Rob Csernyik: Private casinos are a problem

It's time for provinces to regain control over their private casinos.

By: Rob Csernyik

Last week, former Great Canadian Gaming Corporation CEO Rod Baker and his wife became famous for all the wrong reasons. They flew to the Yukon, pretended they were nearby motel workers, and received a first dose of a COVID-19 vaccine meant for local residents. Once he was discovered, Baker resigned from the company, which manages day-to-day operations of a government-owned casino portfolio in British Columbia, New Brunswick, Nova Scotia and Ontario.

Not to be outdone, that same day Leon Black, CEO of Apollo Global Management, an American private equity firm acquiring Great Canadian, resigned following a review of his financial ties to the late Jeffrey Epstein. Over several years Black paid $158-million U.S. to the convicted sex offender and alleged sex trafficker.

Gaming functionaries in those provinces had to sit back and wonder: if those were the sorts of personal decisions Baker and Black made, what sort of business decisions were they making? When these are the geniuses at the helm of firms that oversee significant revenues that fill government coffers, the relative dullness of a crown corporation looks like an oasis in the Nevada desert.

I’ve been researching the Canadian casino industry since 2019 and am working on a book on the topic. There’s a sound argument to make for provincial takeover of casinos in the provinces which still contract out their management. This also includes Alberta, but not P.E.I., where their casino is overseen by the Atlantic Lottery Corporation. Newfoundland and Labrador has no casino. (Manitoba, Quebec and Saskatchewan own and manage their own casinos through crown corporations.)

In the industry’s early days, such arrangements allowed provinces to have their cake and eat it too: they could collect revenue from the gains of casinos while outsourcing the management of these unseemly empires to private firms with experience in the arena. As domestic expertise grew, it seemed sensible that all provinces would want to take over their commercial casino operations wholesale.

Yet that hasn’t been the case.

Management contracts are meant to allow provinces to spend less money outright on initial construction or renovation of casino properties. This has allowed politicians to boast repeatedly over the years that they’re not spending a cent to foster an industry that generates revenue and creates jobs. But this is misleading. The cash spent by private firms to build casinos can be deducted from future takings — meaning the province still winds up “paying” for these things by forgoing revenues.

Over the past decade, as part of its modernization strategy, Ontario Lottery and Gaming sold off management contracts for casinos they owned to Gateway Casinos and Great Canadian. It was hoped that the firms would revitalize the properties while a relatively hands-off Ontario government continued receiving a revenue cut.

In a 2018 Globe and Mail article headlined “Ontario gets taken to the cleaners in casino deal,” David Zarnett criticized the sale of the Greater Toronto Area properties, noting it sold for a multiple far lower than similar assets in North America.

“Since the OLG only received $158 million for the bundle, it suggests that the government has left as much as a staggering $1.5 billion on the table,” he wrote.

Nova Scotia offers another example. That province opened casinos in 1995, with the aim of taking control once the management contract ended. In 2005, the management company put the contract on the market. Though the province had the chance to purchase it for $120 million, it ultimately sold (for a lower amount) to Great Canadian. Hundreds of millions of dollars have left Nova Scotia for the company’s coffers ever since.

Though governments often get a bad rap for running commercial enterprises, there’s no need for a Canadian casino to aspire to being the Bellagio, Encore or MGM Grand. Instead it needs to focus on striking a fine balance between generating revenues and mitigating social impacts like gambling addiction.

Here too, there’s an advantage to provincial management. In the United States, commercial casinos are owned outright by companies which don’t have to consider the same factors a provincial government does when expanding gaming. This means provinces may find themselves at odds with the goals of commercial operators when it comes to issues impacting public health.

On a recent research visit to Casino Nova Scotia in Halifax, I noticed that the bar was closed due to COVID-19, yet there was still a crowd playing the slots. This meant players were less likely to gamble away more than they could afford under the influence of alcohol.

It would be a good reform to implement permanently. But a profit-driven company would never consider it. In early days, there were greater restrictions on alcohol in Canadian casinos, but commercial interests lobbied to change that. Same with other elements like longer opening hours and high-limit betting — designed to attract tourists — had their biggest impact on local residents. Keeping casino management in-house doesn’t eliminate all risks like this, but it allows provinces to make civic-minded decisions without conceding to commercial forces. As a bonus, there’s even evidence of public support for provincially-managed casinos: 56 per cent of respondents to an August 2019 poll were against privatizing Manitoba’s provincially-run casinos.

Today, North America’s commercial casino industry faces big existential questions. With COVID-19 shuttering casinos worldwide to help limit spread, it’s unknown when “normal” traffic patterns will return and what they will look like. As well, millennials don’t gamble like their parents or grandparents, and are disinterested in traditional casino offerings. The next decade will be transformative for the industry. Let’s take that transformation one step further by ending private contracts, and returning casinos to the public-sector fold.

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