OLG modernization plan was “overly optimistic”, says Auditor General

Ontario’s Auditor General said Monday that the 2012 plan to modernize the Ontario Lottery and Gaming Corporation (OLG) was “overly ambitious” and “overly optimistic”.

In a special report released yesterday, Auditor General Bonnie Lysyk said that the Ontario government and OLG did not do enough preparation and planning before launching an ambitious, “best-case scenario” Modernization Plan for Ontario’s gaming industry.

In March 2012, OLG announced plans to overhaul its gambling operations which it says could create over 6,000 new jobs over the next six years and increase annual revenues by more than CAD$1.0bn. The proposals include a greater focus on online gambling, an expansion of retail lottery ticket sales, the establishment of a new casino and the termination of the ‘Slots at Racetracks’ programme.

Despite contributing more than $3.4bn in slots revenue to the horseracing industry since 1998, the Slots at Racetracks programme had limited OLG’s ability to locate slot facilities according to consumer demand.

Lysyk said that the “abrupt cancellation” of the program that gave the horse-racing industry a share of slot-machine revenues at racetracks has had a significant impact on the industry.

“OLG developed its Modernization Plan without sufficiently consulting such stakeholders as municipalities and the horse-racing industry,” Lysyk said. “The profit estimates should have been more realistic, and the abrupt impact on the horse-racing industry could have been mitigated had more people been consulted beforehand.”

Lysyk also noted that the Modernization Plan anticipated that OLG could complete significant downsizing, restructuring and privatization within 18 months, a timeline she described as “overly ambitious.”

The Auditor General was asked to look at various aspects of the Modernization Plan, including the cancelling of the Slots At Racetracks Program, after Ontario’s Legislative Assembly’s Standing Committee on Public Accounts passed a seven-part motion which was approved by the Cabinet in 2012.

The Modernization Plan, Lysyk found, presented an “ambitious best-case scenario,” including a significant number of changes designed to raise OLG profits by a total of $4.6b between 2013 and 2018. Delays, policy changes and the lack of several municipal approvals resulted in OLG having to dramatically reduce its profit projections.

OLG has since lowered its original projection by $2.2bn or 48 per cent, although Lysyk estimates that the reduction could be as much as $2.8bn, approximately 60 per cent less than forecast.

The government has also introduced new transition and support funding to the horse racing industry after an outcry from the horse-racing industry and affected communities following the cancellation of the Slots At Racetracks Program.

The report also highlighted that a succession of board and executive management changes since 2005, including the appointment of five board chairs and seven CEOs, as well as shifting reporting responsibilities among multiple ministries and ministers, have undoubtedly impacted OLG.

It also noted that OLG’s procurement processes so far have been “fair, open and transparent” and that OLG has taken many steps to prevent and mitigate problem gambling.

In response to the report, OLG chair Philip Olsson agreed with the Auditor General’s conclusion that the original modernization plan was ambitious but said that the plans continue to be in the best interests of Ontario.

“Reforming the lottery and gaming business remains a worthwhile endeavour - one that will provide financial benefit to the Province and the people of Ontario,” he said. “The modernization plan is one of the largest agency transformations in Ontario history and it has evolved, as necessary and proper since its first iteration.”

Olsson said that the original plan was “ambitious” and the procurement process was “complex”, with tight timelines designed to reduce conflict of interest and protect the fairness of the procurements. He added that the approval process from procurement documents to municipal engagement took far longer than OLG anticipated.

“But over the last two years, OLG has completed an RFI process, has almost completed an RFPQ process, has successfully procured a service provider for iGaming, has launched the revitalization of charitable gaming, and is launching an RFP process for Gaming and Lottery - all while continuing to deliver consistent annual revenue to government and communities,” he said.

“The transformation of Ontario’s lottery and gaming business will help ensure that instead of eroding revenue to government, OLG will be able to provide up to $3bn in an annual dividend to the province of Ontario, once it is fully complete in five year’s time,” said Olsson.

The Special Report on Ontario Lottery and Gaming Corporation’s Modernization Plan can be downloaded in full here.