Uncertainty continues to be the biggest hurdle for Sudbury Downs, according to the racetracks manager of operations.'
Andrew MacIsaac said his staff is looking for answers as to the fate of Sudbury Downs after March 31, 2013, when the Slots At Racetracks program ends.
“My staff is looking for answers, and I don't have them,” Andrew said.
Since it was announced that OLG will end that revenue-sharing deal come next year to focus on modernize its gaming system, which it states would result in an increase in its revenue by more than $1 billion a year, more questions than answers have been raised. At Sudbury Downs, several employees have already left to seek jobs elsewhere, while new employees have to be told there might not even be a racetrack sometime in the near future.
“I don't know of anyone who has been given a clear answer as to why the government has decided to go this route,” Sudbury Downs president Patrick MacIsaac said. “We don't fault (employees who have left) for that; they have to look after their own. We've seen a limited impact (to date), and far less than we anticipate next March.”
Internet-based gaming is growing and the province's gaming system has to adapt, OLG stated in its announcement. In addition to ending the Slots at Racetracks program, the province wants to allow slot facilities to be located more strategically and implement a new fee model for municipalities hosting gaming sites.
As a business person, MacIsaac said he can't understand why the province would pull out of a revenue-sharing agreement that generates about $1 billion a year. For 2011/12, the Slots at Racetracks program generated $963 million, according to the Ontario Horse Racing Industry Association, in its submission to the Standing Committee of Finance and Economic Affairs, dated June 6, 2012. Meanwhile, resort casinos recorded a net revenue of minus $45 million.
Like the other racetrack owners and the thousands of people directly and indirectly employed in the industry, MacIsaac said he was and continues to be surprised by the news.
“Racetracks are the highest net revenue source, more than any other gaming categories,” he said. “I don't understand how you rationalize cutting out No. 1, and going to a model that's producing minus revenue. The horse-racing industry doesn't understand that, either, and it's pretty downhearted about it.”
The controversy surrounding the exit of the Slots At Racetracks program can be compared to its entrance. MacIsaac said he was there when the province devised a concept whereby they were going to develop 44 charity casinos across Ontario. Government representatives set about conducting public hearings to gauge support, and there were many different groups that appeared at the Sudbury hearing, he said.
“There was, of course, a lot of opposition to casinos at that time,” MacIsaac said, adding that Sudbury was eventually selected as a site for one of the casinos. “(The province) started down and travelled this path for quite a way, and they even got to the point where they were accepting Requests for Proposals to build and operate these casinos.”
A short time after that, the government turned around and scrapped that idea.
“We don't really know why, but there is speculation that it was the comments they received that relayed the negativity toward casinos to this degree that put an end to it,” he said.
Slot machines grew out of that process, he said, and the province approached racetracks to put in the investment. The proposal made sense to racetrack owners, because racetracks were places that were located a distance from the core of the city where gambling was already happening.
Being located outside of the city, it was thought that approach would help cut down on problem gambling.
“It wasn't as easy for people to just go and gamble; it wasn't something they were throwing in everyone's face, and this was seen as some sort of a control mechanism.”
The obvious disadvantage to the deal was that the horse-racing industry was inviting into its midst a competitor for the gambling dollar, he said.
This is something the government recognized, though. It knew there was going to be some cannibalization of the parimutuel bet (a system in which all bets of a particular type are placed together in a pool; taxes and the house take are removed, and payoff odds are calculated by sharing the pool among all winning bets), “so a deal was struck to enter into a revenue-sharing scenario.”
The deal was formalized in 1996. Three years later, the slots were set up at Sudbury Downs. MacIsaac poured in the $10 million or $11 million needed to build the gaming floor. That included building enough room to double the size of the gaming floor, if and when OLG decided to pursue that path, he said.
“It was an interesting concept, a sort of private-public investment, and I think it's worked out,” MacIsaac said. “The horse-racing industry has grown over the past 12 years, and the government has seen quite a bit of revenue from the program.”
Even the City of Sudbury, as a host municipality, benefits from the revenue-sharing program. It receives a share of five per cent of the profits from the Slots At Racetracks program every year, which adds up to about $2.1 million annually. That money is earmarked for capital investments, such as roads. Racetracks get 10 per cent, and horsemen get another 10 per cent.
The “big cloud of uncertainty” hanging over Sudbury Downs has stalled any capital investments. Sudbury Downs had tentative plans for improvements to its food and beverage service, as well as to its entrance.
“I'm glad we didn't follow through on those plans,” MacIsaac said.
Echoing comments made by horsepeople around the province, MacIsaac said he is offended by the fact people refer to the Slots At Racetracks program as a subsidy.
“In 1997, when (the province was) contemplating this, no one came to us and said they were going to buy our racetrack, or that they were going to guarantee us any sort of revenue stream,” he said. “They told us to participate if it was in our interest to participate. They set a framework where we make the investment, they'll operate the business, and they'll give us back a percentage. Us operating the business was never an option. In fact, the racetrack isn't even able to advertise the slots.
“They wanted us to make the investment, with no control after it. That's what people are calling a subsidy, and I can't figure out why. There's not guaranteed revenue, there's no fixed compensation, and we just have to trust that we're going to get any money back.”
One would question why Sudbury Downs would get involved in the slot machine business at all, given the fact there was no guarantees that it would pay off, but MacIsaac said he saw it as an opportunity to have not only some participation in the slot activity, but an opportunity to try and revitalize horse racing.
In fact, when the slot activity arrived at Sudbury Downs, the racetrack expanded its racing days by 50 per cent, going from 50 race days a year to 75 race days, he said.
“It was an opportunity to put together a nice package of entertainment that includes expanded horse racing and the slots initiative,” he said. “At that time, Sudbury Downs was certainly doing OK; we certainly weren't looking at closing, which is what we're looking at now.”
Sudbury Downs was built in 1974 as a private investment, with no government funding – ever, he said. This took place at a time when horse racing in northern Ontario was practically unknown.
“We brought something totally new to northern Ontario, and people have grown up since 1974 on this industry,” MacIsaac said. “A lot of these people are still involved, and so their kids and their grandkids.”
When asked if Sudbury Downs was willing to get out of the slot machine business, he said, “if we don't have slot machines here, then we don't have the business model that was created and with which we've been working for the past 12 years.”
Putting that into context, he said if you build a business based on selling hotdogs and hamburgers, and then all of a sudden you can't sell hamburgers anymore, then you're hotdog sales probably aren't going to carry you.
“Our business model has been gaming with horse-racing activity and slot activity based on a government initiative 12 years ago,” he said. “We invested in that model. If a key component of that model is removed from that equation, then we're done.”
Posted by Arron Pickard