Gaming Law Update – Ontario’s Plan to Increase Gambling Revenue

Political turmoil may surround Ontario’s plan to modernize the province’s lottery and gaming sector, but what will the recent announcements mean from a regulatory perspective? Lexpert asked John Tuzyk, senior partner in the gaming law practice of Blake, Cassels & Graydon LLP for his take. He provided us with the following analysis:

The recent Ontario budget contemplates significant increases in revenue to be contributed by the Lottery and Gaming Corporation (“OLG”) to the Provincial treasury, on the order of $600 million over the next three years.

OLG is expected to contribute $1.737 billion to the Ontario government’s revenues for the current year 2012 – 2013, representing approximately 1.5% of all Ontario government revenues (including taxes).

The budget provides that OLG will generate more than $600 million in additional revenues between 2012 – 2013 and 2014 – 2015 based on OLG’s recently announced modernization proposals, including:

  • reconfiguring the number and location of gaming sites and tailoring the type of gaming activities at those sites, the benefits of which the budget says will be enhanced by ending the slots at racetracks program by the end of March, 2013
  • implementing a new fee model for municipalities hosting gaming sites 
  • introducing a new sales channel for lottery products, and
  • increasing operational efficiencies at OLG by broadening the role of the private sector and shifting to private sector investment for the development and ownership of capital assets where possible.

Although not explicitly stated, it appears that the Province is expecting that OLG will contribute more to provincial revenues in part through a reduction of the fees paid to municipalities which host gaming sites.

Currently, municipalities hosting OLG casinos (excluding the casino resorts at Windsor, Niagara Falls and Rama) and slots at racetracks receive 5% of slot machine revenues from the first 450 machines and 2% from each additional machine.  The budget implies that such arrangements may be modified, generating more revenue to OLG, and thus the provincial government.

Given existing OLG agreements with the host communities of casino resorts, the new fee model for municipalities hosting gaming sites will apparently not apply to Windsor, Niagara Falls and Rama.

As well, it may be that OLG expects greater revenues will be retained by it with the end of the slot machines at racetracks program.  Historically, 20% of gross revenues from slot machines at racetracks have been used by OLG to support the Ontario horse racing industry.  The budget indicated that this initiative has provided over $3.7 billion since inception to this industry.  As the government previously announced, this initiative will end in 2013 – 2014; this announcement predictably produced a fierce reaction from industry participants.  The current budget expects $340 million to be provided by OLG to the horse racing industry for 2012-2013.  The end of this program may also contribute to the estimated $600 million increase in OLG revenues to go to the province; however, the budget is not explicit in this regard.

OLG has also announced it is considering the establishment of a new commercial casino in the Greater Toronto Area, as part of the proposal to re-locate gaming sites.  It is not clear as to whether incremental revenues from such a new facility are part of the $600 million projected increase in OLG’s contribution to the provincial government over the next three years.  As I have written previously, the existing regulation under OLG’s legislation would have to be amended or replaced for such a new casino to be established.  The existing regulation contemplates that municipalities designated as “eligible” would be considered for casinos after approval through a municipal referendum and meeting other conditions.  However, OLG’s authority to designate municipalities as eligible under the existing regulation lapsed in 2003.

For the current 2012 – 2013 year, the budget actually projects a loss in revenue from OLG of $100 million arising out of the fiscal actions taken under the budget.  This suggests that OLG is incurring costs to enhance its revenues in the future, such as the costs incurred with the closure of some facilities and investment in new initiatives, such as internet gambling.

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