Why expanding casinos in Ontario is a big gamble

Ontario’s gaming corporation has partnered with a B.C. firm to upgrade and expand casinos. Is it creating opportunity, or a ‘giant cash vacuum’?
By Mary Baxter - Published on April 20, 2018
an exterior view of a casino in London Ontario
The Western Fair in London, Ontario currently hosts slots, but Gateway Casinos & Entertainment wants to turn the building into a $140 million casino. (Mary Baxter)

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LONDON — Twenty years ago, when the Ontario government announced its intention to open a charity casino in Point Edward, some local residents weren’t convinced the venture was a good idea.

“People were worried about crime,” recalls Bev Hand, mayor of the tiny border community of 2,000, just north of Sarnia.

Those fears failed to materialize. Instead, the village used its annual share of the casino’s profits to fund modest local initiatives. Residents got a new splash pad and a new fire engine. There were improvements to water treatment and local roads. The village beefed up its community grants program and contributed to regional health and social services, including the local hospice.

So last year, when a $26-million upgrade and expansion to the casino was announced, Hand greeted the news with enthusiasm. That kind of investment, she says, “means a lot to our small community.”

The Ontario government has also seen benefits from gaming. In 2016-17, Ontario Lottery and Gaming, a crown corporation, contributed $2.2 billion to the provincial government from the proceeds of lottery and gambling activity from across the province. OLG’s business plan aims to increase that contribution by $900 million by the 2021-22 fiscal year.

To reach this target, OLG is outsourcing day-to-day gaming operations and selling off assets to the private sector. British Columbia-based Gateway Casinos & Entertainment has invested heavily in Ontario since OLG began privatizing facilities, and now owns and operates facilities across the province. Owned by private investment equity firm Catalyst Capital Group Inc., Gateway operates 25 gaming properties in British Columbia, Alberta and Ontario.

Last year, the company acquired several OLG assets in southwestern Ontario belonging to what OLG called “the Southwest Gaming Bundle.” These included the Point Edward casino, as well as the slots at racetracks in London, Woodstock, Clinton, Hanover and Dresden. Gateway also signed a 20-year operating and service agreement with OLG to operate the facilities.

Many in the region greet the new developments with enthusiasm; a recent online survey of 729 London residents found 69 per cent in favour.

Yet others remain skeptical that southwestern Ontario communities will reap any real benefits from casino expansion and privatization. When a consultation in London gathered feedback on social media, the comments included: “Government endorsed gambling just to make a few bucks is wrong. Very little revenue generated goes back to the community. It's like a giant cash vacuum.”

Spread that money around

Casino expansion isn’t just coming to Point Edward. Gateway plans to spend more than $200 million on upgrades in the southwest region. The plans include $36 million for a casino operation complete with restaurants in Chatham (it will replace a smaller slots facility in Dresden, a 30-minute drive north of Chatham). In London, Gateway will spend $140 million to expand the facility there, and add a hotel and restaurants. Hanover will also get an expanded facility and a new restaurant.

Leaders in these southwestern Ontario communities have touted the developments as economic boons. The region has experienced notable declines in its manufacturing industry over the past three decades, taking away an economic mainstay that had employed people for generations. The promise of new jobs is enticing, as is the hope that these investments will stimulate the local economy.

That’s a false hope, says James Cosgrave, a sociology professor at Trent University and an expert on the community impacts of gambling. “As an economic model, it doesn’t really add up.”

Cosgrave explains that gambling is not like manufacturing because there’s no value-added product produced. “You’re just circulating money.”

If the casinos were to attract tourists, that would mean a steady source of new money coming to these communities. But most of the facilities that will undergo upgrades are far from the border, so Cosgrave doubts they’ll attract visitors. “I just see Ontarians gambling in more gambling places.” 

Rob Mitchell, a Gateway spokesperson, stresses that gambling is a form of entertainment. “It is entirely discretionary spending,” he wrote in an email to TVO. “We compete with other forms of entertainment,” which is why the company enhances gaming facilities with other attractions, such as restaurants.

OLG reports also argue that modernizing and outsourcing will make winners of both the province and the host communities. The province will shed operating expenses while continuing to receive revenues. Gateway will pay a base amount of gaming revenue to OLG and keep 70 per cent of whatever it can generate above that base. The company will also receive a fixed annual fee. Gateway will keep all proceeds from any of its other ventures related to the facility, such as money earned from a restaurant, hotel or concert.

Host communities will continue to receive their cut of the earnings (in the case of Point Edward the annual payment has averaged more than $2 million in recent years), as will area charities, through the OLG-funded Ontario Trillium Foundation.

