Backgrounder: Service Provider For North, Southwest Gaming Bundles

OLG is continuing its procurement process to modernize lottery and gaming in Ontario by selecting Gateway Casinos & Entertainment Limited (Gateway) as the service provider for the North and Southwest Gaming Bundles. To view the OLG’s release which announces Gateway as the service provider, click here.

OLG has entered into Transition and Asset Purchase Agreements with Gateway, which set out the customary closing conditions to be satisfied for OLG and Gateway to enter into 20-year Casino Operating and Services Agreements (COSAs) for the North and Southwest Gaming Bundles.

Under the COSAs, Gateway will take over day-to-day operations of the gaming sites in the bundles.

WHAT IS THE CASINO OPERATING AND SERVICES AGREEMENT?

Currently, OLG and Gateway are operating under a temporary transitional agreement that allows the two parties to work together to share knowledge and help position Gateway for success. This transition period is expected to end in spring 2017.

Once the transition is complete, OLG and Gateway will sign the COSAs. These contracts allow Gateway to assume responsibility for the day-to-day operation of the sites.

Gateway is the service provider for both bundles, subject to customary closing conditions and pending the execution of the COSAs.

OLG’S MODERNIZATION

In July 2010, OLG was asked by the Ontario government to complete a comprehensive, strategic review of the lottery distribution network and land-based gaming sites. The review resulted in a report to government called Modernizing Lottery and Gaming in Ontario. In March 2012, OLG announced its modernization plan.

OLG is engaging the private sector to help build a new model for lottery and gaming in Ontario. OLG’s modernization will expand private sector participation in the industry, which will ensure greater efficiencies because:

• Service providers will be able to focus on delivering certain day-to-day operations, while OLG maintains control and accountability
• Capital costs of expanding, improving and maintaining gaming facilities will be taken on by the private sector, not the government

Through modernization, OLG will:

• Become more customer focused
• Expand the regulated role of the private sector in the day-to-day operations of lottery and gaming
• Renew its role in the conduct and management of lottery and gaming

Under section 207 (1) (a) of the Criminal Code of Canada, only OLG (as an agent of the Province) is permitted to conduct and manage gaming in Ontario. That is why OLG will continue its conduct and manage role and will remain the operating mind behind the delivery of gaming and lottery in Ontario.

As service providers take over certain day-to-day operations of lottery and gaming, OLG will continue to:

• Conduct and manage lottery and gaming
• Require compliance with applicable regulations set out by the Alcohol and Gaming Commission of Ontario (AGCO)
• Be the owner of key player information
• Uphold the standards of its Responsible Gambling program through service providers, including the self-exclusion program
• Distribute Contribution Agreement payments to host communities.

Once modernization is fully implemented, it will provide additional revenue to the Province to support vital services Ontarians rely on. At the same time, Ontario will continue to be a North American leader in responsible gambling, supporting the research, prevention and treatment of problem gambling.

OLG’s Gaming Procurement Process

Modernization is a significant transformation of a government agency. The plan is ambitious and complex.

OLG’s modernization procurement process will lead to long-term contracts with service providers. OLG needs to ensure proper due diligence in order to select service providers from among the best and most qualified proponents.

Since its initial launch, modernization has evolved in response to further consultation with industry experts through the Request for Information (RFI) and Request for Pre-Qualification (RFPQ) processes, collaboration with municipalities across Ontario and public policy adjustments.

OLG has made significant progress by:

• Completing an RFI process for lottery and land-based gaming
• Issuing RFPQs for lottery and land-based Gaming Bundles
• Successfully procuring a service provider for iGaming and launching the PlayOLG online gaming platform
• Launching the revitalization of charitable gaming
• Working with the horse racing industry and government to build the foundation for a more sustainable horse racing industry in Ontario
• Completing the RFP process for the East, North and Southwest Gaming Bundles and launching the RFP process for the GTA, West GTA and Ottawa Gaming Bundles
• Issuing the RFPQ for the Niagara Gaming Bundle and the RFP for the Niagara Falls Entertainment Centre

On September 9, 2015, OLG announced it had selected Ontario Gaming East LP as the service provider for the East Gaming Bundle. Ontario Gaming East LP took over certain day-to-day operations of OLG Casino Thousand Islands and OLG Slots at Kawartha Downs on January 11, 2016.

What is a Request for Pre-Qualification (RFPQ)?

RFPQs help OLG determine the skills and abilities of potential service providers.

Through a public tendering system (MERXTM), interested proponents are asked to submit information on their operational experience, financial and technical attributes and capabilities, including proof of successful experience with similar projects. In addition, the proponents must provide information on business and other relationships that they have had with First Nations and First Nations communities.

Interested proponents must also register with the AGCO or have submitted an application for registration.

The RFPQ process results in OLG identifying pre-qualified proponents eligible to receive the RFP documents—the next step in OLG’s procurement process.

What is a Request for Proposal (RFP)?

