Cancelling the Slots: A catastrophe in the making for a wide swath of Ontario agriculture

Sunday, June 3, 2012

The Ontario government considers the 14-year-old program a subsidy, but horse people say it is a partnership. And killing it will decimate a multi-billion dollar agricultural industry 

by BERNARD TOBIN

When the Ontario Liberal government announced it would end the Slots at Racetracks program in March 2013, Ontario horseman John MacMillan was numb.

Seven years ago, MacMillan moved to Spencerville, south of Ottawa, where he purchased an 88-acre farm and set out to build his training operation. After investing about $250,000 in constructing a racetrack, fencing, barns and other facilities, the horseman quickly established himself as one of the leading trainers at nearby Rideau Carleton Raceway.

"This is life and death for our industry," says the 41-year-old, who trains pacers and trotters. "The bulk of our purse pool comes from the Slots at Racetracks program. It's a catastrophe. Personally, I would see my entire wealth almost disappear. Every penny I have ever made, I have poured back into my farm and horse racing."

Critics of the Ontario government's plan to end the Slots at Racetracks program are asking whether the province carefully considered the impact of its decision. With Ontario facing a budget deficit of more than a $15 billion and desperate to create jobs, does it make sense to push Ontario horse people to the unemployment lines and welfare rolls?

It's also a cautionary tale for all of Ontario agriculture when a government without an elected member in rural Ontario decides to sound the death knell for a significant sector of the industry.  

Should other agricultural sectors dependent on government policy be worried about the Ontario government's bottom-line focus and willingness to cast aside programs that benefit agriculture and rural communities? The horse racing industry certainly thinks so.

"It's a gamble that doesn't make any economic sense," says Sue Leslie, president of the Ontario Horse Racing Industry Association (OHRIA), who notes that more than 31,000 people are employed full-time in the Ontario industry. That number grows to 60,000 when part-time and seasonal workers are included.

Today, racing creates about $1.5 billion in wages and salaries, 50 per cent more than in 2000. The industry also generates significant economic activity, spending about $2 billion per year on goods and services relating to the trade – everything from veterinarian services, feed and hay, to fencing, trucks and trailers. About 80 per cent  of that money is spent in rural, agricultural communities.

Prior to the budget announcement, Ontario Premier Dalton McGuinty and Finance Minister Dwight Duncan took aim at the industry, saying their government can no longer afford to subsidize horse racing and that the money the industry has received would be better spent on health care and education.

When Sue Leslie hears Premier McGuinty talking of subsidies, her blood starts to boil. To understand her anger, you have to take a look at the genesis of the Slots at Racetracks program.

In the late 1990s, Mike Harris's Conservatives were determined to tap into the public's growing appetite for gambling. After a failed referendum that would have allowed the Tories to establish charity casinos throughout the province, the government had no choice but to approach the horse racing industry.

"When people said 'no' to expanded gaming," explains Leslie, "the only place the government could put slot machines was racetracks, because they were established gaming facilities. In the eyes of the public, it wasn't an expansion into their neighbourhoods."

It was a decision the horse racing industry entered into with trepidation. On the one hand, it could infuse much-needed cash into an industry facing mounting competition from ever-growing forms of gambling. On the other hand, by bringing the slots into their tracks, the industry would bring the competition within easy reach of racing customers.

"Both the government as well as the industry at that time knew there would be cannibalization of horse racing's product. The government was going to use our buildings, our lighting, our parking lots and infrastructure, all for free. They did not have to put up a dime to move into the buildings," says Leslie. "In exchange for that, we get 20 per cent of the revenue. It's so simple and so fair."
Most lucrative money maker

The Slots at Racetracks deal that was hammered out established that 10 per cent of the revenue would go to the racetracks that housed the slots and 10 per cent would go to the horse people to increase racing purses. The host municipality would receive five per cent and the province 75 per cent, the biggest piece of the pie.