Randy Hope, mayor of Chatham-Kent, sees the potential for spin-off opportunities too. He says he’s been talking with Gateway and the local campus of St. Clair College about the possibility of creating a program to train people to repair and maintain electronic gaming units. “When we see the modernization spreading out across Ontario,” Hope says, the casinos will need workers who are trained in how to run them.

For every winner there’s a loser

Cosgrave challenges the ethics of government defining the rules about gambling and then getting into the business itself. The government should be regulating markets and protecting consumers, he says. Instead, it’s “directly involved in the market not as a regulator but as a direct beneficiary of the money that’s coming in.”

The province’s goal, he says, has become to use OLG to make as much money for the province as it can, if possible via private partners — and regardless of the impact on citizens. Cosgrave believes expansion of gaming in southwestern Ontario will inevitably increase problem gambling. “With the problem gambling issue now, it devolves upon the individual now to be a so-called responsible gambler. So you’ve got to manage yourself in this gambling economy.”

Most people who gamble don’t develop a gambling problem. But gambling addiction, when it does occur, can have a devastating impact on sufferers and their families. Nigel Turner of the Centre for Addictions and Mental Health in Toronto says gambling addiction rates in Ontario hover around 0.5 per cent of the total population. A further 1.5 to 2 per cent of people in the province will experience some degree of inability to control their gambling but don’t meet the terms of clinical addiction. Rates of addiction are higher for users of electronic gambling machines, such as slot machines, followed by gaming tables.

For years now, OLG has operated a responsible gaming program that funds research into problem gambling and operates information centres in casinos to provide concerned individuals with advice on how to seek counselling. People can also voluntarily ban themselves from gaming (3,444 were registered for self-exclusion in 2015-16), although that program has come under criticism for lack of enforcement.

Cosgrave, the sociologist, worries that social problems from casino expansion could be worse than anyone expects, because the nature of Ontario’s initial forays into legalized gambling may have masked the social harms. When gambling sites were first introduced in the province in the 1990s, he says, most of them were placed in border towns. He believes Ontario exported some of the social costs of gambling to the United States when the tourists went home, making the problems invisible to the host community.

He argues that establishing more gambling venues relatively far from the border, as OLG and Gateway are doing with the overhaul, could mean more problems will take root on Canadian soil.

Does the house always win?

Cosgrave also worries that Ontario communities will not be able to protect their interests against a powerful private corporation like Gateway

Since OLG’s efforts to privatize the industry, there have been concerns about job loss in the Niagara region, and at Casino Rama near Orillia, where Gateway was named as the new operator last month (on behalf of OLG and the Chippewas of the Rama First Nation). In southwestern Ontario, OLG has required Gateway to guarantee all jobs for the first year of operation. For most facilities, the arrangement ends in May. Gateway recently announced a voluntary buyout program for employees at sites across Ontario, including in London.

Mitchell, Gateway’s spokesperson, notes that the Hanover, Chatham and London sites will all increase their staffing levels under the coming expansions: the company expects to add 75 additional jobs in Hanover, 200 in Chatham and 700 in London.

Employees at Dresden, where the existing slots will close in 2020, will get the first shot at the Chatham jobs. The president of the Dresden Agricultural Society, which owns the building where the slots are currently located, says Gateway has pledged to continue supporting the raceway that’s located on the same property. “It’ll be different, but we will deal with it,” Lucille Laprise says.

In London, Gateway has taken a tougher stance and is pushing for concessions from the Western Fair Association, which owns the building where the OLG slots are housed. Gateway wants to buy some of the property where the fair is located (the property is owned jointly by the fair association and the city) to build its proposed $140-million expansion, or to significantly reduce its $6.3 million annual rent. The association is balking at the request. The company inherited a lease arrangement when it took over from OLG; it expires in 2020.

Mitchell, Gateway’s spokesperson, says the two organizations are still in talks, and the company is also searching for alternative locations.

On the other hand, spokespeople for municipalities in Point Edward, Chatham-Kent and Hanover all describe a good relationship with Gateway.

Back in Point Edward, having a new player at the table won’t affect the village’s share of gambling revenue. And in her community, the mayor says, that money has become essential, especially because the provincial government has downloaded a number of services to municipalities.

“It’s really difficult for small communities to afford those things,” Hand says. “So we’re really fortunate to have that capital money to help with some of those really expensive items.”

This is one in a series of stories about issues affecting southwestern Ontario. It's brought to you with the assistance of faculty and students from Western University’s Faculty of Information and Media Studies.

Ontario Hubs are made possible by the Barry and Laurie Green Family Charitable Trust & Goldie Feldman.

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