program funding just to sustain their horse-racing operations. They often submitted requests to the ORC for fewer, rather than more, race days per year.
On July 5, 2007, the then Minister of Govern- ment and Consumer Services appointed a three- member panel to examine the horse-racing and -breeding industry. The Chair of the panel was Stanley Sadinsky. The panel was to develop a strategic vision and direction that would ensure continued future growth, identifying the challenges and opportunities the industry faced within the gaming environment at the time.
In June 2008, the panel issued its report titled It’s all about Leadership—Strategic Vision and Direction for the Ontario Horse Racing and Breeding Industry (often referred to as the Sadinsky Report). The Sadinsky Report stated that the horse-racing and horse-breeding industry required a strategic vision and direction for the future, and that Slots At Racetracks Program funding had had mixed suc- cess. The main problem was that the program was introduced without specific government direction on how the funding should be spent and there was a lack of performance benchmarks. More broadly, the province lacked a comprehensive gaming strategy, and horse racing operated independently of the province’s other gaming sectors with no direction on how the horse-racing and breeding industry should relate to them.
The panel noted in June 2008 that most of the site-holder agreements OLG then had with race- track operators would have expired by January 1, 2012. It therefore recommended that the following should occur starting January 1, 2012:
• a new body should regulate the industry, xing race dates, developing a strategic plan, structuring and administering all racing and breeding development programs, overseeing the spending of funds generated by the pari-mutuel betting tax reduction, branding horse racing, and developing a marketing strategy;
• Slots At Racetracks Program funding should be distributed differently, such that racetrack operators should get only a quarter of the 20% revenue share instead of half, with the other three-quarters going to support larger purses, industry-wide initiatives, marketing and the new body’s operating costs; and
• the ORC should no longer be involved in any economic or operational activities supporting the industry and should return to its original mandate as regulator of the horse-racing industry.
It was thought that these recommendations could reduce the direct control that both racetrack operators and horse people have over program funding. This led to a controversy among stakeholders over the implementation of the recommendations; the government did not act on them.
All the site-holder agreements, established between 1998 and 2006, had initial terms of ve years. After ve years, OLG could exercise options to twice renew the agreements, up to total terms of 15 years. Woodbine and Mohawk racetracks had slightly different arrangements—OLG could renew their agreements just once, but that renewal could extend the agreements to 15 years. In 2009 and 2010, the first extension options of eight agreements expired. Given the uncertain future direction of the industry, OLG extended these first ve-year term renewals for only six months. In July 2010, OLG received government approval to grant the second ve-year extension-term renewals to 12 expiring agreements. This left all racetracks with agreements in place until at least 2015 or 2016. The only racetracks with longer agreement terms were three large operators that had recently paid for large expansions of their gaming facilities under OLG’s direction: Ajax Downs (agreement in place until at least 2021), Georgian Downs (agreement in place until at least 2021) and Woodbine Racetrack (agreement in place until at least 2023).
The site-holder agreements included conditions that permitted OLG to cancel the agreements with cause (for example, if the racetrack operator would be in default or would have materially breached the agreement), as well as an early termination clause that gave OLG the option to unilaterally terminate the agreements at any time, with notice periods of either nine or 12 months.
In July 2010, the newly appointed Chair of OLG wrote to all racetrack owners about the need for better information from the industry and for owners to demonstrate how they used their Slots
At Racetracks Program funding to improve horse racing in Ontario. He requested that by October 1, 2010, they submit reports on how they had used the funding over the past decade (detailing, for example, any upgrades to horse-racing facilities they had made, and any investments they had made to other parts of the business to draw pari-mutuel customers).47 With that information, OLG worked with the ORC from October 2010 to July 2011 to define potential key performance indicators that they could use to ensure consistent reporting in the future and establish benchmarks. The process also included following up on inconsistencies in racetrack operators’ revenue and expense reporting.
