And it’s Rent-Seeking by a nose

Slot machine revenues are subsidizing Ontario racetracks

by Colby Cosh

(Nathan Denette/CP)

On Monday, Ontario Finance Minister Dwight Duncan gave the Economic Club a sneak preview of economist Don Drummond’s upcoming report on some ways in which the province might conceivably clamber back into surplus sometime within the 21st century. Duncan noted that the Ontario horseracing industry receives more than $300 million a year in money from the slot machines hosted at Ontario racetracks. “Wow, that’s a huge subsidy,” I hear you saying. Silly reader. No business ever admits to being subsidized!

“The OLG slots-at-racetracks program is not a subsidy, it is a successful revenue-sharing partnership between the Government of Ontario, the Ontario Horse Racing Industry and the municipalities that host OLG slots at racetracks,” said Sue Leslie, President of the Ontario Horse Racing Industry Association (OHRIA) in a statement issued Monday afternoon.

Subsidy or partnership? According to OHRIA’s figures, the racetracks and the horsey types keep 20 per cent of the revenues from the slot machines. Is that in some sense earned money? The racetracks didn’t grant themselves a monopoly on slot-machine gaming in the province of Ontario: the government of Ontario did that. It could put the slot machines anywhere, couldn’t it? Some businesses might be happy to have them around to attract customers in exchange for zero percent of the revenues. They might even pay to have them on the premises.

The fraction of the slot revenue that can be considered a “subsidy” to the racetracks is exactly that amount by which their take exceeds that which would be relinquished by the government under some other arrangement—provided that this other arrangement earned the treasury of Ontario and its municipalities just as much money. Would this be difficult? It could presumably be accomplished just by buying or leasing a lot more slot machines and scattering them around, instead of reserving them to a particular privileged business line and paying through the nose for the real estate. A regulated reverse auction, in which bars and strip clubs and cafés and public libraries bid to retain the lowest share of revenue for slot machines, would be bound to drive the “price” down to near zero. So most of that 20 per cent rakeoff, you have to think, is in fact a subsidy.

Mr. Duncan, anyway, seems to think he has the power to break the “partnership” and seek out a new, more advantageous one. Or perhaps it’s Mr. Drummond, who as a bigtime economist is probably pretty familiar with the logic of subsidies, who has reached this conclusion. I wonder if OHRIA can in fact locate an economist who wouldn’t describe horseracing in Ontario as intensely subsidized. OHRIA has released an economic-impact paper on its business, a paper which (a) is apparently agnostic on the “subsidy” issue, (b) isn’t actually signed by any particular human being, and (c) frankly contains more outright howlers than you can waggle a quirt at. Did you know, for example, that horseracing is “a key node in the New Economy”? God, what if that’s true? In the New Economy, are we all going to have to dress like extras from The Sting, chomp cigars, and talk like Ring Lardner?

And it’s Rent-Seeking by a nose

  1. Cosh you must have esp because I said ‘wow, that’s a #$@%$ huge subsidy’ when I saw story yesterday.

    Ontario is rent seeker’s paradise – Ontario has always been pro-business and anti-markets. 

    I would be curious to know which industries aren’t subsidized by Ont government – Ont turning into Greece – paying ourselves big salaries while not producing much of anything and expecting next generation to pay accumulated debts. 

  2. It’s only because the government has decided to grant a monopoly that one might consider it a subsidy.

    I think it’s fair to call it a partnership, considering that racetracks are attracting customers that in turn are using the slot machines.  They are likely also paying for advertising and other costs to generate customers for the machines.  So they are in partnership with the government to generate revenues from the machines.

    In a free market, one in which slot machines were available to other locations other than racetracks, it would not be a subsidy.  The machines would simply be another method by which the racetracks generate revenue.

    However, Drummond and the government are within their rights to claim that the partnership is not in the government’s best interests, and that the government could save money or generate more revenues by changing the terms and the way in which the market is regulated.

    • “Only”? Yeah, it’s only because I’m a disc of dough covered in tomato sauce that people call me a pizza. And I love the bit about “generating customers” for slot machines. As if you couldn’t drop one down the Sudbury mine and watch 500 people start digging to get to it.

      • “Yeah, it’s only because I’m a disc of dough covered in tomato sauce that people call me a pizza.”

        Well, I did say that you can call it a pizza.

        Anyway, I don’t think it should be a monopoly.  Either the government should allow it or not.  But I don’t think they should be giving them a monopoly – it’s the worst of both worlds, people can still blow all their money and yet you’re also creating a government cash cow that preys on such people.

