Ontario taxpayers hit with $81-million tab for scrapping horse-racing slots

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The Ontario Lottery and Gaming Corporation is giving $81-million to horse-racing tracks as compensation for the provincial government's controversial scrapping of the slots revenue-sharing program.

The cancellation last year caused outrage among horse breeders and the rest of the racing community, and among many rural Ontarians – a group the minority Liberal government can ill afford to alienate.

The payments are going to tracks that spent money on expansion to accommodate more slot machines before the government unexpectedly cancelled the funding mechanism that had delivered more than $3.4-billion to the horse-racing industry since 1998.

Not all compensation agreements have been finalized, but $80.6-million will be distributed overall, including $31.5-million to Great Canadian Gaming for its Georgian Downs track north of Toronto. The deals had been kept under wraps until Great Canadian Gaming Corp. recently released its quarterly financial update.

More than $26-million is going to Woodbine Entertainment Group, which operates Woodbine and Mohawk racetracks. The rest of the money, nearly $23-million, will be divvied up among several other tracks, said Tony Bitonti, senior manager of OLG media relations. The exact number of tracks was not available.

The settlements, Mr. Bitonti said, were an anticipated consequence of OLG's modernization strategy. Unveiled in March, 2012, the strategy called for an overhaul of Ontario's gambling sector, including building more casinos, privatizing lottery operations and terminating the slots-at-racetracks funding program. The OLG, a Crown agency, calculated the changes would reap an additional $1.3-billion a year for the deficit-laden Ontario government by 2017.

But OLG changes have proven highly controversial in rural and urban Ontario. Premier Kathleen Wynne nixed plans to give Toronto a special financial deal for a downtown casino after Ottawa, Niagara Falls and several other municipalities complained. With the prospect that Toronto would receive $53.7-million a year in hosting fees instead of $100-million, city council quashed the casino proposal May 21.

Many of OLG's privatization and expansion plans have been tinged with uncertainty since the government fired the agency's chairman, Paul Godfrey. The board of directors resigned in protest. It is the second time in four years the OLG board has collapsed.

Finance Minister Charles Sousa has said in a statement that OLG's modernization strategy will go ahead, but Mr. Godfrey, CEO of newspaper chain Postmedia Network Inc., told The Globe and Mail last month that the Premier advised him, "We're going in a different direction. You know [that] you and I have a different concept for casinos."

Mr. Godfrey – appointed under the McGuinty government – also differed with Ms. Wynne over the horse-racing industry. Days after Mr. Godfrey's firing, Ms. Wynne acknowledged they were at odds over hosting fees for a Toronto casino and plans to include horse racing in the gambling strategy. But she said she still supports casino expansion plans.

Facing a backlash in rural Ontario over the cancellation of the slots-at-racetracks program, the Premier recently resurrected a panel of former cabinet ministers to take the lead on integrating horse racing with the province's gambling strategy.

The lucrative deals that delivered 10 per cent of gross slot revenue to racetracks and 10 per cent to the horse-racing industry are still gone, but the government is providing nearly $180-million in transitional funds over three years to a dozen tracks on the condition they open their books to a third party for auditing. The OLG has also signed interim lease agreements with the racing venues, but financial details have not been disclosed.

A key problem of the slots-at-racetracks program was that it provided more money than was needed to stabilize the horse-racing sector while failing to monitor adequately whether public funds were being reinvested into the tracks and the industry.

"The industry [needs] to be more focused on its fans and on horse players. That's got to be part of the gaming strategy," said former Conservative cabinet minister John Snobelen, a member of Ms. Wynne's horse-racing panel.

The Standardbred Breeders of Ontario Association is welcoming the panel's revival because the OLG has lost the confidence of the horse breeders group, president Walter Parkinson said. The cancellation of the slots-funding deal triggered a substantial reduction in the number of mares bred to stallions in Ontario last year, to 2,881 from 4,071 in 2011.

A legislative committee last month voted in favour of having the province's auditor-general investigate OLG's modernization strategy. OLG spokesman Mr. Bitonti said changes to the slots-funding program at racetracks will benefit customers and Ontario taxpayers by delivering more revenue to the government.

More details on OLG's $80.6-million compensation to racing venues are expected when the agency releases its 2012-13 audited financial statements. Confidentiality agreements bar track owners from discussing the settlements, which will reduce the provincial treasury's share of profits from the OLG.

"We are pleased with the settlement," Great Canadian Gaming CEO Rod Baker told analysts during a conference call this month to discuss the company's first-quarter financial results. "We're just going to leave it at that."

Industry sources said Great Canadian Gaming was planning to expand its gambling operations at Georgian Downs in Innisfil, where it has 1,000 slot machines. The company bought 28 hectares of adjacent land for $28.8-million in 2006.

In its first-quarter results, the company said it had received a one-time settlement payment of $31.5-million in connection with the Georgian Downs facility and has provided the OLG with "a release of claims."

Woodbine Entertainment Group had also entered into a contractual arrangement with the OLG to expand its slot-machine operations, and had drawn down its bank line of credit by $30-million, a source close to the not-for-profit organization said. Woodbine spokeswoman Jane Holmes said she cannot speak about details of the settlement with OLG. "We signed a term sheet that indicated we wouldn't talk about it."