Recommendations Called ‘Unrealistic’

FROM: Toronto Globe and Mail

BY: Beverly Smith

If the recommendations from a recent Ontario government review of horse racing were implemented, the country’s racetracks would immediately go broke, the chairman of the Woodbine Entertainment Group says.

While some of the recommendations are interesting and thought-provoking, the recommendations in an 80-page report are “entirely impractical, unrealistic and unworkable from a financial perspective,” said David Willmot, the chairman and chief executive officer of Woodbine Entertainment Group.

The most worrying issue in the report, released this week, is the recommendation to cut by half the commissions that a track would get from slot-machine revenue. Under the current agreement, 20 per cent of the revenue goes to the racing industry, with racetracks and horsemen (race purses) splitting the revenue. Under the recommendations, horsemen and racetracks would get only 25 per cent, with the rest of the money going toward other programs such as research, innovation and betting products, marketing, breeder and owner awards and other sources.

Willmot said Woodbine Entertainment, a not-for-profit company financed entirely by debt, would “breach its banking covenants and would not be able to obtain future financing.”

He said that although the report is well-intentioned, the effect of its recommendations would “devastate the second largest agricultural sector in the province, which generates 55,000 jobs.”

The report recognizes Woodbine Entertainment’s flagship role in the Ontario racing industry. It showed that the company accounted for 74 per cent of all wagering in Ontario in 2006, while the next largest track, Fort Erie, accounted for less than 5 per cent. There are 18 tracks in Ontario, two of them thoroughbred tracks.

Woodbine Entertainment operates the Woodbine and Mohawk racetracks, as well as an off-track wagering network and two betting lounges.

Woodbine president Nick Eaves said yesterday he was surprised by the recommendation and doubts that other tracks in the province would be able to survive the new formula as well.

In a prepared news release, Woodbine Entertainment said it “trusts that the province will recognize the shortcomings of the report and looks forward to working with the government on strategies which will ensure the long-term viability of this significant industry.”

The report was commissioned by the Ontario government last July. The panel included former Ontario Racing Commission chairman Stanley Sadinsky, former ORC director Bill McDonnell and retired politician Jane Stewart.

The report delved into the health of the industry, particularly since slots were introduced almost 10 years ago in Ontario at the Windsor Raceway. It found that since then, although slots were once considered the saviour of racetracks in Ontario, results have been mixed and horse racing has allowed itself to slip off the entertainment radar. Racing will die unless things change, the report said.

The report decried the fact that there is no comprehensive gaming strategy in Ontario, various ministries oversee different aspects of gambling from lotteries to bingo to first nations gaming and that no ministry is responsible for overseeing the long-term sustainability of the racing industry with its slots aspect.

Yet horse racing has a significant economic impact, most notably in the agricultural sector. There are about 55,000 Ontario residents with jobs in the industry and its related activities, including slots operations.

The industry panel recommended the slots program continue with the same 20 per cent in revenue going to the 18 racetracks that stage them. But the money would be split up in far more ways. Instead of half of the 20 per cent going to the racetrack and the other half to purses, the panel recommended that one-half of the slot revenue go to financing the proposed Horse Racing Ontario, research, innovation and betting products, marketing, bonuses for restricted races, breeder and owner awards, purse pooling and payments to racetracks. The horsemen and the tracks would split the rest.

Horse Racing Ontario would become the new voice of the racing industry, replacing the Ontario Horse Racing Industry Association, which although it successfully pushed for slots and a reduction in parimutuels takeout, failed to reach consensus on other decisions within its industry members and was not an effective economic regulator.

The new organization would take responsibility for race dates and other economic decisions from the Ontario Racing Commission.

While the slots program at racetracks was meant to enhance live racing, “clear benchmarks were not put in place to monitor its benefit to the industry,” the report said. “Rather the government rushed forward to open slots facilities at racetracks as quickly as it could.” It also opened casinos in direct competition to the racetrack slots.

The Gaming Secretariat should consider the difficulties that racetracks are experiencing in the broader gaming context, and their strategies should be designed to enhance operations and sustain jobs “rather than simply maximizing provincial gaming revenue,” the report said.

The report also took a dig at how divisive the racing industry is, how resistant to change it is and how it failed to capitalize on its near-monopoly situation years ago in the entertainment and gambling scene. But if the industry doesn’t pay attention to its customers now, it will be out of business, the report said.

The report outlined significant betting and growth changes in the industry in the decade from 1997 to 2006 and not all of them are encouraging:

Ontario became the third largest jurisdiction in North America, jumping from seventh in terms of total wagering. Ontario remains first in standardbred wagering on the continent.

Revenue increased in total for tracks, breeders and horseman by 166 per cent to $641-million by 2006. Racetracks performed the best, with a 229-per-cent increase in wagering to $337-million. Horsemen’s purses increased by 126 per cent to $274-million. Breeders increased their sales by 71 per cent to $30-million, but found the slots revenue did not trickle down to them very efficiently. The new plan allows for more breeder and owner bonuses.

Wagering on foreign racetracks has more than doubled and now accounts for 57 per cent of the money wagered, showing that the Ontario racing product is holding less interest.