In a report delivered to the Ontario Minister of Finance in March 2012, the Ontario Lottery and Gaming Corporation (OLG) outlined a proposal to modernize lottery and gaming in Ontario. The modernization plan was endorsed by the then-Premier of Ontario, Dalton McGuinty, and his cabinet. However, a significant amount of change and uncertainty with respect to the modernization plan has arisen since Mr. McGuinty stepped down and was replaced by current Premier Kathleen Wynne as leader of the governing Ontario Liberal Party. This bulletin provides a brief outline of OLG’s modernization plan as well as a summary of recent developments.

Background

Under the Criminal Code (Canada), provincial governments are the only entities that are allowed to operate gaming sites and conduct and manage lottery schemes in Canada, subject to certain limited exceptions such as pari-mutuel racetrack wagering. The Ontario government established OLG pursuant to the Ontario Lottery and Gaming Corporation Act, 1999 as the provincial entity that is empowered to conduct and manage gaming sites and lottery schemes in Ontario on behalf of the Province.

OLG is currently responsible for 24 gaming sites (including four resort casinos) and the sale of lottery products at approximately 10,000 retail locations across the Province of Ontario. The modernization plan proposed by OLG identified three priorities: becoming more customer-focused; securing qualified service providers for the day-to-day operation of lottery and gaming; and renewing OLG’s role in the conduct, management and oversight of lottery and gaming. The new lottery and gaming model would involve securing private-sector service providers for the day-to-day operation of gaming sites and lottery schemes, while OLG would continue its role in conduct, management and oversight. OLG predicts that the modernization plan, when fully implemented, would result in an additional C$1.3-billion in revenue to the Ontario government annually, billlions of dollars in new private-sector capital investment in Ontario and thousands of jobs created across Ontario.

RFP Process – Gaming Sites

OLG has implemented a competitive procurement process in relation to its modernization plan. In May 2012, OLG released a Request for Information (RFI) for the modernization of land-based gaming in Ontario, seeking input from potential providers for the expansion of private-sector participation in gaming. The RFI identified 29 proposed “Gaming Zones” where qualified service providers would be permitted to operate a single gaming facility. More than 100 responses were received. As a result of feedback from the RFI process, OLG elected to group many of the 29 Gaming Zones into “Gaming Bundles.”

In November 2012, OLG started the Request for Pre-Qualification (RFPQ) process, which is intended to pre-qualify private-sector service providers for specific day-to-day operation of gaming in Ontario. The first wave of RFPQs issued included one RFPQ for each of the following:

  • Ottawa Area (Zone E4)
  • East Gaming Bundle (Zones E1, E2 and E3, including areas surrounding Peterborough, Belleville and Kingston)
  • North Gaming Bundle (Zones N1, N2, N3, N4 and N5, including areas surrounding Sudbury, Sault Ste. Marie, Thunder Bay, Kenora and North Bay)

On May 29, 2013, OLG also issued an RFPQ for the Southwest Gaming Bundle (Zones SW4, SW5, SW6, SW7, SW8 and SW9, including areas surrounding Woodstock and Oxford County, Middlesex County and Elgin County, Huron County, Chatham-Kent, Bruce County and Grey County, and Point Edward and Sarnia).

For the foregoing RFPQs, interested service providers are required to submit proposals demonstrating their ability to operate multiple facilities in a given region or geographic area of Ontario. Service providers also have to provide information on their financial and technical attributes and capabilities, including proof of successful experience with similar projects. In addition, service providers are asked to provide information on any experience and working relationship with First Nations or First Nations communities.

The RFPQs issued in November 2012 closed in March 2013. OLG is now evaluating the submissions received for those RFPQs and will create a list of service providers who will then be eligible to receive the Request for Proposal (RFP) document for the applicable Gaming Zone or Gaming Bundle. As part of the RFP process, pre-qualified service providers will be able to propose the construction of a new gaming site anywhere within a Gaming Zone, where there is municipal support. The RFPQ for the Southwest Gaming Bundle closes on August 8, 2013.

RFP Process – Lotteries

In June 2012, OLG also issued an RFI for regulated private-sector participation in Ontario’s lotteries. More than 30 responses were received. In December 2012, OLG issued an RFPQ to pre-qualify private-sector service providers for the day-to-day operation of lottery in Ontario. Service providers were asked to demonstrate their experience as it relates to the lottery business. This RFPQ closed in April 2013.

OLG is now evaluating submissions for this RFPQ and will identify service providers eligible to receive and respond to the RFP for modernizing lottery. Following the RFP, OLG will select a qualified service provider to be the lottery integrator, technology lead, and marketing and sales lead. The service provider will be responsible for recommending strategies to maximize the growth and success of the lottery business, developing products and marketing plans, operations, and process and cost optimization.

Recent Developments

In recent weeks, it appears that the provincial government may be taking a different approach to the modernization of lotteries and gaming under the leadership of Ontario Premier Kathleen Wynne than under her predecessor, Dalton McGuinty. Most notably, on May 16, 2013, Premier Wynne terminated the appointment of OLG Chair Paul Godfrey (a McGuinty appointee), who was widely viewed as the leader of the modernization initiative at OLG. The board of directors of OLG promptly resigned after Mr. Godfrey’s termination in protest, casting uncertainty over the future of OLG’s modernization plans. Chief Executive Officer Rod Phillips continues to oversee day-to-day operations. On July 18, 2013, Premier Wynne appointed Philip Olsson as chair of OLG, subject to approval by the Ontario legislature’s Standing Committee on Government Agencies this fall. It is expected that a new board would be appointed following approval of Mr. Olsson’s appointment.

Premier Wynne also put a stop to OLG plans to grant the City of Toronto a larger proportion of revenues from a downtown casino than the share of revenues that would be enjoyed by other municipalities that host gaming sites. OLG’s final revenue share proposal did not meet the requirements of Toronto’s city council, and for that reason and others, Toronto’s city council convened a special meeting on May 21, 2013, to formally reject the establishment of a proposed downtown casino. However, OLG’s final revenue share proposal applies to all Ontario municipalities equally. While the proposal resulted in a smaller share of revenues for the City of Toronto than had previously been expected, it actually resulted in an increase in the share of revenues that can be expected by other municipalities, including those that are currently hosting gaming sites and those that may do so in the future.

Premier Wynne has also commissioned a panel of former cabinet ministers (John Snobelen, John Wilkinson and Elmer Buchanan) to draft a long-term plan to overhaul Ontario’s horse-racing industry. This move is meant to address discontent over the Dalton McGuinty-led government’s decision to cancel a slot’s revenue-sharing program with the horse-racing industry. The Horse Racing Transition Panel released a draft of its plan on June 28, 2013, which, among other things, proposes that all industry revenues be consolidated and shared among industry partners on the basis of consumer demand for live racing.

Premier Wynne has publicly indicated that her government remains committed to modernizing lotteries and gaming in Ontario in order to increase government revenues from OLG. Given the developments of the last few weeks, however, the degree to which the modernization plan under Kathleen Wynne will diverge from the modernization plan under former Premier Dalton McGuinty and the previous OLG board remains to be seen.