The reporting exercise did not achieve its objective of informing OLG about racetrack operators’ use of Slots At Racetracks Program funding. Operators reported all of their spending (totalling over $3.6 billion from all revenue sources for the 10 years up to 2009) instead of specifying how they used their half of the 20% share of slot revenue (totalling just $1.34 billion over these 10 years). In addition, improvements to horse racing in Ontario did not feature strongly in their expenditures. Instead, they reported spending a total of $630 million on capital projects, $226 million on debt charges and about $2.72 billion on racetrack operating expenses up to 2009. While some capital projects were clearly related to improving the live-horse- racing experience, many involved improvements to the buildings accommodating the slot machines. Most of the racetrack operators cited increased purses as an indicator of how they improved horse racing in Ontario, but the money for this comes from the revenue share given to horse breeders and owners, not the share that operators keep (which was what they were reporting on).
Overall, the reports gave no clear indication whether or how racetrack operators had used their Slots At Racetracks Program funding to improve the Ontario horse-racing experience. At the time the decision was made to cancel the program in February 2012, OLG and the ORC had not finalized defining the key performance indicators and benchmarks that they were working on up to July 2011.
5.6.3 The Decision to Cancel the Program
OLG was conducting its strategic business review and meeting with key stakeholders at the same time that it was working on racetrack operators’ spending reports. Stakeholders conveyed to us that at no time was canceling the Slots At Racetracks Program discussed at these meetings. We were advised by stakeholder groups that, rather, the focus of these consultations was on improvements to gaming at racetracks, new accountability measures for program funding and the importance of the program for the continued success of the industry. Industry stakeholders also raised concerns about the negative impact that expanding slots-only facilities to locations other than racetracks would have on race- tracks’ slot revenues and pari-mutuel betting. During the review and consultations, OLG indicated to us that it was not authorized as part of its mandate from government to consult with any stakeholder groups on specific policy changes that may have been contemplated as part of modernization.
The decision to end the Slots At Racetracks Program was made during the short period between October 2011 and the announcement of OLG’s Modernization Plan on March 12, 2012, just before the Budget announcement on March 27, 2012. Three key events occurred during this time and are outlined in the next sections.
Recommendations Arising From OLG’s Strategic Business Review
On November 25, 2011, the OLG provided the final recommendations from its strategic business review to the Minister of Finance. In light of its plans to privatize and expand land-based gaming and move slots-only facilities away from racetracks, OLG recommended the decoupling of slot performance from funding to the horse-racing industry and a new funding model that would effectively end the Slots At Racetracks Program. OLG also recommended the following:
the Ministry should freeze annual payments for purse funds at a specific dollar amount (based on recent levels) until a new horse- racing funding model is established;
pending any future strategic procurement, OLG should pay rent to racetrack operators for new gaming facilities, based on local market rates;
the annual amount of Slots At Racetracks Program funding to racetrack operators under the site-holder agreements in force should be frozen at a specific dollar level;
three slots at racetracks should be closed;
Five existing slots at racetracks should be relocated away from racetracks;
the Ministry should consider a one- to two- year industry transition period with no funding reductions.
In essence, OLG’s recommendation was for funding support for live horse racing to continue, but also to link it more clearly to outcomes. OLG recommended that the province should assign another central body the responsibility of administering
the funding and setting standards that site holders would need to meet in order to receive funds.
Controversy Over Use of Program Funding at Woodbine Racetrack
OLG was aware of an allegation that the not-for-profit operator of Woodbine Racetrack may have been allocating its Slots At Racetracks Program funds to executive employees’ and board members’ salaries, bonuses and severances. On January 24, 2012, OLG’s CEO met with the President of Woodbine Entertainment Group to discuss the matter and asked for information on these payments. Woodbine Entertainment Group declined the request, saying that this information was highly sensitive and con - dential for key competitive reasons, and was in any case protected under privacy legislation.
On April 5, 2012, OLG asked the AGCO to deal with the compensation scheme of Woodbine Entertainment group executives and related issues. The AGCO informed us that it had received a complaint about certain governance and accountability issues with respect to Woodbine Entertainment Group. The investigation was ongoing and would not be completed until all outstanding issues were addressed. The AGCO also indicated that it was continuing to review the status with Woodbine Entertainment Group, including the Group’s continued eligibility for registration as a non-gaming- related supplier. As of February 24, 2014, the AGCO’s investigation was still ongoing.
