Assemblée législative de l'Ontario

ONTARIO CASINO CORPORATION ACT, 1993 / LOI DE 1993 SUR LA SOCIÉTÉ DES CASINOS DE L'ONTARIO

HORSEMEN'S BENEVOLENT AND PROTECTIVE ASSOCIATION OF ONTARIO

MICROTRONICS CO

ONTARIO HARNESS HORSE ASSOCIATION

CONTENTS

Monday 23 August 1993

Ontario Casino Corporation Act, 1993, Bill 8

Horsemen's Benevolent and Protective Association of Ontario

Stephen Klugman, general manager and secretary-treasurer

Microtronics Co

Mike Restivo, president and chief executive officer

Ontario Harness Horse Association

Gary Stead, general manager

Malcolm MacPhail, president

STANDING COMMITTEE ON FINANCE AND ECONOMIC AFFAIRS

*Chair / Président: Johnson, Paul R. (Prince Edward-Lennox-South Hastings/

Prince Edward-Lennox-Hastings-Sud ND)

Vice-Chair / Vice-Président: Wiseman, Jim (Durham West/-Ouest ND)

*Caplan, Elinor (Oriole L)

*Carr, Gary (Oakville South/-Sud PC)

Cousens, W. Donald (Markham PC)

Jamison, Norm (Norfolk ND)

*Kwinter, Monte (Wilson Heights L)

*Lessard, Wayne (Windsor-Walkerville ND)

*Mathyssen, Irene (Middlesex ND)

North, Peter (Elgin ND)

Phillips, Gerry (Scarborough-Agincourt L)

*Sutherland, Kimble (Oxford ND)

*In attendance / présents

Substitutions present / Membres remplaçants présents:

Cordiano, Joseph (Lawrence L) for Mr Phillips

Cunningham, Dianne (London North/-Nord PC) for Mr Cousens

Dadamo, George (Windsor-Sandwich ND) for Mr Jamison

Duignan, Noel (Halton North/-Nord ND) for Mr North

Martin, Tony (Sault Ste Marie ND) for Mr Wiseman

Clerk / Greffière: Grannum, Tonia

Also taking part / Autres participants et participantes:

Drainville, Dennis (Victoria-Haliburton IND)

Staff / Personnel: Luksi, Lorraine, research officer, Legislative Research Service

The committee met at 1400 in the Huron Room, Macdonald Block, Toronto.

ONTARIO CASINO CORPORATION ACT, 1993 / LOI DE 1993 SUR LA SOCIÉTÉ DES CASINOS DE L'ONTARIO

Consideration of Bill 8, An Act to provide for the control of casinos through the establishment of the Ontario Casino Corporation and to provide for certain other matters related to casinos / Loi prévoyant la réglementation des casinos par la création de la Société des casinos de l'Ontario et traitant de certaines autres questions relatives aux casinos.

The Chair (Mr Paul R. Johnson): The standing committee on finance and economic affairs will come to order. Today is the first day of the second week of hearings on Bill 8, An Act to provide for the control of casinos through the establishment of the Ontario Casino Corporation and to provide for certain other matters related to casinos.

HORSEMEN'S BENEVOLENT AND PROTECTIVE ASSOCIATION OF ONTARIO

The Chair: Our first presenter today is the Horsemen's Benevolent and Protective Association of Ontario. Stephen Klugman is the secretary-treasurer. Welcome to the committee. You have half an hour to make your presentation. You may use all of that time for your presentation or leave some time for questions from the committee members. You may proceed.

Mr Stephen Klugman: Mr Chairman and members of the committee, I would like to thank you for the opportunity to be here today to present to you the very real concerns casinos present to the men and women our organization represents.

The Horsemen's Benevolent and Protective Association of Ontario's membership is comprised of 2,900 licensed owners and trainers of thoroughbred horses. Add to that the 2,500 men and women who comprise the workforce necessary to properly care for and train the 4,000 thoroughbred horses for racing in Ontario in an industry which has a $2.2 billion economic impact in the province of Ontario.

I'm aware that you have received a submission from the Ontario Agriculture and Horse Racing Coalition on behalf of the 47,000 people it represents, which also includes our association. I have included in my submission to you a copy of a presentation to Minister Churley for your informational purposes. I, however, am here representing our members and their employees.

The horsemen I represent feel slighted in the manner in which we appear to have been ignored by government, the casino project, Coopers and Lybrand and virtually everyone who has been involved in the decision-making about casinos in Ontario. Our most immediate concern is the recent Coopers and Lybrand study, which completely misrepresents the extent of the danger casinos present to horse racing. The Ontario casino project commission of a Coopers and Lybrand study without having this consulting firm contact the industry is baffling.

It is puzzling that a study could be conducted on the effects casinos would have on the horse racing industry without anyone from the horsemen's association being asked to provide information. We question the validity of a study that excludes information from an important source such as the horsemen. While we have not had an opportunity to fully evaluate the entire study, certain statements in the executive summary do cause us in the industry to take exception.

Page 7 of the executive summary indicates that, "The introduction of casino gaming may reduce horse race wagering in Ontario by between 5% and 10%." Surely Coopers and Lybrand had access to a Price Waterhouse study of September 21, 1992, which indicated that casino gaming would have a potential negative impact of 19% to 37% and a proportional loss of between 9,500 and 18,500 industry jobs in the medium term.

I hope members of this committee have not been misled by Coopers and Lybrand's understatement of the potential negative impacts casinos would have in Ontario. Our members are certainly not. In fact, they are frightened about their future and their jobs. You must realize that the majority of those who work in the horse industry have untransferable skills. They are eager, dedicated individuals with a true love for the horse as an animal and an unequalled respect for it as their only source of income.

Loss of jobs in the racing industry could spell disaster for the many men and women who would be affected by the impacts of casinos. These people have nowhere else to go, nowhere else to ply their respective trades of caring for the horses and a skill set for which there is no other ready market. They will surely become statistics of the provincial and federal social assistance programs.

Furthermore, a 19% to 37% negative impact on wagering and attendance will deplete the revenue for purses to such an extent that owners will cut back on the buying of horses because of a continued reduction in purses and increases in costs. Many will get out of the business. Accordingly, those who breed horses for sale will cut back their operations because of a depletion of their market.

The Coopers and Lybrand study indicates that potential impacts can be mitigated by broadening its marketing base. Horsemen have never been directly involved in the marketing of racing. That, traditionally, has been the responsibility of racetracks. They have done the best they can, given the resources they have.

The suggestion that the industry embark on a major promotional effort to broaden its market base in the face of the competitive threat of casinos is frankly naïve. If Coopers and Lybrand had researched, it may have discovered that the revenues for such a venture are very scarce and becoming more so each year. In fact, the Ontario Jockey Club has recently announced a proposal to close Greenwood Race Track for consolidation purposes, following an announced loss of $3.5 million in 1992 and a projected loss of $7 million in 1993. Is the Ontario Jockey Club expected to launch a massive marketing effort to attract families and young adults?

Racing in Ontario has its problems; of that there is no doubt. Inherent in these problems is the fact that while racing was once a monopoly for the wagering dollar in Ontario, it now only represents 18% of the market share for the wagered dollar, according to a study done by Christiansen/Cummings Associates Inc entitled The Implications of Casinos for Horse Racing in Ontario.

I wonder too if this study has figured into the considerations of the economic impact made by the Ontario casino project and Coopers and Lybrand. It certainly should be reviewed by this committee.

Racing was once a monopoly in Ontario and was treated as such by the provincial government, which imposed a tax that to this day remains the highest of any racetrack in North America, with the exception of California.

Racing is no longer the gambling monopoly it was, yet the government continues to treat racing as such with the continuing imposition of the high tax. New Jersey racing, for example, which must compete with the casinos of Atlantic City, does so on at least a more level playing field. Racing there is only subject to a 0.5% tax from government, compared with Ontario's net 5% tax.

Casinos introduced alongside racetracks have proven disastrous to racing. Canterbury Downs in Minnesota has closed. Harness racing in Manitoba has closed and thoroughbred wagering at Manitoba's Assiniboia Downs declined 33% after casinos were introduced. Other areas have witnessed dramatic reductions in business levels. It is these figures that scare our industry and seem to be ignored by the provincial government eyeing the self-serving revenue hinted at by the Coopers and Lybrand study.

Horsemen in Ontario -- owners, trainers and the many workers -- feel betrayed by a government that is the recipient of annual contributions in the millions of dollars from tax revenue which horsemen quite honestly believe they earn for government. Horsemen basically have asked for little in return; however, now we're asking.

What we ask for now is that government take the time to listen to the collective voices of thoroughbred horsemen and not only assure us that racing will not be impacted by casinos, but give us concrete evidence as to how this will take place. We have heard no proposals from the Ontario casino project, the provincial government or the bidders for the Windsor casino that would adequately deal with the economic disruption which would be wrought on our members.

