OLG Shares Quarterly Gaming Revenue with Cavan Monaghan and Peterborough

It’s that time again–Shorelines Casino handed out cheques to their host communities last week covering the three months of operations from January to the end of March.  Cavan Monaghan’s share was $81,059, while Peterborough received $743,297.  How are gaming revenues faring under the new, two-facility model?

Last year, Cavan Monaghan received $679,173 for the same period, so these payouts represent a 21% boost over the previous year.  Payments for the previous quarter representing the first few months of operation for the Peterborough facility were only 8.7% higher than the previous year, despite line-ups to get into the new facility when it first opened.

Municipal payments are calculated as a percentage of revenues earned by facilities operating in their jurisdiction.  In other words, host municipality payments come off the top- expenses to earn these revenues do not affect these calculations.  So while this revenue bump seems significant from the outside looking in, it might not impress its operator, Great Canadian Gaming Corporation.  This corporation has built a modern facility offering several restaurant options, have introduced a variety of gaming options which are potentially more engaging than interactions with slot machines and now have two facilities to operate instead of one.

The Shorelines Casino in Peterborough was established as part of OLG’s modernisation plan first published in March 2012.  This report was a blueprint for implementing the recommendations of a strategic review designed to improve access to gaming and attract new patrons by opening new gaming facilities and relocating some existing ones to more densely populated urban settings.  It also recommended the operations of these facilities be contracted out to private firms which were expected to operate more efficiently.

Since its inception under the Ontario Lottery and Gaming Act in 1999, OLG has been a major source of revenue for the province, and last year provided the Ontario government with its largest source of non-tax revenue from Government Business Enterprises.  The strategic review was prompted by a decline in this source of provincial income from OLG, driven by reduced customer counts, particularly among younger patrons. In 2012, the net income for the province from OLG’s land-based gaming, lottery and bingo revenue was $1.88 billion, down from $2.4 billion in 2003, and was projected to fall to $1.7 billion in the years 2016 to 2018.  OLG recognized that their capital assets were in decline and they were facing significant capital investments across all business lines to upgrade them.

The modernization program was geared to stop that revenue slide, and to some extent it has been successful.  Last year the provincial take from OLG rose to $2.49 billion.  Contracts signed with private operators gave them full control over operating and capital expenses as well as relocation decisions throughout their 20 year duration in exchange for an annual stream of payments.

A key component of most gaming operators’ strategy to increase traffic is subsidized food in their restaurants.  The impact of this is naturally hitting local restaurants.  While OLG can claim that restaurants in gaming facilities are privately owned, they are effectively subsidized through the operators’ contracts.

In other words, there’s no free lunch.  Subsidized restaurants crowd out private ones.  In the end, gaming revenue distribution is a shell game.  At the moment, Cavan Monaghan is on the right side of the ledger.  KG

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