Recommendations Arising From the Commission on the Reform of Ontario’s Public Services (Commission)
Work on this Commission’s report, referred to informally as the Drummond Report, was concluding during the period between October 2011 and the announcement of OLG’s Modernization Plan on March 12, 2012. The government established the Commission in March 2011 to provide advice on how to make long-term, fundamental changes to the way the government delivers services in order to eliminate the provincial de cit by 2017/18. The Commission’s mandate included examining programs that were no longer serving their intended purpose and could be eliminated or redesigned. Regarding the horse-racing industry, the Commission recommended that the government:
A sixth slots-only facility in Dresden was added to the February 2012 Cabinet Submission.
“[a]llow slot machine operations at sites that are not co-located with horse racing venues”;49
“[r]e-evaluate, on a value-for-money basis, the practice of providing a portion of net slot revenues to the horse racing and breed- ing industry and municipalities in order to substantially reduce and better target that support”;50 and
“[r]eview and rationalize the current provincial 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.”51
While the Ministry of Finance was preparing its submission to Cabinet for approval of OLG’s Modernization Plan in January 2012, the government decided to cancel the Slots At Racetracks Program. The Ministry of Finance developed a draft horse- racing strategy in consultation with the Ministry of Agriculture, Food and Rural Affairs (now the Ministry of Agriculture and Food), the Office of Economic Policy and the ORC. It planned for this strategy—which proposed transition funding in the form of transfer payments of $250 million in the year ending March 31, 2014; $150 million in the year ending March 31, 2015; $100 million in the year ending March 31, 2016; and outlining it annually at $100 million after April 1, 2016—to be included in the Cabinet submission.
However, Ministry of Finance staff advised us that the Chief of Staff of the Minister of Finance’s Office advised them of the decision to remove the transition plans and any of the transition funding that had been considered in the draft Cabinet submission for the February 7, 2012, Cabinet meet- ing. This meant that funding would only continue as per the site-holder agreements—that is, until March 31, 2013, since OLG terminated the program with one year’s notice and offered no further funding afterward.
On February 7, 2012, Cabinet approved terminating the site-holder agreements with racetrack operators, effectively ending the Slots At Race-tracks Program effective March 31, 2013. It was acknowledged that without the Slots At Racetracks Program, fewer racetracks would survive on pari-mutuel betting alone. This would result in fewer race dates, less breeding, fewer economic bene ts to the agricultural industry and job losses.52 It was noted that, with no Slots At Racetracks Program funding, the market would decide how much horse racing there should be in Ontario and where it should be offered. It was projected that there would likely be a need to consolidate or close racetracks, with as few as six remaining by April 2017.
In remarks to the Economic Club of Canada on February 13, 2012, the Minister of Finance echoed the Drummond Report’s characterization of Slots At Racetracks Program funding as a subsidy, say- ing that “Since 1998, Ontario taxpayers have been subsidizing horse-racing in Ontario to the tune of $345 million a year through the OLG’s Slots At Racetracks Program.” We were told that this was the rst time the government publicly stated that program funding might be in jeopardy.
On February 20, 2012, the Ministry of Finance began work on an internal Economic Impact Note about how canceling the program would affect employment and economic activity. This note was to supplement the information it provided in its February 7 Cabinet Submission.
On March 12, 2012, OLG released its Modernization Plan and officially announced the decision to end the Slots At Racetracks Program.
On March 14, 2012, the Ministry of Finance’s Economic Impact Note: Ontario Horse Racing Industry to Cabinet, estimated that direct spending on horse racing alone (excluding slots-at-racetracks spending) was $970 million in 2010, supporting about 13,540 annual jobs at racetracks and farms associated with the industry. The Ministry predicted the following might happen without program funding:
Eleven of 17 racetracks then operating might close, eliminating the revenue from betting at those 11 tracks.
Gross Domestic Product (using 2010 dollar estimates) might be reduced by between $200 million and $400 million annually.
About 3,500 to 5,800 jobs might be lost annually.53
Around the time of the March 27, 2012, prov- incial Budget, the government indicated that revenues of $340 million from cancelling of Slots At Racetracks Program would go to fund health care and education. The Ministry’s Economic Impact Note indicated that this would boost Ontario’s GDP by between $360 million and $380 million annually and lead to annual employment gains of 5,700 to 6,700 jobs.
