After extensive industry consultations, Ontario Racing has released its Final Long-Term Funding Consultation Report. The report covers the methodology used and includes notes about the feedback received from the industry. It concludes with a list of 10 recommendations that will inform the next steps in the negotiation process, including how the new Racetrack Alliance will be created.
Ontario Horse Racing Long-Term Funding Recommendations
1. FUNDING LEVEL
Ontario Racing recommends that the proposed funding amount of $93.4 million annually over 17-years serve as a foundation for financial support, and be indexed to the consumer price index (CPI) to ensure that funding levels are not eroded due to inflation.
The horse racing industry confirmed during Phase Two of the consultations that it is supportive of the proposed annual funding amount of $93.4 million per year to provide a foundation for financial support of the industry. It is important that the annual funding amount be indexed to the CPI. For example, based on the average annual change in the consumer price index over the past decade of 1.9%, the value of $93.4 million would decline to approximately $67.8 million over seventeen years.
2. EXTENSION OF FUNDING TERMS
Ontario Racing recommends that the criteria used to extend each funding term be based on transparent, achievable and reasonable performance indicators in order to provide the utmost certainty and predictability for horse racing industry participants.
The proposed model includes a plan to allocate funding over an initial 7-year term, followed by extensions of two 5-year terms at the option of Ontario Lottery and Gaming. The decision to extend funding by the two additional 5-year terms will be based on an assessment of financial and operational performance of the Racetrack Alliance. Horse racing requires long-term decisions and business planning, for all aspects including the breeding and purchase of horses, and investment into racetrack and customer improvements. It is vital that the criteria used to assess funding term extensions be as transparent and achievable as possible.
3. ENHANCED HORSE IMPROVEMENT PROGRAM
Ontario Racing recommends that annual funding of $6.5 million continue to be provided over the proposed 17-year funding term for the Enhanced Horse Improvement Program (Enhanced HIP), and that this funding amount be indexed to the consumer price index.
It was noted that the majority of Government funding is directed to purses and racing and it was therefore deemed as vital that annual funding of $6.5 million, which is mainly directed at the breeding sector, continue to be provided for the Enhanced Horse Improvement Program (Enhanced HIP). The funding for the Enhanced HIP plays a significant role in improving the quality of racing and developing the breeding stock in Ontario. By supporting the supply of quality horses, continued funding for the Enhanced Horse Improvement Program contributes to a strong racing product, and generates significant economic activity and employment across the entire industry, including that in rural communities.
4. NEW RACETRACK ALLIANCE
It is recommended that Ontario Racing be provided the tools to attain the financial resources and the governance structure required to ensure the annual business plan and management decisions of the New Racetrack Alliance consider the broader interests and betterment of Ontario’s entire horse racing industry.
The industry confirmed during Phase Two of the consultation that it supports a new racetrack alliance that invites all tracks to participate. For horse racing to be economically successful, all industry participants must have a voice in determining the future of racing, including horsepersons as well as racetracks. As the board of directors for the new Racetrack Alliance will be composed of racetrack representatives, it is vital for Ontario Racing, with its representation of horseperson groups from across Ontario, play a more significant role in negotiation and implementation of the agreement, to ensure decisions of the Racetrack Alliance are in the best interests of all industry participants.
5. MANAGEMENT BY WOODBINE ENTERTAINMENT GROUP
Ontario Racing recommends that Woodbine Entertainment Group be responsible for management of the new Racetrack Alliance.
Under the leadership of Woodbine Entertainment Group (WEG), the current Standardbred Alliance tracks have seen wagering growth, successful integrated marketing efforts, and have met the objective of maintaining a live racing schedule with stable, competitive purses. By having access to Woodbine’s substantial distribution network, operational efficiencies for other racetracks have been achieved. WEG’s management role of the Alliance should be pursuant to a management agreement negotiated with other Racetrack Alliance members. As stipulated in the Letter of Intent, WEG’s nominees to the Board of the new Racetrack Alliance will not comprise a majority of directors, and it must perform any covenants contained in the funding agreement. As manager of the new Racetrack Alliance, WEG’s own business objectives must be balanced with the overall best interests of the province’s horse racing industry.
Ontario Racing also supports that the agreement reflect that the current one home market structure operated by Woodbine across the province be maintained, but going forward it should benefit all racetracks conducting live racing. Having WEG operate the one home market area ensures that the benefits generated by HPI (internet) and Champions (teletheatres) remain in the Province and are used to benefit the industry. The success of the new Racetrack Alliance requires the Funding Agreement to include provisions granting WEG rights to operate the Province’s one home market.
6. ADMINISTRATION OF THE FUNDING AGREEMENT
Ontario Racing recommends that the funding agreement require all parties to act in the best interests of Ontario’s horse racing industry, with remedies for addressing violation of any conflict of interest policies, or otherwise not meeting their obligations and covenants under the agreement.
The success of this model will depend on all parties working together toward a common goal of achieving a stable and sustainable live horse racing industry in Ontario. The interests of any one party cannot, and should not, be put ahead of what is best for Ontario’s horse racing industry as a whole.
7. TRANSPARENCY AND CONSULTATION
Ontario Racing recommends that opportunities be given for public consultations on all major and significant business and governance decisions made on behalf of the industry.
For industry participants to make educated business and investment decisions, transparency on the industry’s performance was identified as critical. Transparency matters identified included how funding is allocated, the amounts revenues generated and shared, the level of purses and races dates, how decisions are made by the Agreement Parties, and how business plans are developed. As part of this approach to improve transparency, all non-commercially sensitive industry data and information should be publicly disclosed to industry participants.
8. KEY PERFORMANCE INDICATOR METRICS
Ontario Racing recommends that the Long-term Funding Agreement clearly identify how key performance indicators will be developed, how these indicators will be used to assess racetrack performance, and how the indicators will be utilized to determine continued eligibility for funding and funding term extensions.
The industry is generally supportive of a new Racetrack Alliance using key performance indicators to determine the optimal allocation of funds, and to improve racetrack performance. Detailed clarity must be provided that the KPI’s are valid and attainable, and that the impact on funding levels and duration are transparent. The industry should also have a say in the metrics that are to be implemented.
9. ADDITIONAL REVENUE SOURCES
Ontario Racing recommends that Ontario Lottery and Gaming develop an action plan to facilitate the sharing of revenue from new racing-related gaming products.
The horse racing industry recognizes that long-term growth and sustainability will require generation of revenue from additional industry sources. This includes revenue sharing from new horse-related gaming products. Development and introduction of new gaming product revenues should be expedited for the betterment of Ontario’s entire horse racing sector.
10. LEASE CLAWBACKS RECONSIDERED
Ontario Racing recommends that the lease clawbacks contemplated in the LOI be reconsidered and subject to further discussions between racetracks and Ontario Lottery and Gaming.
The “clawback” provision of the funding model does not provide for the growth of the industry and could put all racetracks at a competitive disadvantage to all other potential gaming sites. In cases where there are negotiated long-term gaming leases at racetracks, the funding agreement could allow for racetracks to negotiate reasonable revenue thresholds above which appropriate clawbacks could start. Such thresholds for clawbacks being applied should be negotiated to allow for real sustained growth, and avoid disincentives for racetrack operators to run successful live racing.