Government reaping bigger rewards under system in Canada


WINDSOR, Ontario -- In Canada, they do math a little differently, at least as far as gambling is concerned.

Authorities here figure that the government can make a lot more money if it owns casinos and pays experts from the gambling industry a fee to manage them.

And they're right.

Ontario struck a deal with a blue-chip Las Vegas company to manage Casino Windsor for 2.74 percent of the gross revenue from casino gambling and 5 percent of net profits.

The province does not make these percentages public, but they have been reported by Canadian Gaming News, a journal that covers the gambling industry. Editor Ivan Sack said the accuracy of the figures has not been challenged.

By contrast, Gov. Robert L. Ehrlich, Jr.'s plan, as modified by the Senate, calls for 39 percent of the gross to go to racetrack owners. His plan envisions 3,500 slot machines each at three racetracks -- Pimlico, Laurel Park and Rosecroft -- and 1,000 at a planned track in Allegany County.

Keith Andrews, vice president of corporate affairs at Casino Windsor, said the model Ontario uses is an attempt to get the best of all worlds.

Private-sector expertise ensures that the casino will be operated efficiently and professionally, he said, while government, as the owner, reaps most of the financial benefits.

"The profits all accrue to government," Andrews said.

Casino Windsor, operated by Park Place Entertainment, a Las Vegas company that owns Caesars Palace and other casinos, has been wildly successful since opening in 1994, particularly until 1999 when Detroit opened its first casino.

"We were generating more money, on a square-foot basis, than any other casino in the world at one point," Andrews said.

The casino is on the banks of the Detroit River, across from downtown Detroit -- a 10-minute tunnel or bridge crossing away. A large, lighted "Casino Windsor" sign acts as a beacon for U.S. players.

The $500 million casino complex the province built features a spacious atrium with a tropical theme and "dancing waterfall." The complex includes a 3,000-car parking garage, 385- room hotel and other amenities.

By tying compensation to net profits -- as well as the gross -- Casino Windsor has a financial incentive to run it in a cost-effective manner. The better job it does, the more money it makes, Andrews said.

In exchange for its management fee, the company is responsible for the casino's day-to-day operations -- including hiring and supervising employees, devising marketing strategies and other basic tasks.

The casino took in gross revenues of $435 million, in U.S. dollars, in the fiscal year that ended in March last year. Most months, it did better than its competitors in Detroit.

Canadians are bewildered that the model hasn't been adopted in the United States because it offers the best deal for government. "We keep scratching our head over that," Andrews said.

He speculated that different attitudes that citizens of the two countries have toward government could be the reason. Americans are more inclined to want things done by the private sector than under government control, Andrews said.

With a slight twist, the model used in Ontario has been tried elsewhere in the United States. The twist is that it is used by the private sector, not government.

The owners of the Dover Downs racetrack in Delaware pay Caesars World a management fee to run its slots operations. And many American Indian casinos are run by Las Vegas-based casino companies under management agreements.

About 85 percent of Casino Windsor's customers are from the United States, Andrews said.

The casino continues to draw players from the Detroit side of the river for several reasons, chief among them a favorable exchange rate.

"Most everybody comes because of the exchange rate," said Stanley Firavich, 72, a retiree from suburban Detroit who said he visits the casino about twice a month with his wife, Barbara. "You spend $100 and get $150 worth of playing time."

Tax laws also play a role.

Gamblers are required to fill out tax forms in the United States for winnings of more than $1,500; gambling winnings are not taxed in Canada. Casino Windsor promotes that difference with billboards that read: "Relaxing, Not Taxing."

Ontario also allows slot machines at racetracks under a different business model that is designed to bolster the horse racing industry.

Track owners essentially serve as landlords for slots operations that are run by the province, through the Ontario Lottery and Gaming Corp. In exchange, track owners get 10 percent of the gross. Another 10 percent goes to purses -- almost twice the share in the proposed Maryland legislation.

In many cases, the province has lent track owners the money to build slot facilities, said Ann Rappe, an Ontario Lottery and Gaming Corp. spokeswoman.

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