The March 27, 2012, provincial Budget stated the following:
Since 1998, $3.7 billion has been provided to the horseracing industry in Ontario, including $345 million in 2011/12. As part of OLG’s modernization process, the government reviewed this support for the horseracing industry, as outlined in the previous government’s 1998 letter of intent. In doing so, the government determined that the industry needs to move towards greater self- sufficiency without government support. This will allow the industry to respond competitively to market demands for its racing product.
The Budget also indicated that the only financial support the government would provide the horse-racing industry would be its continuation of a reduced tax on pari-mutuel betting (see Sec- tion 5.6.1), stating:
The government remains committed to supporting horseracing through its reduc- tion to the province’s pari-mutuel tax. This leaves wagering revenues with the industry for programming support.
Public outcry over the severe negative impact of the cancellation of the Slots At Racetracks Program on the horse-racing industry was considerable. The media reported that owners and breeders might be forced to cut significant numbers of rural agricultural jobs, might go bankrupt and might have to slaughter thousands of race horses. In response to the public outcry and following its negotiations with opposition parties to seek support for its Budget, the minority government announced on June 7, 2012, the establishment of a new Horse Racing Industry Transition Panel (Panel) and $50 million in transition funding over three years.
From June 2012 to October 2012, the Panel consulted with and took submissions from industry experts and stakeholder groups to determine the amount of public investment needed to transition the industry to a sustainable base of public funding. In October 2012, the Panel recommended that the $50 million in transition funding be increased to about $180 million over three years and proposed certain changes to the industry. It noted that the Slots At Racetracks Program had funded more than 60% of purses and proposed that, in order to sus- tain these purses, the industry share of pari-mutuel betting income should fully fund them. It also determined that the other bene ciaries of program funding—operators and the Horse Improvement Program—would require public funding to con- tinue to function.
In November 2012, the Ministry of Finance engaged a consulting rm to study how best to distribute the transition funding. The Ministry of Agriculture and Food acted on the consultant’s recommendations, signing short-term transition- funding agreements with 13 racetracks. These 13 racetracks agreed to funding conditions, such as controlling salaries and operating costs, and received about $57 million from the Ministry of Agriculture and Food in the year ending March 31, 2014. The other four racetracks received no funding.55 In addition, in the year ending March 31, 2014, the Ministry of Agriculture and Food paid $4.3 million to top up funding for the Horse Improvement Program and bring it to at least $30 million annually.
On October 11, 2013, the Ontario government released a five-year plan based on the Panel’s final report. This plan, to commence April 1, 2014, includes four key areas covering industry restruc- turing, reformed industry governance, public investment and integration with the provincial gaming strategy. The plan calls for:
providing up to $400 million over five years (replacing the $180 million in transition funding over three years recommended by the Panel in October 2012), to sustain a wide range of racing opportunities that are supported by strong business plans;
integrating horse racing with OLG’s Modern- ization Plan, with the possibility of developing horse-themed lottery products and bringing OLG’s business, marketing and responsible- gambling expertise to bear on the horse- racing industry; and
restructuring the ORC into two divisions: one to continue existing regulatory functions and the other to distribute funding and work with OLG to develop the industry and increase the racing fan base.
On March 31, 2014, the government announced that up to $500 million, instead of the $400 million previously announced, will be provided by the Min- istry of Agriculture and Food to the industry over five years.
5.6.4 Relative Impacts on Communities of Cancelling Slots At Racetracks Program Funding
With the program cancelled, purses in 2013 were 35% lower than the year before and the ORC approved 35% fewer race days. Overall, comparing the year ending March 31, 2013, to the year ending March 31, 2014, key revenues decreased by 12% in the case of racetrack owners and by 53% in the case of horse people. In addition, the ORC reported that purses and race days both decreased by 35% (purses went from $259.1 million to $163.1 million, and race days went from 1,461 days to 960 days). We noted that these decreases mostly affected horse people, who rely to a substantial extent on purses and race days. Figure 18 also shows that the projected key revenues for the years ending March 31 from 2015 to 2019 will be distributed to provide racetrack operators with 22% less in key revenues and horse people 33% less in key revenues than they received prior to the cancellation of the Slots At Racetracks Program.