We have heard no suggestions about how a marketing effort could be financed by an already punitively taxed industry which is already seeing declining revenues. We have heard no one suggest that horsemen need to be at the table when decisions are made about casinos which threaten their livelihood. Thoroughbred horsemen are waiting to hear; in fact, the entire industry is waiting to hear.

That's the completion of my presentation. I'll be happy to take any questions at this point in time.

The Chair: Thank you very much, Mr Klugman. We have approximately seven minutes per caucus.

Mr Monte Kwinter (Wilson Heights): Mr Klugman, I was interested to hear your presentation and the concerns that you have for the racing industry. One of the things that I find strange about this whole relationship is that there isn't a recognition of the differences of the various venues for gambling in Ontario. When you have lotteries, you go out and you buy a ticket. The only input from the government really is to have the tickets printed, to make sure that the funds are distributed and that the proceeds are given back to the government. When you have casinos, there's a matter of capital investment in the equipment. You put your money into a slot machine, you put it at a table, you do whatever you do and that's it.

In the horse racing industry there's a whole chain of things that have to happen before you get to the point where the wagerer can bet his money. You've got to raise the horses, you've got to raise the feed, you've got train the horses, you've got to put in the facility. As far as the bettors are concerned, they really don't get involved with that. All they do is they put their money down. You're really at a disadvantage and there doesn't seem to be a recognition that as a minimum there has to be at last a level playing field as far as the takeout, the tax. New Jersey, you tell me, is 0.5% whereas we're 5%. Is this because the message hasn't been getting through or is there a non-realization by the government of the problems you're facing?

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Mr Klugman: I can't really speak for the government in the message that we're trying to convey and whether we're being heard correctly or not. I know there have been a number of task forces from the industry which have gone to government over the years, and actually we've contacted all three parties in the past 20 or so years. We have been successful in getting some relief from the taxation, in the form of government rebates, which the industry is quite thankful for, that go to purse moneys for owners and trainers. But our recent efforts to get further relief from the taxation situation in racing have been thwarted by, I believe, quite frankly, the debt situation that the government is in right now. We're not basically being heard, I believe, because of that.

We have had, as I say, numerous task forces to address that situation. In recent months, we've been told by our people, I guess insiders, to await certain things to happen, so we withdrew our application. As a matter of fact, we made a presentation from an organization, the Ontario Horse Racing and Breeding Association, to the then Minister of Consumer and Commercial Relations, Peter Kormos. He heard our situation and of course made promises to us that he would be getting more and more involved in racing. Unfortunately, his status within the cabinet was changed.

Minister Churley has been very receptive to listening to us on various issues, but that particular issue on taxation has been put aside for the moment.

We're not saying and suggesting that lowering the tax is going to totally do away with the problem and impacts that we envisage casinos are going to have on our industry, but certainly in the short term it's going to give us a much better opportunity to perhaps combat the negative impacts.

I don't know if that particularly answers your question.

Mr Kwinter: I think there is a certain naïveté in the government's call for proposals. I think the government has the impression that it's going to be getting proposals from Mother Teresa when instead it's going to be hearing from Jaws. I mean, they're asking the proponents to do a lot of things, like look after your industry, look after the people who are addicted to gambling, look after all of the restaurants and all of the hotels in Windsor, certainly to keep their hotel closed until the hotel occupancy rate in Windsor gets to the 75% level and not to have restaurants in any major competition with the rest of the community.

Do you think this is a realistic approach? Do you think that a businessman who is looking to maximize his return on his investment is going to be able to function under that kind of constraint?

Mr Klugman: Perhaps quickly, to answer your question, no, that's not a proper way to ensure that our phase of the industry is going to be looked after. We are operating right now and we have a situation where we as thoroughbred horsemen ply our trade solely on the Ontario Jockey Club racing circuit, at its racetracks. All they can tell us, because of the request for proposals, is to trust them. They can't indicate to us what their plans are, by virtue of the RFP, to keep the racing industry whole and what their proposals are, whether monetarily or whatever.

That, as I indicated, scares us, because we deal with the Ontario Jockey Club on a day-to-day basis and there are a lot of decisions that they make that we're not particularly fond of and there are, I guess, decisions that we make that might rankle their feathers a little bit. But because of that, it's hard for us to put all that day-to-day business aside and then say to the Ontario Jockey Club, "Yes, we'll trust you in this matter." It's very unsettling to a lot of our horsemen who have dealt with the jockey club. And they're only one proponent in the bidding, as I understand. There are eight others.

Nobody from those organizations has contacted us. We did get contacted by one potential bidder who decided not to get into the bidding and, quite frankly, what they told us scares us about what's available to the racing industry. Actually, they gave us a warning, to say, "Make sure your interests are looked after before the bidding is complete." We're actually at a loss as to where we go from here when we hear a statement like that.

Mr Gary Carr (Oakville South): Thank you very much for your presentation. We heard some of the concerns from the people in the horse racing industry in Windsor. I know in my own area there were headlines in the paper, "Casinos Could Kill Flamboro," and the next day there was an article saying, "Businesses Fear Casino Impact."

But when we were in Windsor we heard from the government. In one of their presentations they came forward, the assistant deputy minister, and quoted the U of T study which says that you'll only lose only 900 to 1,800 jobs. They also quote in there that the effects of casino gambling could be minimal. As you know, in the request for proposals they've said to the people in Windsor that the casino complex is expected to work cooperatively with the Windsor Raceway. We didn't hear from the Windsor Raceway at all, which I was surprised at, down in Windsor.

So we've got these studies that are out there that say we could lose a tremendous amount of jobs, and the government is saying the impact could be minimal. What do you believe will be the job losses if casinos come into the province of Ontario, and if you could be specific in terms of the numbers? We've got the two reports. Which one do you believe, and how many jobs are going to be lost, as a result of casinos coming into Ontario, in the horse racing industry?

Mr Klugman: In answer to your question, Mr Carr, I'd have to believe the studies I have, the numbers of 19% to 37% impact and the resulting job loss is, I believe, 9,500 to 18,500.

Again I'm not familiar with the U of T study, and I guess there are so many studies out there that not everybody can get access to, but the reason I tend to lean towards these studies is that these studies contacted the industry. They contacted us and these are as a result of our projections and our thoughts on what the impacts of casinos will be. That's the basis of why we tend to lean towards them, because they included us in their numbers and in their projections, in the thought-making process. That's why we tend to lean in that direction.

Mr Carr: The government is referring to this Coopers and Lybrand report, which you know is the one that they are now quoting from. On page 3, I guess it is, you say nobody contacted your industry regarding this study that was done. So you mean to tell me that this study was done that the government is now championing without any input from the people who will be most affected in the horse racing industry? Is that what you're telling the committee?

Mr Klugman: I know our organization was not contacted.

Mr Carr: The people in Windsor in the other organizations said they weren't contacted either.

Mr Klugman: Dr Glen Brown, who represented the coalition last Thursday, I believe made the statement that that segment of the industry was not contacted as well, and there's not much left within the industry once you get beyond 47,000 people. I think I can safely say that nobody was contacted that I'm aware of.

Mr Carr: That puts the whole study's credibility, I would say, right down the drain, when they don't contact the people in that industry.

The government, when we were in Windsor, was championing this whole casino issue as a job-creation scheme. They say there'll be 8,000 new jobs. One of the reasons they said is that some of the impact, as you have mentioned, is that the horse racing industry is having some trouble anyway, which they obviously are in some cases. When it comes to casino gambling coming into the province of Ontario, how many raceways do you think will have to close down as a result of casinos coming in? When they get up to the full complement that they list here in the report, how many are going to be able to close and what will that mean for your industry?

Mr Klugman: I believe there are 23 racetracks in Ontario. One is already announced to be closed, and we've been assured by the Ontario Jockey Club that it has nothing to do with the casino project. My immediate guess would be that in the short term probably six to seven would close down. There seems to be, according to Minister Churley and other reports in the executive summary, which is what I've been dealing with from Coopers and Lybrand, that there is a suggestion within the summary that racing get to a more teletheatre, simulcasting concept within Ontario. That in itself spells a lot of concern within the industry because there's a great potential there for loss of racing opportunities for horses and things like that. That is our big concern, that we're going to be facing a situation where there are less venues to run our horses, less times available to run them, and if tracks do close then the whole industry is compacted significantly because of it, so I'd say five to six racetracks in the short term.

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Mrs Irene Mathyssen (Middlesex): Thank you, Mr Klugman, for coming. You said during questioning that Minister Churley had indicated a willingness to help the horse racing industry. I'm glad to hear that, because as a rural member I know the importance of the industry to rural Ontario.

I'd like some clarification, though, on a couple of the things you said. You indicated that the jockey club said its announcement or proposal to close Greenwood had nothing to do with the casino project. I assume the fact that there are losses there and they're looking at a projected loss of $7 million means that there are some serious problems in the horse racing industry and there have been for some time. Could you tell me a little bit about those problems? That's number one.

Number two, on page 5 you ask I guess a rhetorical question, "Is the Ontario Jockey Club to be expected to launch a massive marketing effort to attract families and young adults" to horse racing? Given that a business needs to respond to changing situations and a change in the market, doesn't it make sense for the industry to find out how it can move into the new market and attract new customers? Isn't that just good business sense?

