Ontario Rolls Dice to Update Infrastructure

Background

Ontario has long been planning to further expand the aging infrastructure of its gambling industry. As Online Casinos continue to grow worldwide, Ontario looks partly to renovate its physical gambling venues in response. Since 2012, the Ontario Lottery and Gaming Corp (OLG) have been in possession of a plan that has been looking at ways to create jobs, modernise facilities, and pump billions of dollars into the economy of Canada’s most populated province.

The changes have been slow in coming, but Ontario’s burgeoning economic growth is now driving the change at an increased rate. The OLG has tried to modernise by introducing its own online casino site in 2015. However, as recently as January 2017, the OLG downgraded earnings forecasts of their online casino for the next five years by as much as 75 percent. As such, the OLG’s response of deciding to upgrade its physical locations is hardly surprising.

Ontario Rolls the Dice In Order to Renovate its Gambling Industry

As an example of the importance of the gambling industry to the economy of Ontario, since 1998, the OLG has provided more than CAD $3.7 billion to horseracing in Ontario through the Slots-at-Racetracks program. Five years ago, in 2012-13, that payment alone was estimated to be CAD $345 million. That is more than was spent on road safety or water safety in that financial year. Gambling is big business and a huge entertainment industry employing thousands of people.

Since Ontario has regained its status as Canada’s leading province in terms of economic growth and job creation, the transformation of the gaming sector that contributes some $2 billion plus a year to Ontario’s economy has become of greater importance on the OLG’s agenda. That transformation is looking to create a new ownership model and invites the private sector to share the risk. The OLG has been reviewing private organisations’ tender proposals to take over the province’s gambling operations. These initiatives will allow OLG to meet the demands of a changing gaming marketplace. The OLG has correctly identified that the gambling industry is a dynamic and rapidly changing business.

Ontario historically has offered some of the best gambling facilities in the world with both national and international gambling tourism being a major source of income. Those gambling venues are leading world-class amenities but are expected to undergo a renewal update consisting of state-of-the-art conference facilities, hotels and premier entertainment venues. Consequently, with a more efficient and innovative private company in the mix, gambling can be anticipated to jump up to the next level. That is the reason why the OLG began its extensive search to find a combination of independent private operators to be contracted to take modernised control of the province’s gambling activity.

Of course, this quite literally, a huge deal. The Ontario market is a massive one and any company that can use the OLG deal to enter the market, will be able to reap a lot of benefits, not to mention gambling revenues. Companies have been jockeying for position of top place on the OLG leader board for the tender, OLG closed the door in July 2017 to tendered offers and has now on its books three major contenders: Caesars Entertainment from the United States, Genting BHD from Malaysia, and Canada’s own homegrown Brookfield Asset Management.

The Winner’s Cheque

The organisation that will receive a positive answer from the OLG will have a lot to celebrate whilst popping the champagne corks. For a start, the OLG will pay the company an annual fee of CAD $72 million for 22 years, in addition to receiving 70% of the province’s gambling revenue. Believe it or not, it gets even bigger and better. The lucky operator will also gain control over several venues. The Woodbine Racetrack, Ajax Downs, and the Great Blue Heron Casino in Port Perry, and will have the option of developing a new major gambling hub elsewhere in Ontario.

Everybody Wins!

It’s not surprising at all that officials in Woodbine are exceptionally enthusiastic about the OLG’s decision. Shafiq Qaadri, a Liberal MPP whose electorate includes Woodbine, said in July, “I’m looking forward to the long-awaited day when we can inaugurate a ‘Vegas North’ right here in the riding, bringing tourism, concerts, conferences, activity and buzz.”
Woodbine Racetrack’s official spokesperson John Siscos also commented on the OLG’s action plan, adding, “The OLG’s modernisation plan is the catalyst for Woodbine Entertainment to unlock the value of the Woodbine lands to sustain horse racing on our 680-acre site and bring real economic development to Rexdale.”

Consequently, the company that wins the tender will be able to renovate Woodbine’s existing facilities into a major gambling hub. In fact, the deal will enable the operator to review the province’s gambling facilities in general, and come up with new proposals to take those facilities to the next level.

The gambling sector is a major source of Ontario’s revenue. To give you an idea of the scale we’re talking about, during the 2015-2016 fiscal year, the OLG brought in CAD $2.3 billion. By bringing in a private organisation unencumbered by governmental bureaucracies, that revenue should be able to be built upon significantly. It is also an untaxed source of income which makes this move even more considerable.

The new structure should definitely increase Ontario’s revenue from the gambling sector by a considerable amount, boosting the Province’s economy and increasing employment opportunities. Municipalities will also benefit greatly from the projected rise in income which will then be potentially passed on to different community projects and resources.

STOP PRESS – Recently, the Ontario Lottery and Gaming Corporation announced that it has selected Ontario Gaming GTA LP (OGGLP), a joint venture between GCGC and private equity firm Brookfield Business Partners LP, to run the aforementioned three casinos in the Toronto area (the Slots at Woodbine Racetrack, Ajax Downs and the Great Blue Heron Casino in Port Perry). No announcements have yet been made on redeveloping the online casino arm of OLG.