Doubling down on casinos

Provinces are addicted to gaming revenue, and it’s a dependence that’s only going to get worse

Doubling Down

Sharon Doucette/CP

Doubling Down
Sharon Doucette/CP

Canadian anti-gambling crusaders could be forgiven if they think they’re on a winning streak. Over the last month, plans by the Ontario government to dramatically ramp up the number of casinos and slot machines in the province have suffered a series of defeats. Toronto’s city council convened a special meeting to officially kill the Ontario Lottery and Gaming Corporation’s controversial plan to build a casino on the city’s waterfront. New Premier Kathleen Wynne vowed to scrap plans to take slot machines out of mostly rural racetracks and expand them into a proposed series of new, mainly urban, casinos. The furor culminated with Wynne firing OLG CEO Paul Godfrey, the very public face of efforts to “modernize” the 38-year-old Crown corporation by adding up to 29 new casinos and more than doubling the number of slot machines in the province. Ontario’s lust for gambling revenue, it would seem, has come to an end.

Care to bet on it? The reality is that Toronto’s casino plans collapsed not because of the groundswell of moral outrage over the idea of introducing gambling into the city’s downtown, but because Mayor Rob Ford—a staunch casino supporter—complained the city wouldn’t get a big enough cut of the profits. In fact, far from putting the brakes on the OLG’s modernization plans, Wynne quickly promised her government would proceed “full-steam ahead” on a proposal to nearly double the $1.9 billion in profits it makes every year from its gambling operations.

Ontario’s government is hardly alone in its unabashed enthusiasm for gambling. From lotteries, to casinos, to electronic gaming machines at bars and restaurants, gambling now generates an astonishing $14 billion a year in revenues for provincial governments, up from just $2.7 billion 20 years ago. Half of that is pure profit, with most of it flowing directly into provincial coffers. Alberta, B.C., Ontario and Quebec each now take in more in gambling revenues than Nevada. Provincial governments now get about 2.3 per cent of their total revenues from gambling. It’s as high as 4.2 per cent in Alberta, where gambling revenues are the equivalent of nearly half of royalties from the oil sands. Ontarians hand over more money to the province from gambling than they pay in gas taxes, and the amount B.C. raises from its gambling operations is nearly as much as the province spends each year on economic development.

Where Canada once steadfastly banned all forms of gambling, worried about the social costs of legalizing games of chance, today the country is home to more than 70 casinos, 30,000 lottery-ticket outlets and nearly 100,000 slot machines and video lottery terminals. Politicians who might have once wrung their hands over how gambling would create a nation of addicts now oversee governments that pump hundreds of millions every year into advertisements to encourage taxpayers to try their luck. Ontario alone gave away more than $335 million in 2011 in “promotional allowances” such as free food, liquor and hotel rooms to encourage high rollers to gamble even more.

And gamble we do. Governments collected nearly $550 in gambling revenues for every Canadian adult in 2011, according to the Canadian Partnership for Responsible Gambling. The average in Saskatchewan was more than $850, the highest in the country. In fact, Canada has among the highest per capita gambling revenues in the Western world—behind only Australia, Norway and New Zealand, and well ahead of the U.S. By 2004, Canadian governments reaped roughly $105 per person from VLTs and slot machines outside of casinos, compared to just $13 in the U.S., according to Gambling For Profit, the 2011 book by Canadian researcher Kerry Chambers.

But all that gaming revenue comes at a steep cost, one that politicians and proponents of government-run gambling are far too quick to dismiss. Those who support state-managed casinos and lotteries insist they are simply a voluntary tax, and that gambling addicts will find some other way to get their fix if governments don’t provide it. Yet the massive build-up of government’s role in the gambling industry has come squarely on the back of problem gamblers—with roughly half of all gambling dollars coming from those with some degree of gambling addiction.

And as lucrative as gambling has become for the provinces, the growth of gaming revenues has begun to slow in the past few years. This comes at a time when deeply indebted provinces are scrambling to find ways to meet their spending promises. So rather than scaling back their gambling operations, provincial gaming authorities are doubling down, blanketing the country with glitzy get-rich-quick ad campaigns, offering bigger lottery jackpots and pursuing more casinos. Some provinces have delved into the world of Internet gambling, making it even easier for people to bet from their homes, while a push is under way for a controversial style of sports betting that allows people to place wagers on individual games—something that has, until now, been banned partly over fears it will lead to a spike in sports-betting addictions.

These are the final frontiers of gambling, warns Robert Williams, a gambling researcher at the University of Lethbridge, and it shows province-run gambling operations are reaching “a saturation point. It’s like an addict looking for any remaining veins. You save the vein in your neck for the very last. The things that are being contemplated now are the things that make the least sense.” And show the most desperation.

The speed with which governments’ gambling operations have moved from temporary lotteries and casinos into multi-billion-dollar enterprises would shock the politicians who paved the way for them just four decades ago.

Gambling was declared illegal in 1892 when leaders worried its get-rich-quick ethos would destroy the Protestant work ethic. It remained a criminal offence for three-quarters of a century until, under pressure from Quebec to pay off its Expo 67 debts and finance the Montreal Summer Olympics, prime minister Pierre Trudeau legalized lotteries in 1969, stuffing the legislation into an omnibus crime bill that also legalized abortion, homosexuality and expanded gun control.

Almost immediately, provincial governments created their own lotteries as a defensive measure against state-run lotteries from Ireland and South America that were placing ads in Canadian newspapers. Prophetically, opponents complained the state-run lotteries would not only create a generation of gambling addicts, but that the new revenue source would only entice provinces to pursue gambling even more. They were roundly rebuffed. Ernie Hall, a cabinet minister in B.C.’s NDP government in 1974 who’d just announced a bill to legalize provincial lotteries, scoffed at the notion it would end up with “a drink-crazed, poverty-stricken idiot walking down the main street of Granville . . . There is no intention for this government to look upon the lottery income as a significant part of its revenue at all.” Today, gambling generates $1.1 billion in profits for B.C.