Mr Klugman: Okay, I'll go back to your first question, or would you like the answer to that one first?

Mrs Mathyssen: Well, however is most convenient.

Mr Klugman: Okay. The problems within the industry -- and, again I'm not going to speak on behalf of the Ontario Jockey Club, because we as horsemen are equal partners with the Ontario Jockey Club. We share in the commission revenue from the wagering dollar on a 50-50 basis. So yes, when the jockey club makes announcements that it's been losing money, whether to operating losses or to actual book losses, whichever way it puts it down, over the past four years -- I believe this will be the third or fourth year consecutively that they've shown operating losses -- then there may be problems within the Ontario Jockey Club. I'm not suggesting that, but I'm just saying perhaps there is.

As far as horsemen are concerned, we have undergone, in the past 15 years, progressive increases to purse revenues, to purse moneys that are paid out. Only this year have we experienced what we call a massive decline in purses paid. We equate this primarily to the recession, but we had to undergo an 8% decrease in purses at the commencement of our Greenwood spring meeting this year, we had a further 6% reduction just after getting into Woodbine and there's talk right now that we're going to have to undergo a further 6% to 8% reduction. But that's only happened this year. At this point in time last year we were roughly, what we call in our purse account, underpaid. The Ontario jockeys were holding over $4 million of horsemen's money. It's hard to explain here how we come about to that, but we've paid all that out and we've actually overpaid. In other words, the jockey club has paid out to horsemen more money than it's actually taken in. So it's just been a rapid decline for us within the last year.

So as far as we're concerned, there are problems within the racing industry. There could be problems within the management of the Ontario Jockey Club and how it's doing it, but it runs its affairs and we run ours. It's our purse money to our owners that we deal with as far as revenue is concerned, and that's the only way we can tell within the last year that we've been subjected to a massive decline in business. Casinos just present a further decline on top of an already big decline for us because of just normal business; that poses the biggest threat to us at this point in time.

As far as your other question concerning the jockey club and whether it should be the one to be attracting families and young adults, certainly; I have to categorically say yes. They're the ones who market racing and they're the ones who put the advertisements on TV and have all the other particular perks to people to come out. But when they're operating with decreasing revenues and projected losses of $7 million, those funds aren't there to go out and get a Don Cherry to pump racing or whatever. Perhaps that's why our suggestion is to reduce taxation as a possible means of giving new revenues to racing, where they may be able to come up with that money, find that money to do those kinds of marketing initiatives and also to help offset horsemen in the dropping or decreasing of their purse moneys.

Mrs Mathyssen: So you do plan to do some market analyses so that you can find out how to broaden that market or find out where your new customers could come from? That is in the works?

Mr Klugman: Again, I can't speak for the jockey club. The Ontario Jockey Club, the racetracks are traditionally the ones who do the marketing. They're the ones who bring the fans in, because they reap the benefits of the attendance, the admission handled, the parking, the programs and things like that. We don't share in that revenue. We share in the wagering revenue. So I'm sure if the Ontario Jockey Club had some new moneys that it could operate with, it would in turn use that on a new marketing initiative that would bring in new people. That's a very important proponent for us to carry on and to get racing back if not to where it was, to keep us on the current levels that we're at now.

Mr Noel Duignan (Halton North): Just on a point of clarification, were you talking just about your organization not being contacted for the Coopers and Lybrand report or were you also talking about the industry in general?

Mr Klugman: I was talking about our organization in particular, and from what I understand from Dr Brown, who represents the coalition of 47,000 people within Ontario, they were not contacted as well.

Mr Duignan: I beg to differ, because Dr Brown as well as Bruce Johnston were in fact on the list of people interviewed by Coopers and Lybrand. Were you aware of that?

Mr Klugman: Okay, I stand corrected then.

Mr Duignan: I just wanted to clarify that particular point. A number of surveys done, the 1985 OJC survey of the racetracks and a recent survey, indicate at that point that 85% of the people attending the racetracks were white males over 35 years of age, while the recent study indicates that figure is somewhere around 78%. So maybe the industry has been a little more successful in attracting younger people into the market, but that's one of the big problems. I go to the racetracks on quite a regular basis, and every time I look in the stands, the people at the racetrack are, again, in the older bracket, 35- or 40-plus. If something isn't done to attract people into the racing industry, in 10 or 15 years' time the racing industry itself will be in serious decline. Wouldn't you agree?

Mr Klugman: I agree with you, sir.

Mr Duignan: So we need to sit down and we need to work out a strategy on how we save this particular industry. We can do that only by working cooperatively together. Your organization, along with many organizations, has been in to see the ministry and we're working together to come up with a strategy to do just that.

Mr Klugman: That's correct. As a matter of fact, at our last meeting with Minister Churley we raised that particular point and, of course, our final statement did include some financial assistance from the government to do so. At this point in time, nothing has happened from that last meeting back in the spring.

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Mr Duignan: And we're only talking about one casino here, the casino in Windsor, at this point. That's all the government is committed to is one casino in Windsor, and part of the proponent's proposal is that it must work cooperatively with the racetrack and with the horse racing industry in general. I think by working cooperatively, especially in the Windsor area, at this point, because we're only dealing with the Windsor casino, I think it would work very favourably with the racetrack in Windsor.

Mr Klugman: Well, I haven't spoken with Mr Joy from Windsor as to what his suggestion is. That article you're looking at right now, I was just faxed that this morning and I haven't had an opportunity to read it.

Mr Duignan: In fact, in Windsor last week, Mr Joy is on record as saying -- it talks about the number of horse racing groups coming to visit the committee this week. "Windsor Raceway's position is not represented by any of the groups," he said. "They want us to fail and then they can point to us and say, `See want casino gambling is doing.'" Do you agree with that statement?

Mr Klugman: No, I don't believe so. I don't agree with it.

Mr Duignan: Thank you.

The Chair: Thank you. Regretfully, our time has expired. Thank you very much for presenting before the committee today.

The next presenter we have is Microtronics, Mike Restivo, president and CEO. When it's convenient, if you could -- Mrs Cunningham?

Mrs Dianne Cunningham (London North): Mr Chairman, could I ask a question on process here?

The Chair: Yes.

Mrs Cunningham: What amount of time have you allocated for each caucus?

The Chair: It varies from questioner to questioner. I divide the time up equally.

Mrs Cunningham: Okay, that's fine. Also, could I ask a question either of the parliamentary assistant but perhaps of legislative research at this point to get it on the record?

The Chair: Well, I would appreciate if you'd ask it in your time allocation so that we don't detract from the opportunities that all presenters have and all questioners have. Is that, in your opinion, unreasonable?

Mrs Cunningham: It may or may not be appropriate, but we'll stay with it right now so that we're not taking up the time of the next presenter.

The Chair: Okay. I think it's probably an important thing for me to say at this time too that as the Chair I'm trying to manage as equitably and as reasonably as I can the time that each presenter has and trying to divide that time up. As people indicate to me that they'd like to ask questions, I have no control over how long the presenter takes to respond, so it becomes difficult for me to try to manage that time.

Mrs Cunningham: I have no problem with that, except the last time was not fairly done and there were questions asked of the parliamentary assistant but the parliamentary assistant also got his points of view across when they weren't --

The Chair: He's a member of the committee, as is everyone else, Mrs Cunningham.

Mrs Cunningham: Am I assuming the parliamentary assistant's time will be part of the government's time?

The Chair: That's right.

Mrs Cunningham: Fine, let's do it that way next time.

The Chair: That's the way it was done. Thank you.

MICROTRONICS CO

The Chair: If you would like to proceed, you have 30 minutes for your presentation. You may use all of it for your presentation or save some time for questions.

Mr Mike Restivo: I'd like to thank the Chair and the committee for this opportunity. I'm the CEO and computer software developer at Microtronics Co in Toronto. I have approached the provincial government's Windsor casino project with respect to any consulting services that I may provide to educate the Ministry of Consumer and Commercial Relations as to the state of the art in restaurant cash/inventory management software. My approach is to raise the level of management and security controls stipulated by the project's officers to the casino proposers. This paper is a subset of my material and correspondence that is presently under study by the Ministry of Finance policy branch and the Ministry of Consumer and Commercial Relations policy branch. I'd just like to give a couple of paragraphs of current events.

On Sunday, July 4, 1993, the first of a four-part series on the Windsor casino complex and the larger question of casino gaming in Ontario was published. I was disappointed in the negative tone of the piece but recalled that similar rough handling always accompanies the consideration of allowing professional gaming in a region or city: The public needs to know just how pervasive organized crime has been in other areas that permit casino-style gaming, and that the risk of similar incursion in Windsor is very real. I wondered what the ministry's response would be.

