3.12 Provincial Support to Sustain the Horse-Racing Industry

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3.12 Provincial Support to Sustain the Horse-Racing Industry Chapter 3 Ministry of Finance Section 3.12 Provincial Support to Sustain the Horse Racing Industry September 2017, the horse racing industry provided 1.0 Summary the equivalent of 45,000 full-time jobs. The industry employs racetrack owners and operators, breeders and their employees, racehorse owners, groomers, The province has been supporting the horse racing trainers and jockeys. industry through various initiatives since 1996. In 2018/19, gross wagering on horse racing Ontario’s 15 racetracks currently rely on annual in Ontario totalled $1.6 billion, including bets on government funding of close to $120 million to sub- Ontario races placed from outside Ontario and bets sidize the horse racing industry in the province. In placed inside the province on races held elsewhere. addition, 11 of these racetracks host provincial slot Of the $1.6 billion total, Ontario racetracks paid facilities, and receive about $140 million in annual out 87.3% to winning bettors and kept 12.7% or lease revenues from OLG and private operators to $203 million in gross commissions, before taxes host slot machines, and, in some cases, for valet and operating costs. However, these wagering com- Chapter 3 • VFM Section 3.12 parking and food services. Current government missions have not been sufficient for the industry agreements do not require that these annual lease to cover racetrack operating costs and purses, the revenues be used to support horse racing operations. prize money paid to horse owners. The largest Horse racing as a gaming operation has been in racetrack operator in Ontario is the Woodbine decline in Ontario since the legalization of lotter- Entertainment Group (Woodbine), which owns ies in 1969. The introduction of slot machines and and operates both the Woodbine Racetrack and other electronic games in 1985 further impacted the Mohawk Racetrack. Together, these tracks the industry. Over the last 10 years, from 2008/09 accounted for about 90% or $1.47 billion of all to 2018/19, Ontarians’ wagering on Ontario races, wagering in the province in 2018/19. and races outside the province, has decreased by As of April 2016, the Ontario Lottery and Gam- 44% and 15% respectively. Wagering by other Can- ing Corporation (OLG) assumed responsibility for adians on Ontario races has also decreased by 48%. administering funding and monitoring, as well as The racetracks offer Thoroughbred, Standard- supporting the horse racing industry with its gam- bred and Quarter horse racing, and two of Ontario’s ing and marketing expertise, with the goal of mak- tracks are home to the three races that make up ing the industry financially self-sustaining. Canada’s Triple Crown. A race takes place almost In March 2018, the province announced a new every day somewhere in the province. According 19-year funding commitment to support the horse to a study commissioned by the industry, as of racing industry. Starting April 2019, the new 663 664 long-term agreement provides about $120 million stakeholders we spoke with agreed that the to the industry annually for the first two years and horse racing industry would not be sustain- is expected to drop to about $65 million in the able without the current level of provincial fifth year and to $63.4 million by the eighth year. support now being provided by OLG. However, the latest funding agreement does not • Despite OLG’s horse racing awareness encourage the industry to become self-sustaining. campaign, wagering in Ontario on horse Oversight for the industry is divided between racing continues to decline. Specifically, two provincial agencies and one federal agency. wagering in Ontario on races in and outside OLG is responsible for oversight of government Ontario has decreased from $882 million funding through the 19-year funding agreement. in 2016/17 to $833 million in 2018/19. As The Alcohol and Gaming Commission of Ontario part of its marketing strategy in 2015, OLG (AGCO) is responsible for licensing all partici- created a new horse racing brand under the pants in horse racing, including racetracks, and Ontario Racing name in consultation with the regulating the conduct of horse racing. A federal industry association. It was launched in 2016. agency, the Canadian Pari-Mutuel Agency, is Based on the findings from a third-party responsible for oversight of wagering. researcher contracted by OLG to measure the Although the horse racing industry receives effectiveness of OLG’s marketing initiatives a significant amount of public funding, it lacks for the horse racing industry, awareness of transparency and public accountability. Of the 15 horse racing by the Ontario adult population racetracks, only one posts its financial statements has grown from 13% in 2016 to 22% in 2018. on its website. There is no public reporting of gross However, although awareness increased, wagers collected and wagering commissions by wagering did not. At the time of our audit, racetrack, how the provincial tax reduction on OLG had not set a target for the level of wagering is shared between the various racetracks