DATE OF HEARING:
HEARING PANEL:
HEARING BEFORE A PANEL OF THE BOARD OF ALBERTA GAMING, LIQUOR AND CANNABIS COMMISSION
IN THE MATTER OF the Gaming, Liquor and Cannabis Act Revised Statutes of Alberta 2000, Chapter G-1, as amended and the Regulation
APPLICANT’S REPRESENTATIVE:
REGULATORY SERVICES DIVISION:
and
The Track on 2 Inc. (Applicant) o/a The Track on 2 PO Box 877 Red Deer, AB T4N 5H3
April 13, 2022
Len Rhodes, Presiding Member Elan Harper, Panel Member Vincent Vavrek, Panel Member
Kurt Belich, President and Part Owner
Glen Arnston, Hearing Officer Kseniya Khelemska, Resource Officer
DECISION OF THE HEARING PANEL
In accordance with Sections 94(2) and 94(7)(b) of the Gaming, Liquor and Cannabis Act (the Act), the Panel replaces the decision of the Board of the Alberta Gaming, Liquor and Cannabis Commission (AGLC) to deny the application from The Track on 2 to become licensed as a Racing Entertainment Centre (REC) with a conditional approval of the application to move to Step 4- Construction and Licensing as of May 11, 2022.
The conditional approval is issued subject to: • The Track on 2 and AGLC working collaboratively with the network provider to facilitate the network installation required to accommodate slot terminals at the REC. The Track on 2 and AGLC shall each bear fifty per cent (50%) of all costs relating to the network installation.
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I. Jurisdiction and Preliminary Matters [1] On February 11, 2021, The Track on 2 (the Applicant) submitted a proposal to AGLC for an REC licence.
[2] Upon receipt of the proposal, the Compliance Audit branch of the Regulatory Services Division of AGLC initiated the assessment of the application and brought the application materials forward to the Board for consideration at Step 2 of the four-step process on July 20, 2021. The Board approved the application to move from Step 2 - Application Evaluation to Step 3 - Community Support and Background Check.
[3] The application moved through Step 3 then, on December 1, 2021 the Regulatory Services Division brought the application before the Board again for consideration to move from Step 3 to the final step, Step 4 - Construction and Licensing. The Board requested additional information and did not make a decision at that time. On January 26, 2022, the Regulatory Services Division provided updated information to the Board alongside the application materials again with a request for decision.
[4] By letter dated January 28, 2022, the Chair of the Board of AGLC advised The Track on 2 of the Board’s decision to end the approval process for a new REC licence at The Track on 2.
[5] The Applicant subsequently applied for a hearing before a Panel of the Board of AGLC pursuant to Section 94(2) of the Act.
[6] The parties and the Hearing Panel were provided with a record containing various documents pertaining to the issues before the panel. The Applicant confirmed receipt of the Notice of Hearing dated February 25, 2022 and the attached hearing record. The following documents were entered into evidence: • Exhibit 1 Hearing Record, including Tabs 1 and 2 • Exhibit 2 Additional documents provided by the Applicant, including Tabs 1 to 14 • Exhibit 3 Additional documents provided by the Regulatory Services Division, including Tabs 1 to 4
II. Issues [7] Should the decision of the Board of AGLC to end the approval process for The Track on 2’s application for an REC licence be confirmed, replaced, or cancelled?
III. [8]
Regulatory Services Division Evidence The Regulatory Services Division called four witnesses:
• • • •
Alex Zukowsky, Senior Data Scientist, Regulatory Services Tara Markstrom, Auditor, Regulatory Services Nabil Bharwani, Senior Manager, Network Services, Information Technology Stephen Kiss, Director, Audit Services
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Alex Zukowsky [9] Mr. Zukowsky has worked at AGLC for 15 years and has spent the last 10 years as a Senior Data Scientist. His expertise is in customer analysis with a secondary specialty in Video Lottery Terminals (VLTs). Mr. Zukowsky was involved in the committee that reviewed the application from Track on 2.
[10] Mr. Zukowsky’s role was to attempt to forecast the three-year projection of revenue for the prospective REC; including an estimate of how much of that revenue might be incremental versus cannibalized; determine what gaming products would be required (for example, slot terminals and VLTs); and an estimate of the potential financial impact to the yet to be built Bear Hills Casino, which would be operated by the Louis Bull Tribe, and which was approved for licensing in 2016.
[11] Mr. Zukowsky stated that he has completed other projections in the past with relatively accurate results, however acknowledged that there was more complexity in this case, making preparation of estimates difficult. He utilizes learnings based on other RECs in Alberta and also considers the population, demographics and household spend statistics from the region where the assessment is being completed.