In fiscal 2009-2010, Slots at Racetracks generated $1.1 billion in revenue for the province. Racetracks' and horse people's share of slots revenue amounted to $345 million. While revenue estimates are not available for the 2011 fiscal year, the Liberal government has continually stated that racetracks and horse people received a total of $345 million. Based on the revenue-sharing formula, the province's share for 2011 would be almost $1.3 billion.

"That's a partnership, not a subsidy," says Leslie. "It's been a win for everyone." Racetracks have invested in their facilities and the slots have been hugely successful, pouring money into government coffers. With higher purses to race for, Ontario has become one of the premier racing jurisdictions in the world, fuelling demand for horses and creating the robust racing industry that Leslie describes.

"If you look at Ontario's casinos, charity casinos, lotteries and the Slots at Racetrack Program, you will see that the return on investment on slots is by far and away the most lucrative money maker," says Leslie.

When Finance Minister Duncan tabled his budget in March of 2012 he announced that the government's gambling arm, the Ontario Lottery and Gaming Corporation (OLG), would open the slots operation to tender. Racetracks would be invited to compete against private gaming interests for future slots agreements that would take the shape of landlord-tenant contracts, but horse people would be shut out. That means no more money for race purses.

When addressing the issue, Premier McGuinty has maintained that the province needs the $345 million to pay for hospital beds and schools. But Leslie says the Premier is neglecting to tell Ontarians that the government will continue to have to share that money with new partners.

"The government is now talking about putting up a casino in the downtown Toronto core. So either they are going to put up millions of dollars to build it or they are going to revenue share with somebody," says Leslie.

Several reports have indicated that the government is becoming increasingly shy of the capital costs associated with running gaming establishments. "Someone else is going to put up the building or renovate the warehouse. They're going to supply the infrastructure, take the risk and they're not going to do it for less than  20 per cent," adds Leslie.

In April, MGM Resorts International, the company behind The Mirage Bellagio, Luxor and the Mandalay Bay casinos in Las Vegas, was the first casino owner to publicly acknowledge that it was lobbying the Ontario Government for a piece of the action.

Leslie wonders why the government refuses to build on the success of the Slots at Raceway program. "Why don't we put the sports books and the card games into the racetracks?" asks Leslie. "It's not like we're sitting here with closed minds and closed doors to working with the government about anything."

Trainer John MacMillan, who is a director of the National Capital Region Harness Horse Association, says there is no possible way horse people in the region could survive racing for purses based on pari-mutuel betting. Current purses at Rideau Carleton range from $4,000 to $13,000 per race and would likely be cut by more than half without slot revenue. Winning horses get 50 per cent of the purse.

What does this mean for trainers like MacMillan? "We're legitimate business people who have to make business decisions. Right now, the only information that we have is that it's catastrophic, so we can't just sit back and ignore what we're hearing."

MacMillan has already sold 10 of his 40 horses and cut two full-time employees, leaving him with four full-time employees and two part-timers. If the government remains intent on cutting off revenue from slots, he'll have to let more employees go and wind down an operation that spends $6,000 a month on grain, $30,000 a month on hay and $60,000 annually on veterinary care.

Most of MacMillan's horses will also lose their value. He explains that top standardbred horses racing at Woodbine racetrack may hold their value, but a racehorse's value is dependent on the money it can earn on the track. If there's no money to race for, they become virtually worthless. MacMillan says any horse worth less than $10,000 before the slots announcement is now worth only 15 to 20 per cent of that amount.

Job losses for suppliers
The Slots at Racetracks cancellation is also bad news for suppliers. In June 2011 Sharpe Farm Supplies Ltd. sealed a deal to purchase Freelton Feeds in Freelton Ont. It seemed like a good deal at the time. The Freelton store north of the race track on Guelph Line is Sharpe's fifth location, all within close reach of some of Ontario's busiest racetracks.

The end of the Slots at Racetracks program will have a dramatic impact on Sharpe's business says the company's racehorse market specialist Ken Fitzgerald.