awareness it wanted to achieve or the level of and horse people, purses paid by racetracks, wagering growth it wanted to result from the Chapter 3 • VFM Section 3.12 revenue and expenses related to racing operations increased awareness. separate from other operations, and key statistics • Focus of provincial funding shifts from such as the current number of people working in self-sustainment to sustaining the indus- the industry. try. With the introduction of the new 19-year Our audit found these significant concerns: funding agreement on April 1, 2019, the • The horse racing industry is no closer to objective of government funding changed self-sustainment after a history of various from transitioning the industry to become government funding programs. The goal self-sustaining to sustaining the industry of the five-year, $500 million Horse Racing for a long period of time. Although one of Partnership Funding Program in existence the key objectives of the new long-term from 2014/15 to 2018/19 was to support agreement continues to be to reduce reliance racetracks in becoming more self-sustaining. on government funding, with 19 years of However, the industry is not significantly guaranteed funding until the end of fiscal closer to that goal than it was in 2013. 2037/38, it is difficult to see how the new Over the last five years, total wagering has agreement will reduce the industry’s reliance remained relatively unchanged, while purses on provincial support. For 2018/19, provin- have slightly increased. Between 2014/15 cial funding covered 60% (or $84.8 million) and 2018/19, about 60% of total purses was of total purses paid of $142.3 million to win- funded through provincial support. All key ning horse owners. Provincial Support to Sustain the Horse Racing Industry 665 • Provincial support is guaranteed for transactions over $10,000 and any suspicious 19 years. The new long-term funding agree- transactions to the Financial Transactions ment does not include any clauses that would and Reports Analysis Centre of Canada allow the province to terminate the agree- (FINTRAC). As part of our review, we noted ment without cause. Furthermore, the total some deficiencies in Woodbine’s record- annual funding will not be reduced if a race- keeping of suspicious transactions, including track closes down. Because the funding levels payments to customers over $10,000. are not tied to the number of racetracks, the • Ontario has more racetracks than com- money would be redistributed amongst the parable jurisdictions, without sufficient remaining racetracks. wagering income to support them. Ontario • Provincial funding reductions in the new currently has 15 racetracks—two that race long-term funding agreement related to Thoroughbred horses, 12 that race Stan- wagering increases are likely unattain- dardbred horses, and one that races Quarter able. Total funding over the 19-year term of horses. When compared to racetracks in the the agreement is likely to reach $1.4 billion. United States, Ontario serves fewer people According to the terms in the new long-term per racetrack than the states of California, funding agreement between OLG, Ontario Florida, New York, Pennsylvania and Ohio. Racing (horse racing’s industry association) Ontario has nine more racetracks than Penn- and Woodbine, the industry (including sylvania, and six more than Florida, which racetracks and horse people) could receive has a 46% higher population than Ontario. almost $120 million in annual funding from For 2018/19, revenues totalled about OLG for two years. After that, funding would $200 million, including wagering commis- be reduced if wagering revenue increases sig- sion for racetracks, while racetrack expenses nificantly. For this reduction to occur, wager- and purses totalled about $370 million. This ing within Ontario would need to increase leaves an estimated operating shortfall of by 44%, and wagering outside of Ontario about $170 million before considering any Chapter 3 • VFM Section 3.12 would need to increase by 30%. Since overall government support (including lease revenue wagering has increased by only 1% over the for hosting provincial slot facilities). last 10 years, it appears unlikely that funding • The Woodbine Entertainment Group will be reduced due to wagering increases. (Woodbine) has a significant role in the However, OLG’s funding obligations are more latest long-term funding agreement with likely to decrease by $51.4 million when OLG. The funding agreement negotiated Woodbine receives incremental casino lease between OLG and Woodbine includes lan- revenues from its racetracks. guage that effectively cancels the agreement • Lack of federal government oversight to if Woodbine’s role is changed or eliminated. guard against money laundering at Ontario Specifically, the funding agreement ceases to racetracks. For a sector that is vulnerable to be valid if Woodbine ceases to be a member money laundering, the horse racing industry of Ontario Racing; Woodbine’s subsidiary in Canada is not accountable to any regulatory (Ontario Racing Management) ceases to be body to monitor its operations for this type owned 100% by Woodbine; or Woodbine’s of crime.
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