On Tuesday, July 6, the third part of the series was published. This part focused on the mob personalities who were possibly poised like vultures to prey upon an unwitting public and government officials. In this article, the director of communications for the project stated, "The key is to put in a very, very tight system of checks and balances." This is as it should be. Further, the article considered: "But some American experts say that this is easier said than done, and privately, some Canadian organized crime specialists agree. Chicago is also considering legalized casinos, but the Chicago Crime Commission was unimpressed by assurances that vigilant policing could counter traditional mob activity." Further, "Even if machines are carefully regulated, crooked vendors have an opportunity to tamper with them during routine repairs and maintenance. The machines are also easy to skim for unregistered profits. `How do you control that?' Holmes," a US gambling security consultant, "asked. `What's to stop them from altering them? It's almost impossible to have every one of them checked to make sure nothing's happened to them.'"

Finally, on Wednesday, July 7, in a separate article from the last instalment of the series, Marilyn Churley, the Minister of Consumer and Commercial Relations, echoed that proper controls would be in place at the casino complex. During the day, she was pestered by the Liberal and Conservative critics, who pointed to the Star's series and were not satisfied with her evasive manner. "I don't have to take lessons from them," she said.

Further, in another article from the same edition, Ms Churley engaged in an indifferent and cavalier interview which indicated her lack of knowledge of the Windsor area. I felt that it was an unflattering interview, giving the hopefully wrong impression that the minister was uninformed.

This casino project clearly involves many concerned public bodies. Microtronics Co is trying to get as many of the involved and/or concerned organizations up to speed on the state-of-the-art methods of control so that all may be able to sing intelligently from the same hymn book, so to speak. It is possible, although a remote possibility, that a previously unknown system of management software superior to my own would eventually become recommended by the Ontario casino project. That software and system would then become the unexpected beneficiary of all my promotional efforts.

For simplicity, I'll focus upon liquor inventory. It is essential to track the movement of these products from point of purchase through the Liquor Control Board of Ontario. All sales data and bills of lading data are already computerized. The sales data from the casino's beverage operation is represented by its point-of-sale reports, which are verified against its beverage control system's reports. Discrepancies are revealed in the sales variance report. The beverage system's counters are invulnerable to end-user tampering, unlike ECR, electronic cash register, or POS, point of sale, terminal sale totalizers. They are thus considered the correct standard of comparison.

EASYPRO, my software product, does this automatically, but it could be performed completely manually, assuming the use of an incorruptible and error-free employee. These readings must be performed upon every shift for maximum accountability. A general understanding in bar management is that no beverages are dispensed to wait staff except through the hands of the bartender, except in the smallest of restaurants. This is logical. Therefore, the bartender is responsible for all cash shortages, but only during his or her shift and only at the bar at which he or she is working.

It is assumed that the casino's beverage operation will employ an automatic beverage dispensing system, interfaced to a back office computer, as opposed to a scale-based beverage control system more suitable for small restaurants. The aforementioned balancing can be completely performed in real time from the casino complex's back office under microcomputer control. EASYPRO can enable remote auditing in real time by auditors at Queen's Park and the Ministry of Revenue via modem.

All management systems assume that the ultimate parties to whom the system will report are the owner-operators who are on site. Absentee owners, franchisers and the Ontario government all share the complication that they must accept on faith, for all intents and purposes, the sales and inventory reports that are furnished to them. There are no higher levels of controls and accountability in management systems to ensure the integrity of data forwarded to a third party. These additional controls must be added. By placing a maximum of the management's activities on computer files, the effects of absentee ownership are minimized.

Accepting the point-of-sale sales reports as the only supporting documents for the daily gross revenues of the beverage operation is the height of folly for the government. The cost of balancing front, the terminals and cash registers, to the back -- that is, the back office management system -- and comparing the Liquor Control Board of Ontario shipping documents, for example, against these two sources of reported sales, and balancing that against the casino complex's next order to the LCBO is minimal.

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This audit trail forms a closed loop through which Queen's Park can detect if smuggled liquor is being poured at the casino complex's bars and restaurants any time it wants to. It will be known as a fact that, say, 60 bottles of rye whisky arrived at the casino's bar commissary or central depository, as supported from the LCBO's signed bills of lading. The next shipment to be received contains, say, another 50 bottles of rye whisky. It is then known that the previous 60 bottles of rye whisky were dispensed or poured. The brand is irrelevant. Only the total bottles of all rye whisky dispensed is critical. They may have been given away, poured down the drain as in spillage, stolen, sold above, at or below fair retail market value to the complex's patrons, or consumed by wait staff either at no charge, at a discount, or by theft. There are no other possibilities.

The POS and beverage system sales reports will indicate only three possibilities: that less than, exactly, or more than 60 bottles worth of rye whisky were sold during the sales period in question. If a variance exists between the POS and the metered reports, the beverage systems totals only are to be accepted. If less than, then underreporting of sales revenues is taking place; ie, "skim," "gravy" or "vigorish" is being diverted with management's consent. If more than, then rye whisky from other than legal sources was dispensed at the complex.

Because of the high "sin" taxes levied on Canadian liquor, US liquor costs between one third and one half that of its Canadian counterpart, even if it ultimately originated from the same Canadian distiller. Without the intergovernment computer auditing as I have described, it is easy to mix, say, 10% to 20% smuggled liquor in with the legitimate liquor, not just at the casino complex, but anywhere in the province. That is why all Canadian distillers are concerned about beverage management controls at the casino complex and elsewhere.

Pouring Michigan liquor that has not been subject to federal excise tax and Ontario liquor tax means less liquor purchased from Canadian distillers and less tax revenue not only from the above taxes that were avoided, but also from the Ontario retail liquor tax, the Ontario corporate income tax, the federal GST and federal corporate income tax, which all must be avoided when sales are undeclared. This is why the Ministry of Revenue should be interested in cash/inventory management controls. Such are only provided by EASYPRO.

The amounts of undeclared liquor sales depend on how busy the complex becomes, but could range in the hundreds of thousands of dollars annually. But what of non-alcoholic beverages like soda pop or fruit juices? Controls on these items are notoriously weak. As described in the accompanying Microtronics Co brochure, losses, as it were, can occur with these items as well.

Read also the articles in the Financial Post of June 26, 1993, "Taxes, Hard Times Fuel Underground Economy" by Paul Brent, and of June 24, 1993, "Distiller Slams $1B Smuggling Industry" by Kevin Dougherty. Further, read the articles in the Toronto Star of July 13, 1993, "Underground Economy Loss Put in Millions" by Derek Ferguson, and of July 31, 1993, "Millions Lost in Huge Booze Scam" by William Marsden.

What about skimming from the slot machines, or "slots"? I have no experience with slot or video lottery or video poker machines so I'm only speaking theoretically, with the possibility of misunderstanding on my part.

The project's request for proposals stipulated that all slots must have serial interfaces; that is, they be able to connect to a microcomputer or computers.

How do slot machines work? Players feed in, say, dollar coins or other tokens into the machines. The slot machine gives a payout when certain combinations of digital, electromechanical or purely mechanical counters are in alignment. How much is the payout? Well, suppose the coin box voids or empties completely upon a payout and that, say, two payouts have occurred in one day. The gross proceeds to the casino from the slot would only be that amount in its coin box since the last payout. If the last payout occurred about closing time or the end of a shift, the gross income to the casino would be about nil.

Casinos can't stay in business by eventually awarding all of their proceeds as winnings. There are then two coin boxes: One box is for the payout only, the out coin box, which contains a known, fixed-dollar amount. The other box is for the deposited patrons' money, the in coin box. The payout box is replenished with a flourish and display immediately after a payout. Patrons love to see money going into the slots, payout money that they might just win themselves.

The patrons' deposited coins are removed from the in coin box only at odd hours, away from the eyes of players. Slots are ranked in terms of payout. The bigger the payout, the larger the coin or token's denomination and also the larger the odds against the patron of winning. Risk/reward benefits are at play here, and this is fair. All the slots will contain totalizers which count the number of coins or tokens deposited by players and the number of payouts.

The ratio of deposits to payouts is supposed to be known and fixed for each slot machine. If less, or more, payouts are taking place than the odds indicate, then that machine needs to repaired or replaced. Data capture of these totals through the slots' serial interface by a back-office computer will confirm over, say, a week if the odds have been increased or decreased against the patrons. It is irrelevant who services the slots.

Queen's Park must have direct access to this captured slot machine data for true accountability. These data files are only a phone call away under a system by Microtronics Co, with no human intervention required.

Quite a bit of concern has been raised by this fear of skimmed profits. Is this really justified or are people just overly sensitive? A reading of the Ontario casino project's request for proposals yields several insights.

The Ontario government has declared that the operators of the permanent casino shall run it under a contract of seven years, at which time there will be an equity buyout by the operators. The subsequent degree of involvement of the Ontario government is not described. A win tax of 20% of all winnings accrues to the government, as do all net profits.

Any operator will be running this casino merely for its own wages. After seven years, the net profits will greatly increase as the province will no longer have any claim on them. It's unclear if the restaurant and accommodation operations in the complex are subject to the same limitations as the casino proper. Presumably, casino gaming will soon, as it were, be much more widespread in Canada with fat profits for all casino operators. A few initial years of operators' poor net earnings are worth it.

