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OLG chair Paul Godfrey meets with The Globe and Mail editorial board May 9, 2012 in Toronto.Moe Doiron/The Globe and Mail

The Ontario government has compiled a shortlist of candidates to succeed Paul Godfrey as chairman of the province's lottery corporation, as Premier Kathleen Wynne grows increasingly frustrated with the agency's handling of sweeping changes to the gambling sector.

Ms. Wynne is questioning the Ontario Lottery and Gaming Corp.'s privatization and expansion strategy endorsed by her predecessors, according to government sources. She is no fan of the proposal to build a downtown Toronto casino, the sources said. She has raised concerns about several key OLG decisions and ordered the Crown agency to nix plans to cut Toronto a special financial deal, if city councillors voted for a casino.

A Globe and Mail analysis that found executive compensation at the OLG had soared at a time when the government has asked for a salary freeze for managers in the public sector further escalated tensions between the government and Mr. Godfrey, the sources said.

And now, Ms. Wynne appears to be undercutting Mr. Godfrey's say over the horse-racing industry. This week, the Premier, who is also the province's Agriculture Minister, will announce that she has resurrected a panel of former cabinet ministers to take the lead on developing a blueprint to integrate horse racing with OLG's plan to modernize gambling. The OLG scrapped the slots-at-racetracks funding program, which ignited a backlash against the Liberals in rural Ontario.

Ms. Wynne's frustration with the OLG under Mr. Godfrey's stewardship could trigger his departure before his five-year term expires in February, 2015, the government sources said.

A spokesman with the OLG said Sunday that Mr. Godfrey was not available for comment.

A prominent Progressive Conservative, he was handpicked by former finance minister Dwight Duncan, under then-premier Dalton McGuinty, to overhaul the OLG and generate more revenue for the cash-strapped province. Mr. Godfrey's departure would mark a rare low point for an executive whose career has spanned municipal politics, professional sports management and newspaper publishing.

When the head of Postmedia Network Inc. arrived at the OLG in February, 2010, the agency was plagued with problems. Six months earlier, Mr. Duncan had cleaned house, including firing the CEO amid a scandal over expenses.

A source close to Ms. Wynne noted no changes at the OLG are imminent at the moment because her minority Liberal government is preoccupied with securing the support of the New Democrats for its budget and avoiding a snap election. But informally, the source added, government officials are asking, "where do we go from here?"

The government has compiled a shortlist for chairman of the OLG, according to two senior government sources. But this is not unique to the lottery agency. Officials have also drawn up lists for other agencies, in the expectation Ms. Wynne will make changes if her government survives, said one of the sources.

The OLG's privatization and expansion plans have sparked controversy across Ontario.

The horse-racing industry was thrown into turmoil in March, 2012, when the OLG and the McGuinty government suddenly announced they were scrapping the slots-at-racetracks funding program. The move ignited anger in rural Ontario, where the Liberals were already politically vulnerable because of opposition to industrial wind farms. Revenue from government-owned slot machines – more than $3.4-billion since 1998 – has kept many of the province's racetracks afloat.

To stem the political backlash, the government appointed a panel of three former cabinet ministers, Conservative John Snobelen, Liberal John Wilkinson and New Democrat Elmer Buchanan, last June to review funding for the horse-racing industry. The ex-politicians delivered their final report in the fall, but Ms. Wynne is now turning to the panel again, asking it – not the OLG – to take the lead on developing a plan to integrate horse racing with the province's gambling strategy in time for the 2014 racing season.

The Wynne government plans to release details of the panel's new mandate this week. It will also reveal how much transitional funding it is providing racetracks: $180-million over three years, a government source said.

Executives at the OLG, along with Mr. Godfrey, have met with the panel members and are working with them on the integration, said OLG spokesman Tony Bitonti. The OLG "continues to implement the approved government policy," he said.

Whether Mr. Godfrey will continue to be part of that process remains to be seen. Finance Minister Charles Sousa would neither confirm nor deny that Mr. Godrey is leaving.

"He's been making those transformational changes ...," Mr. Sousa said in a recent interview. "And now we want to make certain we've got what's necessary to move to the next level. I'll discuss this more with the chair to see what's necessary and what he wants to do as well."

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