Auditor General Calls OLG’s Modernization Plan “Overly Ambitious” and “Overly Optimistic”

by Dickinson Wright
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In April, the office of the Auditor General of Ontario released a special report criticizing the Ontario Lottery and Gaming Corporation’s Modernization Plan as “overly ambitious” and “overly optimistic”.
 
The Modernization Plan was released to the public in March 2012 and projected significant additional financial gains ($4.6 billion in net profit to Ontario), capital investment ($3 billion in private-sector capital investment), and employment gains (2,300 gaming jobs and 4,000 new jobs in the hospitality, entertainment, and retail sectors) to the Ontario gaming industry. According to the Modernization Plan, these gains would be achieved by March 31, 2018.
 
OLG’s planned changes included:

  • reconfiguring the casino landscape to become more customer focused (improve access to gaming);
  • expanding private-sector delivery of lotteries and gaming;
  • cancelling the slots at racetracks program;
  • expanding the sale of lottery tickets;
  • enhancing responsible gambling programming; and
  • continuing the implementation of Internet gaming.

In April 2013, the Legislature’s Standing Committee on Public Accounts passed a motion requesting that the Auditor General of Ontario review certain actions of the Ontario Lottery and Gaming Corporation related to the Modernization Plan.
 
The Auditor General, following an investigation into OLG’s Modernization Plan, made the following highly critical observations:
 
1. The Modernization Plan had an overly ambitious timeline. The Modernization Plan included a number of changes that needed to occur within eighteen months of the release of the Modernization Plan in order to achieve net profit projections, including obtaining municipal approvals and the downsizing, restructuring, and privatization of OLG.
 
2. The Modernization Plan depended on and assumed municipal stakeholder agreement. The Modernization Plan assumed stakeholder agreement from municipalities with respect to the construction of casinos. However, Toronto and Ottawa, two major metropolitan areas, rejected OLG’s proposals.
 
3. The Modernization Plan’s financial projections were overly optimistic. As of March 2014, OLG had lowered its original $4.6 billion projection to $2.4 billion. The Auditor General estimates the actual revenue projection could be as low as $1.84 billion.
 
4. The Modernization Plan’s job and private sector capital investment projections were overstated. The Auditor General concluded that it is more likely that there will be a net loss of provincial gaming jobs instead of a net gain in jobs. The Auditor General also estimated that private-sector capital investment will be around $938 million, which is 71% lower than what was initially projected.
 
5. The cancellation of the Slots at Racetracks Program was considered in the Modernization Plan but was unexpected by the horse-racing industry. The OLG was aware that the cancellation of the Slots at Racetracks Program would have a significant impact on Ontario’s horse-racing industry. Prior to the cancellation of the Slots at Racetracks Program, the horse-racing industry was not given any indication that the program would be cancelled. Further, upon cancellation, there was no plan to provide transition and support funding for the industry despite the government’s knowledge that certain racetracks would no longer be viable once the Slots at Racetracks Program was cancelled.
 
6. Some stakeholders have been disproportionately impacted by the cancellation of the Slots at Racetracks Program. On the positive side, the Auditor General found that “procurement processes to date have been fair, open, and transparent,” “the revised municipal hosting fee is consistent from one municipality to the next, with no secret ‘one-off’ deals,” and “the province and OLG took steps prior to the release of the Modernization Plan to prevent and mitigate problem gambling and continue to do so.”
 
While OLG’s Modernization Plan may have been overly optimistic, potential issues with the implementation of the Modernization Plan were exacerbated by the mid-term resignation of former Ontario Premier Dalton McGuinty and the selection of his replacement, current Premier Kathleen Wynne.
 
Wynne’s vision for OLG differed from McGuinty’s. Within a few months of Wynne becoming premier, Wynne announced she would be reviewing “all the issues” around OLG’s Modernization Plan. Shortly thereafter, OLG’s Chair, Paul Godfrey (a strong advocate of a downtown Toronto casino) was fired, and OLG’s entire board of directors resigned. Wynne also ensured that there would be no special hosting deal for Toronto if a Toronto casino was built. This eliminated any chance of a Toronto casino being built in the foreseeable future.
 
The future of OLG’s Modernization Plan is unclear. However, some positive steps have been made, as OLG will be launching Internet gaming this year and appear to be going ahead with a number of requests for proposals relating to the operation of various land-based gaming sites.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Dickinson Wright | Attorney Advertising

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