And it’s Rent-Seeking by a nose

Slot machine revenues are subsidizing Ontario racetracks

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(Nathan Denette/CP)

On Monday, Ontario Finance Minister Dwight Duncan gave the Economic Club a sneak preview of economist Don Drummond’s upcoming report on some ways in which the province might conceivably clamber back into surplus sometime within the 21st century. Duncan noted that the Ontario horseracing industry receives more than $300 million a year in money from the slot machines hosted at Ontario racetracks. “Wow, that’s a huge subsidy,” I hear you saying. Silly reader. No business ever admits to being subsidized!

“The OLG slots-at-racetracks program is not a subsidy, it is a successful revenue-sharing partnership between the Government of Ontario, the Ontario Horse Racing Industry and the municipalities that host OLG slots at racetracks,” said Sue Leslie, President of the Ontario Horse Racing Industry Association (OHRIA) in a statement issued Monday afternoon.

Subsidy or partnership? According to OHRIA’s figures, the racetracks and the horsey types keep 20 per cent of the revenues from the slot machines. Is that in some sense earned money? The racetracks didn’t grant themselves a monopoly on slot-machine gaming in the province of Ontario: the government of Ontario did that. It could put the slot machines anywhere, couldn’t it? Some businesses might be happy to have them around to attract customers in exchange for zero percent of the revenues. They might even pay to have them on the premises.

The fraction of the slot revenue that can be considered a “subsidy” to the racetracks is exactly that amount by which their take exceeds that which would be relinquished by the government under some other arrangement—provided that this other arrangement earned the treasury of Ontario and its municipalities just as much money. Would this be difficult? It could presumably be accomplished just by buying or leasing a lot more slot machines and scattering them around, instead of reserving them to a particular privileged business line and paying through the nose for the real estate. A regulated reverse auction, in which bars and strip clubs and cafés and public libraries bid to retain the lowest share of revenue for slot machines, would be bound to drive the “price” down to near zero. So most of that 20 per cent rakeoff, you have to think, is in fact a subsidy.

Mr. Duncan, anyway, seems to think he has the power to break the “partnership” and seek out a new, more advantageous one. Or perhaps it’s Mr. Drummond, who as a bigtime economist is probably pretty familiar with the logic of subsidies, who has reached this conclusion. I wonder if OHRIA can in fact locate an economist who wouldn’t describe horseracing in Ontario as intensely subsidized. OHRIA has released an economic-impact paper on its business, a paper which (a) is apparently agnostic on the “subsidy” issue, (b) isn’t actually signed by any particular human being, and (c) frankly contains more outright howlers than you can waggle a quirt at. Did you know, for example, that horseracing is “a key node in the New Economy”? God, what if that’s true? In the New Economy, are we all going to have to dress like extras from The Sting, chomp cigars, and talk like Ring Lardner?