I note from the Star's casino series that certain interested parties have been waiting years for this opportunity. By taking away the normal business incentive, the profit motive, the Ontario government has created a built-in motivational factor to underreport revenues or use contraband liquor and cigarettes. Just a few weeks ago, Ontario Provincial Police seized a large supply of US smuggled tobacco products in Sault Ste Marie. In Ontario it is estimated that from one in four to as much as one in two packages of cigarettes sold at retail are smuggled from the US. Given the repeated declarations by police forces that smuggling operations are well organized and highly profitable, my inferences that bootleg liquor and/or tobacco could find outlets at the Ontario casino complex are not at all alarmist or out of line.

I note that no proponent for management of the Ontario casino project would unilaterally impose accounting or beverage management controls greater than the minimum demanded by the Ontario government, which is admittedly inexperienced in casino gaming, as optimum controls would reveal any management shortcomings, wastefulness, sloppy accounting practices and other, possibly illegal, subterfuge.

I emphasize in closing that I am speaking only as the president of Microtronics Co, not as any representative for the Ontario casino complex, nor am I nor Microtronics Co affiliated with any other proposer, subcontractor or consultant for the project; and, no, I haven't been invited to or gone on any junkets to any of the casinos.

I'd like to yield the balance of my time to any questions.

The Chair: Thank you very much. We have approximately five minutes per caucus. The PC caucus is up first.

Mr Carr: Thank you very much for your presentation. I take it, since you're somebody who's trying to get some business out of the casinos, that you're in favour of them?

Mr Restivo: I noticed a few months ago that it seems to be the wave of the future as far as governments' initiatives for increasing of tax revenue. Every state in the union in the United States will be eventually approving casino-style gaming as a way of raising taxes without raising income taxes and other traditional sources of tax revenue. So it is an acknowledgement of a trend that will continue. The answer is yes, I am in favour.

Mr Carr: You've talked about some of the techniques that can be used. One of the big concerns that was voiced in Windsor under questioning by even the police chief during that period of time is the capability of money laundering through organized crime through casinos. Can you tell us if you have any other products that could deal with that issue, which is of prime concern to the people in the province?

Mr Restivo: I don't have a commercial product that's available at this time to handle that. It would require consulting services of either myself or someone who has cost accounting experience or experience in the Nevada-Atlantic City area.

I would note that Jack Wynn, I believe the CEO of the Mirage Hotel, recently had a tragic experience. His daughter was kidnapped and was held for a ransom of $2 million. The kidnappers settled for $1.5 million. He walked into his casino, into petty cash, and walked out with $1.5 million cash.

The first question that arose in my mind is, how much cash has he got in there, and why is it there and not deposited away? Obviously the people must be quite familiar that there are large sums of money, and I would imagine that not necessarily the Treasury department but the IRS would be quite interested vis-à-vis money laundering implications.

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Mr Carr: One of the problems with the crime, and particularly with the Windsor casino, is of course you're right across from probably one of the highest crime rates around. As we said to the people of Detroit, with all due respect, right across the river there's a tremendous amount of crime, and when you have that much cash around -- and downtown Detroit is virtually dead at night -- the criminal elements are going to be able to go across very quickly and have access to people with a tremendous amount of cash. That's one of the concerns that is in there.

I want to go along one of the other lines that came up. As you know, the government has said that it will police the casinos properly and give some of the funding for police. The Windsor police say they need 30 additional police and the province has only offered 10. The chief of police in Windsor has said he will not give his assurance that the casino can be run without criminal elements unless he gets his wish, and I respect him for that.

How much -- how shall we say? -- contact will be there between yourself and the police department in what you do? Are any of the things that you talked about going to take interfacing with the police and so on?

Mr Restivo: Considerably. I'm making myself available to give training as needed to any forensic accountants who are on staff or would be employed by the OPP or the local Windsor police force. As it stands, I'm sort of working from the top down and trying to raise the consciousness of the government before I even seek any proposers. I feel a little nervous in going to police forces at this time because they may feel: "Well, what standing do you have? We're not about to open up security features to you unless you have an entrée or a recommendation from the government."

So the Liquor Licensing Board of Ontario, the Liquor Control Board of Ontario and the various police forces, including federal police forces vis-à-vis the smuggling situation -- this is even a federal concern, which is much broader.

But what I would mention about your very first point is that the number of police officers is probably necessary as stipulated by the Windsor report. Naturally there would be an increase in police officers.

I think it must be constantly ever more in the committee members' minds and also the public's that this is an experiment by the government. It is only one, and that's a bad thing to do, because it focuses everything on one centre. I think ultimately allowing every hotel in the country to have licensed casino gaming on their premises is the way to go that would distribute all the security concerns right through the government. Here, Windsor has to support the bulk of an infusion of players, that is, people who are on the grey side of legitimacy and what not to try to take advantage of the patrons who are coming.

As far as cash, as much of a cashless operation should be possible, that is, the players deposit on account a certain amount of money and then they can play with it, and that would be fixed. That would prevent, or at least provide a deterrent, to compulsive gambling and things like this. I wouldn't mind dropping, say, $200, $300, but if you've deposited a couple of thousand dollars, I think that would be a safe enough brake that you've reached your limit and that's it. Winnings, again, would also be electronically deposited to your account in your home town. Therefore, the only cash that people would be having on hand is your typical maybe $100 or so petty cash money.

Any operation that would not be on such a cashless basis would force people to be walking around with hundreds and hundreds of money. That would be a magnet to every petty crook in the Golden Horseshoe area. It strenuously must be seriously examined to prevent stuff like this.

Mr Duignan: Just very briefly, that's of course one of the reasons why we're offering credit at the Windsor casino, so people will not be walking around with large sums of money, and that's on a pre-approved basis. It takes many weeks to do that, but that's one of the reasons we're doing that.

The other fact in relation to the security as well is, you know, the OPP will be doing the internal security in the casinos and there will be an office of the OPP within the casino complex. So there are a number of issues there that are not available in any other casino I know of in Nevada or Atlantic City.

Also, someone made reference to the fact that the Windsor police have only been offered 10 police at this point. Well, we said that's a start. We will offer any other officers necessary to the Windsor police if they're proven necessary.

Mr Dennis Drainville (Victoria-Haliburton): They have proven it.

Mr Duignan: That's still under negotiation at this point in time. But we're going to make sure that the city of Windsor stays as safe and secure a place as it is now.

Mr Restivo: Just one final thing about security. Again with respect to that win situation, the more the word gets out that there's a cashless operation at the casino, the less there will be elements of -- we're not talking petty crime; we're talking kidnapping, terrorism. That's why you don't see bank robbers any more. The only cash that's in any bank is what's in the tellers' cages. There's not millions of dollars lying around. But if there were poor controls, you would be exposed to threats and things like this. So as Mr Duignan has mentioned and as I've fleshed out, pre-approved credit limitations and electronic deposit to winners' bank accounts is an absolute must.

Mr Duignan: As you know, we've looked at the problems that this industry has experienced in other jurisdictions, indeed around North America and elsewhere, and we are learning from those mistakes, because we simply don't want to repeat them in the Windsor area.

Mr Kwinter: Mr Restivo, you make a couple of assumptions on page 5 that I have some problems with and I'd just like you to clarify them. In it, you say, "Any operator will be running this casino merely for its own wages," but "After seven years, the net profits will greatly increase as the province will no longer have a claim on them." Where did you get that information?

Mr Restivo: You'll still get your 20% win tax on the earnings, but the net profits won't be going to the province. The net profits will then be normal retained earnings, corporate retained earnings, unless I'm in error. I do have the request for proposals here. But this was the terms of the equity buyout. That's the limitation of the seven years. The province is out after seven years, so retained earnings accrue to the managers. As it stands, they get nothing. I mean, $60,000 for a manager and that's about it; no retained earnings. So they have to be in there for the long term. That's not necessarily bad.

Mr Kwinter: It's certainly my interpretation of the request for proposals that the government is in this thing for ever and that what is happening is that it has the option of buying out the operator.

Mr Restivo: That is true.

Mr Kwinter: But the operator doesn't have the option of buying out the government. What happens is that after seven years, the management contract has to be renegotiated. But certainly there's a 20-year provision, and it's certainly my impression that the government will have the same arrangement on day one as it does on year seven unless it renegotiates the deal, but it doesn't terminate. It just says that the initial -- the exact words are, "The initial term of the operating agreement is seven years." It doesn't say anything about after that the whole operation and the profits will revert to the operator.

Mr Restivo: Oh, I see.

Mr Kwinter: I would like to get a clarification from the parliamentary assistant as to whether that is the case or not.

Mr Duignan: The government's in it for the long haul. The government can't be bought out.

Mr Kwinter: So my position is more accurate than his position.

Mr Duignan: Yes.

Mr Kwinter: That's all; I just wanted a clarification.

