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Ontario Premier Kathleen Wynne speaks during question period at Queen's Park in Toronto on March 4, 2013.

Ontario's new Premier has sent lottery executives back to the drawing board, forcing them to drop a promise of up to $100-million a year in hosting fees for a Toronto casino.

After a meeting with Kathleen Wynne in her Queen's Park office, top executives of the Ontario Lottery and Gaming Corp. withdrew their plan to give a special funding deal to Toronto if city councillors approve a casino. Ms. Wynne's edict that the OLG must have a single funding formula for all municipalities meant it had to reduce the promised $50-million to $100-million for Toronto or sweeten the pot for every region that will have a new casino.

Ms. Wynne's intervention introduces an element of uncertainty at a time when the Crown-owned agency wants to take on private-sector partners and expand the number of casinos. The companies that get the contracts will build the casinos and hire the people who will work at them.

The number of government employees involved in gambling services will shrink to fewer than 1,000 from 8,000 today.

Ms. Wynne said on Wednesday evening she gave the gambling agency executives clear marching orders, and that she will have to approve any casino revenue formula. "There needs to be the same formula across the province, the principle of fairness needs to apply, and municipalities then need to make a decision based on that formula," she said after a party fundraiser in Toronto. "I am very comfortable with the message that I have clarified with the OLG leadership."

The suggestion that Toronto would get a different deal than other municipalities rankled Ms. Wynne, who is making an effort to reach out to parts of the province, notably rural Ontario, that turned their backs on the Liberals in the 2011 election, leaving them with a minority government.

The promised deal for Toronto also angered the mayors of Niagara Falls, Windsor and Ottawa, all of whom said they wanted the same terms for their cities.

"I was pretty pleased to hear her reaction," Niagara Falls mayor Jim Diodati told The Globe and Mail. "We're pleased the direction comes from the Premier and her cabinet."

But the controversy could pit Ms. Wynne against Toronto mayor Rob Ford at a time when her fledgling government already disagrees with him on funding for transit and other infrastructure projects. Mr. Ford told reporters on Wednesday that a new revenue-sharing deal will not derail his push for a casino. He also insisted that Toronto is entitled to preferential treatment because it is Canada's largest city.

"To compare us to Ottawa," he said, "we are three times the size, so to say we are the same as Hamilton or Ottawa is ridiculous."

Ms. Wynne called OLG chairman Paul Godfrey and chief executive officer Rod Phillips to Queen's Park on Wednesday after The Globe reported that the promised hosting fees for Toronto were more than double what the city would be entitled to under the standard formula. Mr. Godfrey told reporters after the meeting that the agency has not decided whether every municipality would get the standard formula, which will be a percentage paid out of the new casinos' net revenues. Toronto would collect annual fees of just $20-million under that arrangement, which would likely not be enough to sell city councillors on a casino.

But boosting the fees for every other municipality could make it more challenging for OLG to attract private-sector bidders, because the money would come out of their pockets and reduce their return on investment, industry insiders said.

"I can't tell you right on the spot here which way we're leaning, because this is all news to us," Mr. Godfrey said. "We understand that there's a sense of fairness, always … that the Premier wants to achieve, and we're prepared to comply with that and work on the formula."

Mr. Godfrey favours an "iconic" casino resort on Toronto's waterfront. He dangled the $50-million to $100-million in hosting fees last January in a bid to entice city councillors to approve bringing a casino to the city.

Until Wednesday, OLG officials stood behind those numbers.

With a report from Sunny Dhillon