Horse people, particularly those involved in standardbred and quarter-horse racing, were hit hardest by the Slots At Racetracks Program’s cancellation. We were advised that they had assumed in 2010, when OLG extended site-holder agreements for another five years, that program funding was stable, and so, they told us, they had planned for growth, investing in their farms and in the multi-year horse- breeding process. In July 2013, the Ontario Horse Racing Industry Association estimated that 3,000 owners had left the industry since 2011; 9,000
jobs had been lost, primarily in rural Ontario; and breeders’ activities had dropped by about 60%. The number of licenses the ORC issued to horse-racing industry participants decreased by 29% from 2011 to 2013, from about 24,700 to 17,500.58
The small quarter-horse-racing sector first started receiving Slots At Racetracks Program fund- ing at the Ajax Downs racetrack in 2006, enabling it to grow from about 100 race horses to around 600 by 2011. The sector successfully lobbied to increase its share of revenues after the slots at racetrack at Ajax Downs expanded from 256 to 800 slot machines in 2009. Initially, it received about $4.5 million a year from a share on only the first 200 slot machines. After Ajax Downs expanded, the sector received a commitment from the Minister of Finance in May 2010 for a xed $8 million a year from January 2011 to February 2016. As a result, the quarter-horse-racing industry believed it had stable multi-year funding and was investing in its operations up until this commitment was cancelled at the same time the Slots At Racetracks Program was ended.
In the first month after the March 2012 announcement of the Slots At Racetracks Program ending, OLG closed three slots at racetracks: Fort Erie Racetrack, Hiawatha Horse Park (in Sarnia) and Windsor Raceway. Over 500 jobs were lost by OLG employees working at the slots at racetracks. Two of the three racetracks still operate but have experienced signi cant job losses and fewer race days. All three municipalities lost their hosting fees starting April 1, 2013. According to Sarnia’s mayor, OLG did not consult his city beforehand, and Sarnia lost $1.5 million annually, representing 2.6% of its tax revenues for the year ending March 31, 2013. Fort Erie also lost around $1.4 million annually, representing 6.9% of its tax revenues for the year ending March 31, 2013. Windsor’s slots hosting fee loss has been more than offset by the new hosting fee for its casino, Caesars Windsor, giving it $2 million more overall annually.
Racetrack owners (except for the three that lost their slots at racetracks) have been less affected by the ending of the Slots At Racetracks Program— they have recouped 65% of their former revenues from OLG through the newly negotiated rent for the space occupied by the slots at racetracks. OLG also reached settlements with four racetracks in March 2013 totalling $80.6 million.59 These settle- ments arose from the capital investments the four racetracks undertook under OLG direction in their site-holder agreements to expand their slots at race- tracks (the costs were to be recouped from Slots At Racetracks Program revenues, now gone). In addi- tion, on March 12, 2014, OLG settled a claim with a private company for $3.2 million. The company had been seeking $10 million for OLG’s cancelling its agreement to build a slots at racetrack at a proposed new racetrack in the Belleville area.
The new rental agreements OLG signed with racetrack operators in 2013 provide them with $113 million per year. These rent payments repre- sent about 43% of the total financial support the horse-racing industry will be receiving over the next five years. Racetrack operators do not have to use this money to promote live horse racing and benefit the agricultural sector in Ontario.
In contrast, agreements signed under the Slots At Racetracks Program included a requirement
for racetrack operators to establish benchmark indicators and set annual targets for the use of
the $173 million they received in annual program funding. Although, as discussed in section 5.6.2, racetrack operators were not asked by OLG to comply with this requirement, at least the intent was there in the agreements to make them accountable for all Slots At Racetracks Program funding received. Instead, now the horse-racing industry as a whole may be held accountable for only the other 57% of the funding it will receive over the next five years (that is, the up to $500 million the govern- ment will provide directly through the new Horse Racing Partnership Funding Program and the money made available through the government’s continuation of the pari-mutuel tax reduction, both of which will require that accountability measures be established by the ORC with recipients for the promotion of the horse-racing industry as a condition of receiving the funding).