Mr Restivo: Yes, Mr Kwinter, I appreciate that, and that further emphasizes the importance of my result. The operators are just working for their wages.

Mr Kwinter: Then I ask you the question, if all they're going to get is their wages, what incentive is there for an operator to get involved in this project?

Mr Restivo: None.

Mr Kwinter: So why are all of these people clamouring to get into this thing?

Mr Restivo: You would have to ask them. They're hoping that there may be changes. This is an initial experiment. The requests for proposal in more than one place indicates that there may be movement or change later. I think things might be freed up a little bit or the proposers may be hoping that there may be spinoffs, other things like this. This is an entrée into professional gambling in Canada. People have been waiting a long time. They'll take whatever they can get for now.

I'm not saying the mob is ready to work and that they're going to use this as a venue for organized crime. That's not the case. I work from the top down. First, you do things the right way, and then you examine and see if any extraordinary measures have to be implemented.

But certainly, why should somebody close down the Taj Mahal in Atlantic City and come into Windsor? There's no compelling reason whatsoever, especially if Michigan, which narrowly defeated approval of casino gaming last month, should approve it, and I believe it will upon the opening of the Windsor casino complex, since it is projected that 85% of the Windsor casino's patrons will be coming from Detroit.

If the Detroit operation is launched, they will allow a more traditional, wide-open, so to speak, gaming operation with dice and crap games, which are not allowed in Windsor. I believe that will seriously impact any proposed operation in Windsor. I would hold off and open up in Detroit, personally.

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Mr Kwinter: That then gets me back to the comment I made at the start of today's hearings. The way this thing is orchestrated, you would think they were expecting proponents to be Mother Teresa, because there's no other reason for anyone to get into this thing unless there's a hidden agenda. It would seem to me that the people who are making presentations are certainly not involved in providing a humanitarian service to the taxpayers of Ontario. They're in it to maximize their profits and how do they do it.

Mr Restivo: Yes, they have to be. I would say on behalf of the government, if I might, traditionally in negotiations first you make your side very stiff and then maybe you have a little bit of flexibility. Unfortunately, the public would like to know, "Well, where's the bottom line?" The stipulations are extremely one-sided, $303,000 just to get an entrée ticket to make a proposal. Your remarks are most appropriate and observant. I really would question the business flexibility of the people who are negotiating proposals. It's very one-sided. This is perhaps typical of a small-c conservative government that doesn't want to make any mistakes. That's understandable.

The Chair: Thank you, Mr Restivo, for presenting before the committee today.

Mr Restivo: Thank you very much, committee.

ONTARIO HARNESS HORSE ASSOCIATION

The Chair: Our next presenter today is the Ontario Harness Horse Association. Gary Stead, the general manager, is making the presentation, if you could please come forward and make yourself comfortable. For the interest of all the committee members and especially Hansard, perhaps you could please identify who the other gentleman is.

Mr Gary Stead: Yes, sir, the other gentleman is Malcolm MacPhail, president of the Ontario Harness Horse Association.

The Chair: Welcome, Mr MacPhail. You have 30 minutes to make your presentation. You may use all of that or a portion thereof. The rest will be for questions and answers.

Mr Stead: First of all, I have prepared a brief and it has been passed out to everyone here.

I would like, first of all, to go over the history of the Ontario Harness Horse Association. We were incorporated in 1962 by a concerned group of owners, trainers, drivers involved in the standardbred industry of Ontario.

The main mandate of the Ontario Harness Horse Association is to represent all Ontario standardbred horse people in matters which affect the industry. At this time, the Ontario Harness Horse Association has over 64,000 voluntary members, making it the largest standardbred association in North America.

Our members are very concerned and opposed to casinos being introduced into Ontario, and why, the question may be asked. First of all, there have been a number of studies commissioned by different organizations, as we're all aware. Two have caused great concern to our members. The first is a report commissioned by the Ministry of Agriculture and Food in which noted gaming authority Eugene Christiansen states, "Let there be no mistake; casinos would have an adverse impact on Ontario racetracks and therefore Ontario breeding and therefore on racing and breeding industry jobs and tax revenue."

The second report, done by the firm of Price Waterhouse, was commissioned by the Ontario Jockey Club, and in this report, it is indicated that "a potential negative impact of 19% to 37%, approximately $330 million, on total horse race wagering in Ontario and a potential loss of between 9,500 and 18,500 industry jobs would occur over the medium term" if casino gambling were permitted in Ontario.

It is of the utmost importance for the committee to realize that the majority of these 9,500 to 18,500 workers have no transferable skills. They are members of one of the last hands-on industries and would become permanent additions to the unemployment ranks and a further burden to Ontario's social assistance program.

There are reasons why the ground rules at this point in time make it impossible for standardbred racing to compete against other forms of gaming.

Horse racing is unique. It is the most expensive gaming vehicle because it is truly an industry. Its product, the horse, has to be bred, raised, sold, trained and driven in Ontario. Because of this, there is a huge $2.2-billion annual economic activity over and above its total revenue to the province of a net of $55 million a year. The costs of casino gambling, other than the construction of the plant, are not comparable.

The government net takeout of 5% of the total handled is based on a monopoly gaming position that no longer exists for the standardbred industry. At this time, only 27% of legal gambling is conducted on horse racing. The race industry once enjoyed 100% of legal gambling, but a steady decline has been brought about by government getting involved with gambling, firstly with lotteries, then Pro Line sports betting and lastly charity casinos which have proliferated almost without control over the past eight months.

Who wants casinos? Not the race industry which employs over 50,000 people. The farmers of Ontario are not in favour. Six hundred delegates to the Rural Ontario Municipal Association voted unanimously against casinos. There have been countless petitions in the Legislature against casinos.

The head of the casino project admitted to the Ontario Agriculture and Horse Racing Coalition that the 8,000 new casino jobs in Windsor is a guess, and no real studies to back this number have been produced. Will these estimated 8,000 new jobs offset this devastating loss of race industry jobs if casinos become a reality in Ontario?

The question has been asked by our members also, where will the people come from to this Windsor casino?

It has been stated that approximately 80% of the 12,000 customers a day that frequent the Windsor casino will be Americans. The American city of Detroit will not stand for this. In a recent front-page banner in the Detroit News it was proclaimed, "Casino Payoff: Stadium Land."

This story went on to state that plans are already in the works to open two casinos in Detroit. There is no doubt that Detroit will not stand still and watch its citizens gamble money in Canadian casinos. When they open Detroit casinos, it will devastate the Windsor casino and completely close Windsor Raceway, the standardbred facility in Windsor, if in fact it is still open after the Windsor casino opens.

What is needed? As far as the Ontario Harness Horse Association is concerned, there are no initiatives that can be implemented that would permit our industry to survive as we now know it. The NDP government has stated that standardbred racing will be looked after by bidders for the Windsor casino. The NDP government has stated that in examples provided by cities with casinos that where both horse racing and casinos operate in the same jurisdiction they have tried to drive each other out of business. Why would the NDP government think that these same bidders for a Windsor casino would work to coexist with horse racing? How can the NDP government expect the casino operator to boost business at Windsor Raceway, especially when they will have their hands full just trying to compete with the Detroit casinos which are sure to come in the near future if the Windsor casino becomes a reality?

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In closing, I would like to summarize some very important points, some we have already touched on in this brief.

(1) Horse racing employs at least 28,000 people in Ontario. The NDP casino update verifies that number. The OHHA, the Ontario Harness Horse Association, feels the number is closer to 45,000 people.

(2) Our race industry is responsible for $2.2 billion in annual economic activity in Ontario. Ontario horse racing contributes $350 million in purchases of hay, straw and feed from Ontario farmers. We pay over $500 million in wages. Our numbers employed are higher than logging, forestry, mining and the fishing industries.

(3) Horse racing contributes over $80 million -- net $55 million -- per year to the government coffers from parimutuel wagering alone. This does not include sales tax from articles purchased and property tax from our 45,000 employed people in the industry.

The head of the casino project team has estimated 8,000 new jobs. They have estimated large amounts of tax revenue for the Ontario government. The question the horse racing industry has for you is, are you willing to throw away a viable industry recognized worldwide as a leader, that has never asked for any handouts, for estimates of profits and employment of a casino that may or may not even exist once Detroit comes on stream with its own casinos.

The Chair: Thank you very much for your presentation. We've got approximately about eight minutes per caucus. We're going to let Mr Drainville ask a question.

Mr Drainville: There's been a great deal of discussion by the government and the ministries about their consultation process. I believe it's been a non-consultation process about the principle, and I would ask you to comment on my views that I will put forward to you. It's obvious from the Coopers and Lybrand study that very little emphasis was put on the horse racing industry. Just a question on this: Is it true? Did they contact you when they were doing that study to find out information from you for the study?

Mr Stead: No. The Ontario Harness Horse Association was never consulted. We have never received a phone call from that firm in question.