"Between feed, shavings and animal health products, we probably do $4 million in sales just for racehorses. Racing-related sales are about 60 per cent of  Sharpe's business," explains Fitzgerald. "Counting broodmares, weanlings, yearlings and racehorses, we probably feed 5,000 horses."

If the Liberal government makes good on its intention to cut horse people's percentage of slots revenue, there'll be far fewer horses to feed and that means job losses at Sharpe's. "We have 50 employees and probably 20 full-time jobs will be affected," says Fitzgerald who bristles when he talks about the decision to end the slots program.

"It makes no sense. We have 550,000 people in Ontario out of work. If we lose half the horse racing industry, 30,000 will be added to that. It`s awful."

Trainer John MacMillan also worries about what happens to all the people he works alongside every race night at Rideau Carleton Raceway. He's a rarity in the industry, having earned an MBA from Queens University. For the vast majority of people in the industry, racing is all they know.

"Most of the people grew up in racing – they've never been to a job interview, because they've never had to. Racing is the only way they know how to make a living. Even if I were the finance minister and I didn't like horse racing, I couldn't propose these changes because they don't make economic sense," says a perplexed MacMillan.

However, the changes to the Slots at Racetracks program make good sense to Tony Bitoni, OLG's Acting Director of Communications. OLG's mandate is to maximize revenue for the government and the end of the slots policy would allow OLG to expand slots business beyond racetracks.

"We need to be where the customers are," says Bitoni, noting that some of the 17 racetracks where the slots are located are in "rather rural" locations. Prior to the end-the-slots announcement, the OLG had 27 gaming sites across the province. The lights have already been turned out on slots at three racetracks – Fort Erie, Windsor and Hiawatha Horse Park near Sarnia.  OLG's goal is to have a total of 29 sites, including a casino in Toronto and Ottawa and some forms of gaming at three additional sites.

The ending of the slots program also allows the government to push forward with privatization. The OLG currently employs 18,000 people – all are government employees. Putting slots into private hands would move many of those employees off the public payroll.

Bitoni does believe that the future of some racetracks could likely include slots but the racetracks will get less in any new revenue-sharing deal. He notes that racetracks such as Woodbine in Toronto, Western Fair in London and Georgian Downs, just south of Barrie, have been very successful and are strategically located.

But for the government and OLG's plan to work, the public will have embrace gambling establishments and welcome them into their communities. Will potential referendums on gambling pass this time? That's far from a sure bet.

An opinion poll conducted by Forum Research in March, just after the OLG announcement, found that 69 per cent of Ontarians are not in favour of the corporation's plan to open new gaming facilities in cities like Toronto and Ottawa.

'Not our file'
Ted McMeekin, the provincial Minister of Agriculture, Food and Rural Affairs, says it's his job to do the best he can to make his government understand the consequences of ending the Slots at Racetracks program. But how much influence can McMeekin wield? "It's the Ministry of Finance and the OLG's file. It's not our file," he told Better Farming.

He says he's spending most of his time trying to determine how the industry can move forward. "I believe horse racing can continue to be viable, but it's going to need a new business model. It will be in all likelihood a scaled-down version of the former 17 tracks and it will need some creativity on behalf of the industry, government, OLG and municipalities."

Stanley Sadinsky knows a few things about the Ontario horse racing industry and the OLG. For nine years, he was chair of the Ontario Racing Commission, which regulates horse racing in the province. He's also a former chair of the OLG board and co-authored a 2008 government report designed to produce a strategic plan for the horse racing industry.

"I don't think there's any doubt in all of this that government is being driven by the bottom line, but there's also a huge public policy issue involved. And that is the survival of an agricultural-based sector of this province that has a long, long history," explains the retired Queen's University law professor.

"There are many jobs associated with the horse racing industry in Ontario and the government has a major policy question here as to how to balance, in effect, what it sees as revenue potential with the impact it will have on the sector," adds Sadinsky.

He also believes that part of the government's strategy is to rationalize racing and reduce the number of racetracks. "We have more racetracks in this jurisdiction (Ontario) than any jurisdiction in North America. The horse racing industry, in theory, should derive its revenue from wagering. In a perfect world, the level of wagering would be enough to support the industry and that is clearly not the case," says Sadinsky.