The Ontario Lottery and Gaming Corporation was created in the 1970s to oversee a single lottery, Wintario. It raised $76 million in its first year, most of that earmarked for local charities and community groups. Five years after its launch, critics were already complaining that televised Wintario draws were being held in local high schools, with provincial cabinet ministers routinely showing up to get the drum rolling.

These days, the province generates close to $2 billion in gambling profits and the OLG describes itself as “the greatest business operation of our provincial government—and for that matter perhaps any government in Canada.”

As governments have found, and critics warned, the money proved almost too easy; so much so that gambling became the go-to fix every time a government needed to dig itself out of debt after a recesssion. In 1995, Manitoba balanced its first budget in more than two decades after plunging into the gambling industry, thanks largely to having opened the country’s first resort casino in Winnipeg’s Hotel Fort Garry a few years earlier. Meanwhile, Ontario’s NDP government of the 1990s announced its first resort casino would be built in Windsor, after the automotive heartland had been hit by a double whammy of recession and free trade.

At each step, proponents heralded their new gambling initiatives for their economic virtues, whether helping to revive dying communities or to build new schools and highways. But critics say casinos are a questionable economic development tool. “Gambling doesn’t create wealth, it’s a sterile transfer of wealth,” says University of Lethbridge’s Williams. Except for Macau or Las Vegas, where the entire economy is based around luring outsiders to try their luck, gambling tends to just suck money out of other local retail and entertainment businesses and into government coffers.

“A lot of people don’t gamble at all and they basically see the revenue from gambling as keeping their taxes lower,” says Chambers, author of Gambling For Profit. “Governments will say gambling revenues this year went to pave 40 miles of road or pay for 10 hospitals. They’re linked to positive symbols and people who pay attention to these things see the benefits of it and they rarely see the negative outcomes.”

For the majority of Canadians who gamble—and roughly three-quarters do—there are few negative outcomes other than lightening our wallets. But for the estimated one million people who have developed a gambling problem, the consequences can be dire. The Canada Safety Council estimates there are nearly 200 suicides every year because of gambling addictions. Phyllis Vineberg’s son, Trevor, committed suicide in 1995 at age 25 after having lost an estimated $100,000 to government-owned video lottery terminals. “My struggle has led me to the unfathomable realization that it is our own governments who are preying on their citizens,” she told an international gambling conference in Halifax in 2004, estimating that in the nine years after her son died there had been enough gambling-related suicides in Canada “to fill two Titanics.”

In a study released last month, Williams found nearly half the money governments raised from gambling comes from players who have a gambling problem. Addiction rates are far higher for slot machines and video lottery terminals than for lotteries and bingos. Yet these electronic gaming machines make up close to 60 per cent of all provincial gambling revenues—and nearly two-thirds of that money comes from gambling addicts.

Despite the disproportionate share of revenues that come from addicts, provinces dedicated just $82 million of their $7 billion in profits in 2011 toward problem-gambling research and treatment.

Governments have what their lottery corporations consider a much more serious problem: For every person who gets addicted to one of their games, far more grow bored or skeptical of ever winning and either stop playing or move on to games elsewhere. In the rush to build new casinos and video lottery terminals, government gambling revenues doubled between 1992 and 1997. Then the excitement wore off. Gambling revenue grew just 14 per cent between 2004 and 2011—less than the rate of inflation.

Part of the problem, says Williams, is that building more casinos so gambling revenues don’t leave the province can have the opposite effect; once residents get a taste for a new type of government-run gambling, it whets their appetite for better games with bigger prizes—and even more money ends up flowing out of a local economy. When B.C. launched its online casino games last decade the move was meant to stop money flowing to offshore gambling sites. Now Williams estimates the government takes in just half what British Columbians wager online.

It’s a diminishing return on investment that is forcing governments to search for more ambitious ways to soak gamblers. Lotto Max, the nationwide lottery launched in 2009, now promises regular $50-million jackpots. Likewise, Lotto 6/49 saw ticket sales spike when it offered record-breaking $55-million jackpots in the summer of 2011. But the Western Canada Lottery Corporation warned the boost would be short-lived. “It was the first time that players in Canada had seen those kinds of jackpots for that length of time and the ‘first time’ can only happen once.”

In addition to B.C., Manitoba and Quebec now offer online casino games like poker and blackjack. In Manitoba the government plans to lift a 20-year moratorium on video lottery terminals—a moratorium sparked by outrage over a rash of gambling-related suicides. Meanwhile, Health Canada was forced to take two casinos in Niagara Falls, Ont., to court to stop them from running a promotion that allowed gamblers to trade loyalty points for cigarettes—a perk the casinos argued they needed to stay competitive.

More changes are coming. Federally, an NDP private member’s bill aims to change the Criminal Code to allow for betting on single sporting matches—legally Canadians can only bet on a minimum of three games at a time. The bill sailed through the House of Commons only to face opposition from senators concerned it could lead to an explosion in sports-betting addictions. Professional sports teams also oppose it, saying it opens the door to match-fixing.

Yet despite the social and economic costs of the provinces’ big bets on gambling, Williams warns it will be nearly impossible for them to wean themselves off the easy money. “If any province suddenly declared gambling illegal, they would see a pretty significant economic loss to other provinces or to the States because you’ve created this culture of gambling,” says Williams. And as any addict can tell you, once you’re hooked, it can be awfully hard to stop.