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For Ontario, Casino Owners Are a Lose-Lose

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Three months after Premier Wynne's very public firing of Ontario Lottery and Gaming Chair Paul Godfrey over disagreements with the OLG's handling of gaming modernization, that plan still continues to unfold.

While Premier Wynne's panel of former cabinet ministers continues to study ways to integrate horse racing into the OLG's massive casino development scheme, the OLG continues to carve up the province into gaming zones and is actively seeking bidders capable of running multi-location gaming fiefdoms.

Northern Ontario is one such zone, with casinos to be located in Kenora, Thunder Bay, Sault Ste Marie, North Bay, and Sudbury. Southwestern Ontario is another such gaming zone where a casino operator will be selected to operate casinos in Sarnia, Chatham-Kent, Woodstock, London, Clinton, Dresden, and Hanover.

Very clearly, this process isn't designed to allow existing racetrack operators to either host gaming facilities or operate them.

Wynne's gaming modernization strategy clearly favours large American casino operators who bring more than gaming expertise to Ontario with them.

Take Caesars/Rock Gaming, which has demonstrated an interest in developing casinos in at least two of Ontario's markets and is already paid a licensing fee for having its name slapped on the money-losing Windsor Casino.

Caesars might be the largest casino owner in the United States, but as a company they owe $23.7-billion US to bondholders, making mostly interest-only payments. This apparently costs $2-billion a year, an amount Caesars has expressed concerns about being able to earn. In February 2013, the company suggested the financial pressures they are under could leave them unable to pay their debts.

Following this admission, two months later it was reported that Rock Gaming had not even paid off-duty police officers that protect its casino in Cincinnati for more than a month.

In April, while both Caesars and Rock Gaming were reaching out to municipal leaders in Ontario, the Rock Gaming casino in Cleveland was fined $180,000 for "use of unapproved dice, mishandling keys, failing to post a problem-gambling hotline on promotional posters, encouraging cocktail servers to enter a restricted area between table games, replacing chips with quarters and improperly storing and shipping slot machines."

New Jersey regulators even went so far as to fine Caesars $225,000 for their role in a gambling addict's infamous $120-million spree (though it had taken place in Las Vegas, Nevada), because it made the industry look bad.

Is this really the quality of company Premier Wynne and the OLG want to invite into Ontario to help implement their gaming strategy?

How about MGM? In 2003 they were fined after an employee failed to submit nearly 15,000 reports designed to prevent money laundering. The $5 million fine was the largest ever against a Nevada casino.

Their ability to select business partners for casino projects was called into question back in 2012. That's when they began looking to offload their share in the Borgata casino hotel in Atlantic City after state regulators suggested their Macau partners were too closely associated with organized crime.

And it's not just financial misdealings where American casinos are running afoul of the law. The Palms was hit with a $1-million fine after undercover officers discovered their nightclub employees were routinely offering to provide sex and drugs to patrons.

Would a large Canadian investor be a better option? Probably not if it's Clairvest, a merchant bank that has invested in casino projects. The New York Post called the bidding process surrounding the Aqueduct Racino in 2010 "rigged" and "corrupt", and the New York Inspector General's report into the Racino scandal identified Clairvest as a participant.

It's troubling to note that one of Clairvest's former business partners, Rod Phillips, is now the CEO of the OLG.

Onex is another Canadian firm that's investing in gambling operations, and could conceivably compete for one of OLG's zones. But after a year of effort they only managed to acquire one property, the failed Las Vegas icon, Tropicana, that's only just emerging from bankruptcy protection. They were turned down for a license in Illinois when they chose a location in Rosemont, which has a long-time association with organized crime.

Great Canadian Gaming is another big name mentioned as a potential operator. But controversy still dogs them over a 2006 financing deal that reportedly would have violated NYSE rules.

It seems no matter which big name operator you choose, controversy and questionable behavior abound. If the OLG is determined to create large gaming zones instead of individual operations, these large operations are the ones who will be running the show.

This action will shut out existing operators in Canada and invite problems into our province. Leveling the playing field by allowing single-location operators would help limit the incursion of problematic large operators and promote the stability of existing racetrack operations.