Canadian Lawyer InHouse

MARCH 2016 32 INHOUSE I n d u s t r y S p o t l i g h t REVITALIZING Ontario's aging gam- bling operations is supposed to create jobs, modernize facilities, and pump billions of dollars into the provincial economy, based on a 2012 plan that creates a new ownership model and invites the private sector to share the risk. Yet the transformation of a gaming sec - tor that contributes some $2 billion a year to Ontario's coffers is only just getting off the ground, with last year's award of the first of seven management and modernization "bundles" to a consortium majority owned by British Columbia-based Great Canadian Gaming Corp. The slower than expected pace reflects changes in the Ontario govern - ment and at the helm of provincially owned Ontario Lottery and Gaming Corp., as well as what lawyers see as miscalculations about the likely public support for elements of a new business model that initially envisaged such things as scrapping a slot machine bo - nanza for horse racing and building a glitzy, new casino in downtown Toronto. "When it's all said and done, every single facility across Ontario — we're looking at 29 facilities — will be operated by the pri - vate sector, and the model will be such that the OLG will stay on top of the pyramid in terms of being the operating mind. But new contracts will be issued and the model will be slightly different from what it was in the past," says Ilkim Hincer, co-chairman of the gaming industry group at Osler Hoskin & Harcourt LLP. "The development risk and the development cost will be transitioned to the private sector." The proposed changes were first dis - cussed in 2010 and detailed in an OLG review from March 2012 called "Modern- izing Lottery and Gaming in Ontario." The report said the OLG would retain "control and accountability" of gaming while private sector players would look after day-to-day operations, including staffing, and would pay to expand, improve, and maintain ca - sinos and other facilities. That continued controlling role for the OLG meets the terms of s. 207 (1) (a) of the Criminal Code of Canada in that only the OLG (as an agent of the province) may conduct and manage gaming in Ontario. "In 2017, OLG is a modern, sustainable organization," the report predicted. "There are some 2,300 net new lottery and gaming industry jobs and an estimated 4,000 service sector jobs; about $3 billion has been invest - ed in private capital in Ontario; and OLG has increased net profit to the Province by an additional $1.3 billion annually — all while upholding responsible gambling standards." Hincer, who joined Oslers after a career that included stints as general counsel for the firm that operates Ontario's Casino Rama and for Trilliant Canada Gaming, says there are many reasons why the OLG plan has progressed only slowly, and it is too early to say if the ambitious forecasts for jobs, profits, and investment will be realized. The proposed new rules for slot machines at race tracks prompted a backlash from the horse-racing sector, while the departure of Ontario's then-premier Dalton McGuinty forced some rethinking of the overall pro - posals. Hincer notes that the forecasted $1.3 billion in additional net profit has al- ready been revised down, reflecting changes to those race track slot machine proposals, while investment could end up at $2 billion rather than $3 billion. "I think perhaps OLG might have been overly optimistic in its initial business case analysis on what this might look like," Hincer says. "I think we are at an interest - ing phase where things will pick up. There's a lot of capital market interest here. There is a lot of activity. When it's all said and done, with 29 facilities being run more efficiently, it will absolutely lead to more net profit to this province." The OLG says the forecasts in the 2012 report were based on the information avail - able at the time and were never a guarantee. Ontario's big gaming gamble The transformation of a sector that contributes $2 billion a year to Ontario's coffers is just getting off the ground. Will it deliver on the promise of a modern, sustainable organization? BY JANET GUTTSMAN

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