In the RFP stage, pre-qualified proponents are invited to bid on a specific opportunity through a competitive and transparent procurement process. RFPs are confidential and only distributed to the proponents that are pre-qualified during the RFPQ stage.

The RFP process will result in OLG selecting a service provider for each Gaming Bundle, subject to customary closing conditions and pending the execution of the COSA.

What are Gaming Zones?

In order to effectively manage the gaming market in Ontario, OLG identified Gaming Zones where existing or new gaming facilities would be permitted, subject to required approvals, including the provincial government.

Gaming Zones are geographic areas where a single gaming facility may be located. The location and design of these Gaming Zones is intended to ensure a sustainable and efficient gaming market in Ontario.

The boundaries of Gaming Zones across the province were determined by a gravity model—a business tool commonly used for modeling supply and demand within a given geographic area. The model looked at a number of factors to determine where there is customer demand for a gaming facility, including:

• Proximity of a Gaming Zone relative to other Gaming Zones and gaming facilities
• Proximity of a Gaming Zone to current and potential customers
• Distance a customer is willing to travel to reach a gaming site

Within each Gaming Zone, service providers will be permitted to assume certain day-to-day operations for an existing facility and possibly expand the site, establish a new facility if one does not currently exist, or relocate the existing facility within the boundaries of the Gaming Zone, all subject to approvals.

Only one gaming facility is permitted within each Gaming Zone.

What are Gaming Bundles?

To enable OLG to more effectively manage the gaming market in Ontario, OLG grouped some Gaming Zones into Gaming Bundles—each representing a separate bidding opportunity.

As a result, for some gaming RFPQs, potential proponents have been asked to demonstrate their ability to operate multiple facilities in a given region or geographic area of the province.

Gaming Bundles are intended to create opportunities for service providers to be more efficient by operating multiple facilities in a given region.

What are the next steps for the remaining Gaming Bundles?

OLG expects to release procurement documents for the remaining Gaming Bundles in the coming months.

Interested proponents who pre-qualify through the RFPQ process will be invited to participate in the RFP stage of the procurement process. The successful service provider for the applicable Gaming Bundle will be selected from this group.

Communities and OLG’s Modernization

Municipal and community choice is an important element of OLG’s modernization. OLG will only locate gaming facilities where there is support to do so from the municipal council or the First Nation band council. OLG has always been clear that it will respect the decision of a municipality or First Nation band council regarding hosting a new gaming site, or relocating or expanding an existing one.

When it comes to gaming facilities, OLG’s approach to potential and current host municipalities and host reserves across Ontario has been consistent.

The municipal council or First Nations band council must pass a resolution confirming their interest in hosting a gaming facility.

Where a municipal council or First Nations band council has included conditions as part of its resolution for gaming in its community, such as restrictions on the movement or expansion of a gaming site, OLG will ensure service providers are aware of such conditions during the RFP phase of the procurement process.

The municipal council or the First Nations band council then works with the selected service provider to determine the location of a new gaming site, if one is proposed and permitted.

As has always been the case, adding table games at a gaming site that currently has none, relocating a current gaming site or building a new gaming site can only occur where there is municipal or band council consent and a viable business case put forth by a service provider, which is subsequently approved by OLG.

Any new gaming site, introduction of table games at a gaming site that currently has none, or the proposed relocation of an existing gaming site, is subject to final approval from the Ontario government.

Horse Racing

OLG is working with the horse racing industry and the Ontario government to build the foundation for a more sustainable industry in Ontario by:

• Creating a business model that is focused on stability
• Providing advice to the government on long-term funding
• Partnering with the industry to optimize branding and build public awareness about horse racing
• Developing new horse-themed lottery and gaming products

OLG is also providing provincial support by sharing its expertise and helping to direct the industry to adopt a Responsible Gambling program.

The Government of Ontario has extended support to the horse racing industry, formerly known as the Horse Racing Partnership Funding Program, by two years. The extension will provide up to $100 million annually to the industry.

Ontario Racing is currently holding consultations with the industry, which will result in recommendations to the government on a long-term funding arrangement.

Ensuring a strong future for horse racing is a priority for OLG and a key part of modernization.

OLG’s Conduct and Manage Role

OLG will continue its role in the conduct and management of gaming in Ontario.

To fulfill this role, OLG will retain control over lottery and gaming, but will expect service providers to deliver many of the services related to the day-to-day operation of lottery and gaming.

World’s Best Responsible Gambling Program

OLG will continue to work within the Province’s overall problem gambling strategy to contribute to the prevention and mitigation of problem gambling through its Responsible Gambling program, which was ranked number one in the world by the World Lottery Association in 2014.

OLG will also require service providers to follow the Responsible Gambling Standards that OLG has developed.

Ensuring a Competitive Procurement Process

OLG is following the Ontario government’s procurement guidelines to ensure that its procurement process is fair and competitive.

OLG has engaged an impartial Fairness Monitor throughout the process to provide oversight on the integrity and fairness of its procurement process.

(OLG)