Faced with strained budgets and waning infrastructure, many cities are betting on casinos to fill their coffers. But how profitable are they?
Big resort casinos like the one recently extinguished in Toronto are not the cash cows they're made out to be. It's true that Ontario casinos made $1.7-billion in revenue during the 2010-11 fiscal year, according to data from the Canadian Partnership for Responsible Gambling. But after expenses were paid, the Ontario provincial government kept only 10 per cent of it — a profit of $166-million — with some of that revenue transferred elsewhere, like municipalities. This trend goes back several years, especially in Ontario where expenses are the highest in the country: for every dollar Ontario earns at a casino, they shell out 82 cents on expenses.
Ontario's gambling operation is particularly costly compared to other provinces. Changes introduced by Ontario Lottery and Gaming are aimed at reducing expenses by shrinking the size of the OLG and privatizing its lucrative lottery business. But as it stands, 60 per cent of all revenue from gambling in the province goes to expenses — the highest in the country.
It's a different story in Alberta, where only 25 per cent of its gambling revenue goes toward expenses. While most provinces are spending more on expenses today than they were in 2002, Alberta has actually reduced them. But how?
Part of the reason is provinces like Alberta have other, cheaper revenue sources like VLTs, or "video lottery terminals." These games are installed in bars and lounges, making millions of dollars while costing almost nothing to operate.
If you live in Ontario or B.C., you probably don't know what VLTs are because they're the only provinces to ban the machines. But a comparison between Alberta and Ontario shows clear financial justification: VLTs in Alberta earn more take-home revenue than Ontario government's entire casino operation.
VLTs are so profitable for the same reason casinos are not: expenses. The machines can be installed and operated with minimal overhead, with the bars keeping only a portion of the revenue (in Alberta, they keep 15 per cent). Meanwhile, casinos have tremendous overhead, a large compliment of staff and security, maintenance fees and innumerable other costs associated with maintaining the physical property.
In 2010-11, Alberta kept 84 per cent of the $585-million in revenue from VLTs. Nationwide, governments keep an average of 69 cent for every dollar earned from VLTs, compared to 39 cents for every dollar made in a casino.
So why is all the focus on casinos instead of VLTs? For one, critics like the Canada Safety Council have long fought VLTs, calling them "the most dangerous game" and the "crack-cocaine of gambling," according to their website. Unlike casinos, VLTs run independently and unsupervised, so it would be difficult or impossible for staff to identify a problem gambler.
The most recent attempt to introduce them in Ontario came in 2005, but the government ruled against them. Since then, VLTs have not been on the provincial radar and weren't part of OLG's overhaul.
All forms of gambling come with a myriad of social and financial problems. Casinos, though costlier to operate, have more checks and balances against problem gambling. VLTs, while profitable and low-cost, are hazardous to problem gamblers.
But provinces are becoming increasingly desperate for revenue, with debt reaching all-time highs and little relief coming from traditional revenue streams. In these desperate times, provinces may have to take a second look at VLTs as another source of revenue.