Mr Drainville: So the Ontario Harness Horse Association wasn't consulted; neither was the Horsemen's Benevolent and Protective Association. I want to draw that to the attention of the committee and say that here we are talking about an industry which is a vibrant and vital part of the economy of Ontario, and here we have a study coming out which is ostensibly going to talk to us about the impact of casino gambling, and here we have a situation in which those who are most involved in the gambling industry in Ontario, one of the major components of that, have not been consulted.

I think it needs to be said that obviously the government has no interest in consulting with those who are involved in this industry. I would ask you gentlemen, in terms of the fact that the government seems to be going forward -- for instance, the honourable parliamentary assistant indicated that we were talking about one casino. Well, gentlemen, you know and I know we're talking about many casinos in Ontario. That's what the government has planned. Since that's the case, would you not say -- and I leave this open to you to respond -- that the government has not been consultative? Would you not say that the government has shown a lack of faith in the industry by not dealing with your industry fairly and by not dealing with the substantive questions that you have raised over the last 10 months?

Mr Stead: What I would say is that we have told the government time and time again exactly what will happen to us, but it seems like the process continues. There have been promises made by the government stating that the casino operators will look after the horse industry which employs 50,000 people.

I don't think that this is enough. I don't think that this will happen. I believe that we will never be the same as we are at this point in time. Horse racing in Ontario is the best in North America. We will never be that again. You're taking people who have absolutely no other skills other than working with horses and throwing them into the streets. If that's what you want to do, fine.

Mr Duignan: First of all, let me comment on the comments by Mr Drainville. I take exception to those remarks. The industry has been consulted, and it has been consulted widely. For example, Mr Glen Brown, has been consulted; Mr Bruce Johnston has been consulted; Mr Jack Kenny has been consulted; Mr Harry Addison has been consulted. It goes on and we're working closely together with this particular industry and developing a strategy to deal with the problems in this industry.

The problems in this industry have been there long before the question of casinos ever came about, and I refer to an article written by Mr Eugene Christiansen, for example, as far back as 1985, where he's asking the industry what it is doing to pull up its socks.

I refer to an article by the owner, by the people who look after the Woodstock racetrack stating, "Studying the market has led the society to realize it must change to stay competitive." I can talk about our friend from Windsor who's saying that none of these groups represent him. They're saying they're trying to put him out of business and they use the closure of the Windsor racetrack as an excuse that the casinos have shut them down. So come on.

Mr Drainville: Have you heard what they said?

Mrs Elinor Caplan (Oriole): Point of order, Mr Chairman: This is the time for the parliamentary assistant to address the concerns of the deputants, not to enter into a debate with Mr Drainville. That's inappropriate use of committee time. I call on you to call them to order and ask the parliamentary assistant to address himself to the concerns of the deputants.

The Chair: Thank you, Ms Caplan. That's not a point of order but certainly the parliamentary assistant doesn't need to get excited. But he could make his points.

Mr Duignan: I think the passions have come up on the floor, Mr Chairman, but I will address concerns. I have a great concern about the horse racing industry in this province. It has a number of problems and I think the ministry and the industry are working together to try to solve some of those problems. But part of the problem too within the industry, for example, is that they're not able to work together. Would you characterize that as a fair representation, that you do kind of have problems working together? For example, there have been some recent things in the past, for example, touching the OJC and the Fort Erie Race Track.

Mr Malcolm MacPhail: I have to disagree with that. I think last winter was a perfect example of working together. We went together with the OJC and the thoroughbred organizations and we brought in simulcasts from Florida. They devastated us standard-bred people to the tune of 34% live on our track. But the government was getting extra money, the jockey club was doing well and the thoroughbreds were doing well, so we went right on through with that. We didn't stop in January; we went through to our commitment at the end of March with this simulcast from Florida and we devastated ourselves. We barely kept our own purse account even halfway, but the thoroughbred people realized $2 million from it. The Ontario government realized over $2 million in extra taxes from the year before. The jockey club certainly made a good buck on it.

I don't think anybody can say we're not trying to work together. We tried it and we may do it again or we may not. Then you turn around and the jockey club wants to close Greenwood Raceway, our fortress of racing for years.

Mr Duignan: Of course, that was a decision of the OJC.

Mr MacPhail: That's right. So if we disagree with that, then you come out and say we're not working together. It might appear we're not, but we're trying to work for the benefit of all of us.

Mr Duignan: I'm glad to see that, because that has not happened in the past. You mentioned the fact that teletheatres and simulcasting have benefited the industry. Would you like to see that expanded in the future, and how would you like to expand it?

Mr MacPhail: There's a certain point that it can be expanded and it's got to be done carefully, because if you take people from the track and put them in a teletheatre, you're not helping anybody; you're just transferring the money from one place to another.

I come from a little racetrack. I train at Dresden Raceway. They race 20-some Sundays during the summertime. They televise in once a week during that time and twice a week during the wintertime. It helps them. They clear about $50,000 to the track over the year and they clear about $50,000 to the horsemen down there for their purses for the next summer.

London hasn't been very successful. Barrie hasn't been very successful with it. It takes time to implement. In the long run, it will come. It will and it'll help everybody, I think.

Mr Duignan: What more could the government do to help the industry along those lines?

Mr MacPhail: Our main problem is the tax problem, especially if you're bringing in casinos. If you bring in casinos, we'll be competing the same as they do in New Jersey. In New Jersey they take half of 1%. I was at a meeting in Calgary in July and the horsemen in New Jersey have a bill before the government House in New Jersey to take nothing, 0%, whereas here they take 5%. So right now we're taxing 10 times as much.

Mr Duignan: Also, don't forget that you pay income tax on your winnings in the United States as well, which you don't here.

Mr MacPhail: That's true.

Mr Duignan: Some 29% or 30% is taken off over a certain point of winnings.

Mr MacPhail: Yes, if it's over $600 on a win.

Mr Duignan: Which doesn't happen here.

Mr Stead: Just one point, Mr Duignan: Certainly that is what the person who wagers on the horse is taxed, but the person who works with horses and whose livelihood depends on horses is not taxed on that percentage. The .05% that is taken out by the government, everything else goes back into the horseman's purse account, whereas the governments here in Ontario are taking 5% off the top and keeping it.

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Mr Duignan: That's not true.

Mr Stead: We depend completely on the wagering for our source of income.

Mr Joseph Cordiano (Lawrence): There are some points that I would like to review with you. The Coopers and Lybrand study said that horse race wagering will be reduced by 5% to 10% and that in fact this could be improved by promotional efforts that the industry might undertake. Do you agree with that assessment? Do you feel that's an accurate assessment?

Mr McPhail: No, definitely not. We would love to promote our product if we just had some money. We went before the minister and asked. The HBPA and our organization met with her and said, "Why can't you give us somebody like the lottery, which has Don Cherry on television promoting sports betting?" Sports Line, Pro Line or whatever you call it. I'm not a gambler so I don't know. We could do something like that. If they gave us some money to do something like that, we'd certainly promote it, but there's no money. We're scrounging; let's put it that way.

Mr Cordiano: You think this is totally off the mark?

Mr McPhail: Definitely, yes.

Mr Cordiano: The negative impact would be far more detrimental to you. You're talking about survival here and you're talking about closing down racetracks. In fact, racetracks will close down once casino gambling is implemented in Windsor is what you're suggesting.

Mr MacPhail: I have no question in my mind on Windsor Raceway. I race at Windsor Raceway. I'm down there all the time. They'll be out of business by the end of 1994, I'll bet you on that.

Mr Stead: Perhaps I can comment too. We're saying approximately 19% to 37% impact, and perhaps it can be verified to a certain degree if in fact you use New Jersey figures, where the University of Louisville has revealed a decline of 28% in attendance and 33% in wagering in New Jersey. All casinos in New Jersey are confined to Atlantic City, which is 105 miles away. Why not use those figures? Why are we using figures that are less than that? Why not use what other firms have suggested?

Mr Cordiano: This is the study they conducted, so it's a question of verifying what they've done and what they base it on. There are a number of assumptions they make, so I'm just getting your opinion.

To move on to another question, with respect to what might be the end result if Windsor opens up, you pointed out in your brief then that obviously you feel Detroit will move very quickly to have casinos of a similar type and the competition would be increased.

The types of visits that would be made would be predominantly day trippers arriving by car. If it were to resemble the Atlantic City casino it's my belief, after having looked at what's happening in Atlantic City, and mainly there is the prototype for what's going to happen in Windsor, that you're going to have a lot of people attending the casino for one-day trips. Mainly 80% of them, I think it was stated in the study, will be arriving from Michigan or the larger Detroit area. I find it interesting that the Detroit News had that to say about what's going to happen in Detroit.

Is there any other information you could elaborate on with respect to that? How real is the threat of competition from Detroit, in your view?

Mr MacPhail: I really don't think it's as urgent as some have said. I grew up in Detroit. I've roamed the back streets of Detroit. I used to walk from Tiger Stadium downtown years ago. I know Detroit.

You say there are going to be day people coming over. I agree with you, and if you try to get to Windsor from Detroit on the average day, sometimes it can take you an hour now. You bring 12,000 more people in, 10,000 from Michigan, and people are going to be angry before they get to the casino because they're going to have to fight with customs officials and they're going to have to fight with traffic.