        You wouldn’t have 500 people jumping into a mine shaft if they could get it from more than one place.  And you could also regulate such places in case you’re worried about kids, like maybe allow them in race tracks, mine shafts and bars. The classy bars wouldn’t touch them and the plain ol’ local taverns would save people the trouble of having to make their way to the racetrack, or jump into the mineshaft.

  3. The amount of people that would end up on the unemployment line would be staggering if in fact the horse racing industry was to go under. The line of impact on the economy that is created by thoroughbred and standardbred racing is far reaching. At least the people in this industry are willing to work for a living. Nothing like watching lowlife scum wandering around downtown waiting for handouts while there is a job opening at every corner. I guess its all about the elections anyways and the hard working people of this country are just pons in the great game of politics. Those not willing to put forward an effort to better themselves through work ethic are the only people laughing on the sidelines of life waiting for the next check to arrive.

    •  Would the number of people on the unemployment line not be compensated by the job gains made by expanding VLTs/slots in Ontario? I don’t just mean that increasing the number of slot players are likely going to open up more and more jobs as the addicts are fired for stealing from work, but that presumably the bars and restaurants and mosques that are bringing these machines in will have to employ more people to serve their sudden influx in customers.

    • I completely agree! Well said.

  4. Twenty percent?

    Luther, Good God, we’re millionaires!

  5. So $300 million is only 20 per cent of the slots revenues? This seems like a great business partnership for the government! The goverment is already getting the other 80 per cent (5 to municipalities and 75 to the province). The horse racing industry employs around 60,000 Ontarians and produces $1.5 billion dollars of wages and salaries each year. Break the partnership and remove that $300 million for horse racing and Ontario’s economy will take a huge blow.

  6. The OLG Slots at Racetracks program is not a “sudsidy”, it is a revenue sharing business agreement between the OLG, governments and horse people. The business partnership benefits all parties and the involvement of all parties helps to make the partnership so successful. The government already receives 80 per cent (75 to provincial and 5 to host municipal) of the slot revenues with just 20 per cent going to the horse racing industry (10 to the racetrack to help enhance the slots partnership and 10 to horse racing industry for their employment and wages). The 20 per cent going to the horse racing industry is not the taxpayers’ money and unless you have gambled at the slots facilities you have not made a single contribution to the horse racing industry, although you have benefitted from the the slots revenue.

    • PAID HORSERACING INDUSTRY ROBOT HAS SPOKEN. YOU MAY NOW GENUFLECT.

      • Sorry, I’m not sure what you mean by this comment. I am a real person who loves horse racing – not some kind of ”paid robot” – and I feel the industry is being misrepresented. People do not seem to really understand how the program works and I think they should before any decisions are made on Drummond’s reccomentations.

        • Maybe it’s not clear to you what I mean by that comment because you don’t realize I can view your IP address, Mr. Anonymous Real Person Who Loves Horseracing (And Who Is Apparently Typing On A Local Area Network At The Offices Of Standardbred Canada).

          • What does that matter? I AM a horse racing fan and said that so you can understand where my perspective is coming from.

          • “The 20 per cent going to the horse racing industry is not the taxpayers’
            money and unless you have gambled at the slots facilities you have not
            made a single contribution to the horse racing industry, although you
            have benefitted from the the slots revenue”

            Actually… not quite. The money fed into the slot machine *is* the government’s money (net of the return to the players) since the slot business is a creation and creature of the government, and that makes it the taxpayer’s money. The rake given to the horse racing “industry” is money that would otherwise go to schools, hospitals, or great big ad campaigns extolling the virtues of the government: you know, all the regular stuff governments do. If the government had a really attractive business activity – selling booze, say, and agreed to only locate that business in Safeway stores, would that be a “partnership” with Safeway, or a subsidy? The fact that you (or anyone else) may be a big fan of Safeway doesn’t chnage the fact that in that scenario Safeway is getting a huge boost from the government.

          • Dcardno:  The Safeway scenario sounds like a business partnership to me. But I agree the horse racing industry benefits from the partnership…I also feel the provincial government and host communities benefit, along with Ontario’s economy. I feel the partnership is a successful one.

          •  Okay.
            So, it’s the government’s money (meaning it is the taxpayer’s money);
            It would otherwise be used for general government programs;
            If used for those programs it would allow either a reduction in taxes or an increase in program activity;
            Instead, it is given to a particular industry…
            But it’s not a subsidy – it’s a “partnership?”

            Call it whatever you like, but it is a subsidy – no differnt than if the government were to collect the cash and cut a cheque.

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