He notes that the industry's splintered structure, where horse breeders, racetracks, racehorse owners and trainers and other stakeholders tend to protect their own interest rather than work for what's best for the industry as a whole, is a tremendous challenge.

Critics have also charged that horse racing could have done more to promote and innovate its product while flush with slots dollars for more than a decade.

"Some of the tracks have done a very good job of marketing themselves. Some haven't," says Sadinsky. "With all that money pouring in, one could understand why some might have decided to sit back and carry on with business as usual. The industry has had a history of that for many years, even before the slots."

 Horse people have also been reluctant to invest in their sport. Two years ago, a proposal to invest about $8 million annually in marketing, promoting and innovating the industry was vigorously debated, but failed to gain traction. The program would have resembled dairy farmers' financial commitment and efforts to promote milk.  It is also worth noting, however, that the Canadian Pari-Mutuel Agency, the federal government agency that regulates pari-mutuel betting on horse racing, has been a roadblock in preventing new and innovative racing bets.

Sadinsky concludes that the decision to end the Slots at Racetracks program is multi-faceted and industry inaction is likely a contributing factor. "It hasn't promoted itself to the extent where government looks at the racing industry and says 'this is an industry that is well worth supporting at this level and we're not going to make any changes.' The government has concluded otherwise.

"I think both the industry and government should sit down and work out a feasible arrangement that satisfies some of the concerns of the government and some of the concerns of the industry. I don't think this is or should be an all-or-nothing proposition," says Sadinsky.

At press time, the Liberal government, as part of a deal to gain NDP support for its budget, agreed to provide "transitional aid" to the horse racing industry. No further details were available.

OHRIA's Sue Leslie says the horse racing industry wants to talk sustainability, not transition and hopes the government is willing to listen.

"We have to convince them that they have made a mistake here. And get them to be willing to participate in some way to keep the industry whole," says Leslie.

"Disingenuous remarks such as 'there was horse racing before slots, there will be horse racing after slots' just emphasizes just how little they understand about the where the industry fits in the economy." BF

No future for grooms in Ontario?

It's expected that the cancellation of the Slots at Racetracks program will mean the end of thousands of training and grooming jobs throughout the province.

"Grooms have no future," says Cindy Rapson, who has worked as a standardbred groom for the past 21 years. "A lot of grooms don't have anywhere else to go. It's not a well-paying job. It's a passion, you have to love it."  She starts work at 6:30 a.m. six days a week and can be found working late into the evening at racetracks three or four nights a week when her horses are racing.

Rapson considers herself one of the lucky ones. She has her own transportation and could probably make a go of it in the workforce beyond the racetrack. But that transition would be a challenge for many grooms and trainers.

In 2010, there were 3,600 licensed grooms in Ontario and 3,731 trainers and assistant trainers. Brian Tropea, general manager of the Ontario Harness Horse Association (OHHA), says the number of grooms is much higher than that when you factor in those who work on farms and breeding operations. Those people don't require licences, because they don't take horses to the racetrack to compete.

"A lot of them are people who work outside and are not wired to sit in an office or work in a factory," says Tropea. "But they have a good rapport with animals and they enjoy what they do."

Standardbred breeder Bob Ladouceur can't disguise his anger when he talks of the fate of the grooms who work at his St. Lads Farm, just east of Windsor.

"There are a lot of people in this industry who are poorly educated. Several of my employees have not graduated from high school. I have two people who have been with me for several years that I pulled off welfare," says an emotional Ladouceur.

One of them is a single mother with a two-year-old son who was living in a friend's basement when Ladouceur hired her. "She's proven to be absolutely awesome," says the breeder. He explains that the young groom has a tremendous empathy for animals and ability to connect with horses, but she has challenges that make it difficult for her to work in a regular job.

"She now has a tiny little house just a few miles away from the farm and she has her own transportation," says Ladouceur proudly. She also qualifies for the medical and benefits program that OHHA makes available to race industry workers.