The city of Windsor has been led down the garden path as far as I'm concerned. They think they're going to get a big deal out of it. If I lived in Southfield, Michigan or Bloomfield Hills where the money is and I wanted to spend some money, I would go to metro airport and get on a $199 flight to Vegas where they'd entertain me, they'd put a drink in my hand and they'd be glad to see me. That's not going to be the case in Windsor. They're going to charge you to get across, they're going to charge you for the drinks, they're going to take your money and they're not going to be happy about it. That's my opinion, for what it is.

Mrs Caplan: How much time is remaining?

The Chair: We have a couple of minutes, Ms Caplan.

Mrs Caplan: You asked a question in your brief that I'm certainly having trouble figuring out and I wonder if you have an answer for it. Sometimes people ask questions that they think they know the answer to. You say, "Why would the NDP government think the same bidders for the Windsor casino would work to coexist with horse racing?" I think that's a really good question and I'm wondering if you have any answers yourselves, or do you think it's just impossible?

Mr MacPhail: The Mirage Hotel was one of the original bidders. They contacted us and we met with them for a couple of hours. The reason they contacted us was that they were concerned about this horse part of the application, that they had to be sensitive to racing. The man was second or third in command for the Mirage and he had a brother-in-law who was in the horse business in Illinois and knew the impact of casinos on the horse business, so he came to see us.

He outlined more or less what a casino would have to do to keep the horse business viable. It was going to take a good share of their net profits that they were going to get from managing it, and they never did make a final application. They just backed out. I can't see how the other casinos are going to look after us to the tune of what we would have to be looked after to just stay even.

Mrs Caplan: So it's your feeling really that this NDP government's written off the horse industry if it goes ahead with this first casino in Windsor, that Windsor Raceway is in jeopardy and that it's written off those jobs in that part of the industry.

Mr Stead: Yes. What they have promised us, I guess you could say it would be like putting the wolf in with the chickens and telling him to look after the chickens. That's basically it. They're saying: "Here you go. The guy who's going to compete against you is going to look after you."

Mrs Caplan: The parliamentary --

The Chair: The time's expired.

Mr MacPhail: I just want to say one thing. We keep asking and they keep saying they'll look after us. I say: "What are you going to do? I'm a farmer. Are you going to give us a GRIP program for horsemen?" GRIP for the farmers is the guaranteed revenue insurance program and it guarantees you 90% of what you went for, for the last five years. Nobody's said anything about how they're going to look after us.

Mrs Caplan: You've had no guarantees.

Mr MacPhail: No, they just keep saying, "We'll look after you."

Mrs Caplan: Thank you.

Mrs Cunningham: I suppose I can just follow along in the same questions of my colleagues here. I'm looking now at the request for proposals; you've probably seen that. It states, "The casino complex will be designed and operated to complement -- not compete with or overwhelm -- the Windsor community." It goes on to say, "The casino complex must fit into the community and become a vital part of the city's fabric." This is published by the Ministry of Consumer and Commercial Relations. "In particular, proponents should take into consideration the impact of the casino complex on other forms of gaming, such as charitable gaming and horse racing." So you were really important because this is in part 2.

Then it goes on to say, "The casino complex is expected to work cooperatively" -- and my understanding is that the government is very much a part of the casino complex, and with the responses we heard from the parliamentary assistant it expects to be there for ever, which I haven't heard before, but that is what we did get today -- "with the Windsor Raceway, in particular, and to be sensitive to the Ontario horse racing industry, in general." Now that's the first document that was published on behalf of the government.

I'm wondering what has happened since that document was published with regard to "and to be sensitive to the Ontario horse racing industry, in general," and they're talking about the casino complex, which in my view is the government. What have they done so far?

Mr MacPhail: Well, if you get back to the interim casino, they entertained proposals for the interim casino. Windsor Raceway, I know, spent a good deal of money proposing an interim casino, as well as Devonshire Mall and the art gallery, and to my understanding it never came to the ones who make the decision. It came out of caucus that it was going to be downtown in the art gallery, so we figure that maybe the same thing will happen in the end. It will be passed by. We don't trust them; let's put it that way.

Mrs Cunningham: Your first complaint is the location. What have they done with regard to talking about your arguments about taxation?

Mr Stead: As far as the Ontario Harness Horse Association, in which we do represent 6,400 workers in Ontario, it has never stated what it would do. The only thing we have is what you read in the proposal there, that the casino operators would look after us. The government has not told us anything about what it proposes to do in order to ensure that horse racing in Ontario remains viable.

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Mrs Cunningham: The casino complex didn't have anything to say about the interim location; that was a government decision. It's not their responsibility with regard to the one idea you've given them, and that is to take a look at the ultimate gain for the community, and that's jobs and are we really looking at the casino having gains and the horse race industry making significant losses with regard to the jobs, because Windsor is interested in jobs. I guess my last question would be, have you yourselves been involved in any major study with regard to the fact that Ontario racing is overtaxed? We're aware of Alberta and certainly Quebec: Alberta's at 5% and Quebec's at 4%. I'm not sure what Manitoba was. I'm not sure what their taxation level was. Are you?

Mr MacPhail: No, but they're out of business now anyway.

Mrs Cunningham: That's right, so it doesn't matter. But my view is that it's probably up there with the rest of them. I'm just wondering if you have made any formal application to the government with regard to the level of taxation, because it seems to me the only way to preserve the jobs right now is for your industry to take a look at that one argument. There doesn't seem to be another argument; I haven't heard one. Here's your opportunity to state it if there is one.

Mr MacPhail: We have not vigorously pursued it. There was a joint proposal going to the last government, just before the last election, but it wasn't carried through.

Mrs Cunningham: We have been made aware of the 1% in California, 0.75% in Delaware, 3.3% in Florida, 1% to 2% in Illinois, 1.5% in Maryland. We've certainly been made aware of those facts. I think, by the way, the parliamentary assistant's argument about the percentage taxation on wins in the States is like comparing apples and oranges, so I didn't pay much attention to that. But I think you should pursue it. We can't pursue it for you if you don't do it yourself.

Mr MacPhail: No, that's right; I agree with you.

Mr Carr: I want to get to the issue of jobs. If casinos come in in Ontario, how many jobs are you going to lose in your industry?

Mr Stead: Right off the bat, we estimate between 9,500 and 18,000 jobs.

Mr Carr: The government comes out with all these nice, warm, fuzzy statements about how we're going to work together and hope that it will somehow be so. Let me ask you this: Why do you think the government is going to put that many people out of work? Why are they doing it?

Mr Stead: Because they are looking for any way at this point in time to look after the deficit, and they're grasping at straws.

Mr Carr: Isn't it going to be self-defeating if we have all these people -- the other people from the horse racing industry came in and said that we're just going to put them on welfare and the unemployment lines anyway. With that many people going on, and an average of 20,000 on social assistance right now, don't you think it's crazy to be on the one hand worrying about the deficit and the other hand putting people out of a job and putting them on the public payroll in forms of social assistance and unemployment?

Mr Stead: That's very true. We believe that 100% and we also have said today that the majority of these people do not have anything more than grade 12 education and many of them much less than grade 12 education. There's no other place for these people to go. When they're out of work, I don't know what kind of jobs you're going to find for them or what kind of jobs you can create for them. People have stated that we're a dinosaur, that we're a dying industry. If any industry had as much competition as we had, and unfair competition in that we are not just a gambling facility, we are an industry, it too would have declines at this point in time. But we are now seeing smaller tracks in very serious problems. We are seeing grooms, caretakers of horses, who had never had a problem with employment before not having any type of employment and phoning our office asking, "Is there anything you can do for me?" It's happening already, and to continue to let it happen is not proper.

The Chair: Mr Stead, Mr MacPhail, thank you very much for presenting before the committee today.

Before we adjourn, Ms Cunningham, you said you had a question you wanted to ask of either the parliamentary assistant or research?

Mrs Cunningham: Yes, I did. My question had to do basically with the questions I was asking the last presenters. Have we in fact made any kind of study of the taxation levels in the provinces? I'm aware of three. I'm not aware of Manitoba. I think it's important that we know that so we can answer the questions if we're asked.

The Chair: You would like that information from research?

Mrs Cunningham: Yes. And have we taken a look at the question of reducing this level of taxation and what impact that would have on the horse racing industry and the end result of retaining jobs? Because one of their complaints has been that they haven't had the money to promote their industry and that they're overtaxed. I think that the question's worth pursuing and that it may be to the benefit of the government to take a look at that, because, after all, although we're looking at more revenues -- at least, apparently the government is looking at more revenues -- from gambling, the casinos, I would think that has to be balanced with the losses in the industry. I think the question's worth pursuing.

The Chair: Thank you. Research has noted that. I'm sure they'll get back to us with that information as soon as they can. If there is no further business, this committee is adjourned until tomorrow at 10 am.

The committee adjourned at 1536.