With the breeding industry in turmoil following the slots announcement, Ladouceur doesn't know how long he'll be in business. When asked about the future of the two grooms he's talked about, he stops to gather himself.

"If McGuinty and Duncan follow through on this threat, I'm going to be forced to hand them right back to the Liberal government." BF

How much does it cost to race a horse in Ontario?

Standardbred trainer Ben Wallace says that, for top horses racing at Woodbine racetrack in Toronto, monthly bills can add up to $4,000-$5,000.

"Most people are bewildered by how much it takes to get a horse to the races," says Wallace, who trains about 40 horses and employs 10 to 12 people year-round. From training and veterinarian care to trucking, travel and stakes payments, a horse racing at the top level has to earn more than $40,000 a year just to break even, says Wallace, and that doesn't take into account the cost of the horse.

A recent study by Equine Canada on the economics of horse racing revealed that there were 26,338 horses active in the Ontario racing sector in 2010. More than 20,000 were active racehorses or young horses being groomed and trained for racing, while the remaining horses were active in breeding – either broodmares or stallions.

Standardbreds (trotters and pacers) make up the majority of racehorses (18,184), followed by thoroughbreds (7,122) and quarter horses (1,032).

And there's no guarantee a horse owner's going to make money. Wallace estimates that only 20 per cent of standardbreds make money. The majority of them don't pay the bills.

"But one good horse can take care of a lot of mistakes," says Wallace. The challenge is to find those good horses. He's hoping owners will continue to search for winners but, with a drastic reduction in purse money to race for, the odds of finding a money maker will increase tremendously. BF

'Sucking the life' out of Ontario horsemen

When standardbred racehorse  breeder Robert Ladouceur heard the Slots at Racetracks program was being targeted for cuts by the Ontario Liberal government, he thought the industry would be asked to do its share to help the deficit-riddled province.

"I thought they would start by cutting off a finger, then a toe, but they just cut the industry's head off," says the 69-year-old, who annually breeds 55 mares at his 75-acre farm at Ruscom, east of Windsor.

Ontario breeders like Ladouceur have felt the first and fiercest sting of the slots announcement. Breeding horses is a long-term commitment, explains Anna Meyers, president of the Standardbred Breeders of Ontario Association (SBOA). Every spring, breeders breed mares that carry a foal for 11 months. They raise the foal until it can be sold at a yearling sale to realize any revenue.

Owners typically purchase Ontario yearlings based on the fact they can compete for significant purses in the Ontario Sires Stakes (OSS) program as two- and three-year-olds. But the OSS program, which receives half its purse money from slots revenue, could be gutted.

The government says it will maintain OSS purse levels for 2012, but there are no guarantees after this year. And that could lead to  potential losses for breeders at the fall yearling sales.

Meyers estimates that about 10,000 future standardbred racehorses bred in Ontario – the total number of yearlings, weanlings and foals now being carried by mares – would be worth a fraction of their pre-slot announcement value. In 2011, standardbred yearlings sold for an average of $14,621 at the Canadian Yearling Sale in Flamborough, Ont.

Meyers says all breeders – who own about 6,000 thoroughbred and standardbred mares in the province – are desperate for information so they can make business decisions and dispel the fears of buyers. "In the breeding business, you need a five-year lead time to make decisions," explains Meyers, who operates Emerald Ridge breeding farm near Rockwood, along with her husband, veterinarian Pat Meyers.

About 130 standardbred stallions – with stud fees as high as $20,000 – call Ontario home. Their future and value is in doubt. At press time, breeding farms such as St. Lads Farm near Windsor were reporting tremendous cancellation rates for breedings to Ontario stallions. Ladouceur reported that 21 of the 52 matings planned for his farm had been cancelled.

"I have 18 foals of my own being born this year. Will there be racing for them in 2014? Will there be an OSS program?  Do breeders breed their mares back this year? Do these foals have a future? We're asking for answers and we can't get any," says a frustrated Ladouceur. BF