[12] Mr. Zukowsky was asked about the projections for cannibalized and incremental revenue. He defined cannibalization as revenue that already exists and is being captured by an existing casino or facility in the area. In this case specifically, cannibalized revenue refers to The Track on 2’s projected revenue that would be redirected from two existing casinos in Red Deer. Mr. Zukowsky clarified that this revenue exists whether the new facility or licence is issued or not. Incremental revenue represents new revenue created as a result of the new facility, usually due to higher spending and increased visits by players that are closer in proximity to the new facility. Mr. Zukowsky completed a market assessment report (excerpts of which are included in the July 20, 2021 Request for Decision, Exhibit 3, Tab 1), and estimated that approximately 56 per cent of the projected revenue for The Track on 2 may result from cannibalized revenue and 44 per cent may be incremental.
[13] Mr. Zukowsky clarified the interpretation of cannibalized revenue in the report. He explained that 5 to 6 per cent of the overall gaming revenue that Red Deer currently generates comes from Lacombe, so 5 to 6 per cent of the revenue from Red Deer casinos is at risk of being cannibalized. The 56 per cent cited in the report represents the percentage of total estimated revenue captured by The Track on 2 that would come from other facilities.
[14] Mr. Zukowsky also referenced the projected increase in revenue, defined as lift, that is captured on race days or days where an REC holds a major event as compared to a typical day. The estimates from the report included in the Request for Decision (Exhibit 3, Tab 1) considered 18 race days per year and indicated a lift of over 10 per cent. The report did not consider lift from other events such as concerts. Mr. Zukowsky clarified that races and other events may draw patrons away from casinos in the area and money spent at the REC may represent funds that would have been used on a future casino trip, therefore, some of the lift represents cannibalized revenue.
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[15] Mr. Zukowsky explained the model, known as the gravity model, that was used to estimate patrons’ spending based on their proximity to the REC. This model recognizes that the closer to the facility a patron is located, the more they will spend there. Mr. Zukowsky stated that the distance and parameters for proximity vary depending on the particular site but that the threshold is 25 kilometers, meaning that patrons within 25 kilometers of a facility will be likely to spend more there.
[16] As compared to Evergreen Park, located on the outskirts of Grande Prairie, and Rocky Mountain Turf Cub, located in Lethbridge, The Track on 2 is considered by the Regulatory Services Division to be the most rural of the RECs in Alberta.
[17] Mr. Zukowsky stated that this location as well as the fact that this site is competing with two existing casinos and the not yet built Bear Hills Casino, posed some challenges for his estimates and led to more unknowns than in previous projections he has completed which might result in greater uncertainty with respect to the accuracy of his projections. Mr. Zukowksy confirmed that the site for the future Bear Hills Casino is located approximately 50 kilometers from The Track on 2.
[18] Mr. Zukowsky confirmed for the Panel that any assumptions made during the financial analysis were explained in the fulsome market assessment report (for example, the number of days that The Track on 2 currently operates was assumed to remain unchanged if they become an REC). The fulsome report was not provided to the Board when the Request for Decisions (Exhibit 3, Tabs 1, 2, and 3) were submitted.
[19] The Track on 2 currently has eight VLTs. Mr. Zukowsky advised the Panel that The Track on 2 had high performance previously with about half the number of VLTs and they increased to eight VLTs in December 2020. Mr. Zukowsky stated that The Track on 2 is currently underperforming with their VLTs and that, when compared with other sites with eight VLTs, they are in the bottom 10 per cent.
Tara Markstrom [20] Ms. Markstrom is an Auditor with the Compliance Audit sector of the Regulatory Services Division. She has an accounting designation (CPA) and is a certified fraud examiner. She has worked for AGLC for over 10 years.
[21] Ms. Markstrom was also involved in the committee that reviewed the financial impact of the application from The Track on 2. She utilized the projections provided by Mr. Zukowsky and the Insights and eCommerce team (Exhibit 3, Tab 1) to determine the potential impact on the General Revenue Fund (GRF), other casino operators and local charities.
[22] Ms. Markstrom described the slot revenue allocation for traditional casinos and RECs. She explained that slot revenues from traditional casinos are distributed as follows: 15 per cent to the operators, 15 per cent to charities and 70 per cent to the GRF. For RECs, there are no charities associated, in this case, 15 per cent is distributed to the operator and 85 per cent to the GRF. Moreover, for each 85 cents that goes to the GRF, 50 cents of the distribution to GRF is allocated further to a nonprofit corporation, Horse Racing Alberta (HRA) pursuant to the funding agreement between the
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Government of Alberta and HRA. The authority on the allocation of funds to the GRF comes from Section 26 of the Act.
[23] Ms. Markstrom reviewed in greater detail the projected cannibalization and impacts to the GRF and casino operators as taken from the market assessment report excerpts (Exhibit 3, Tab 1, Attachment 6). She highlighted that the vast majority of revenue would be generated from slot terminals versus VLTs. She stated that the general impact to the GRF is estimated to be a net increase of approximately $2 million per year based on receipt of 35 per cent of the incremental slot revenue. However, based on the funds projected to be diverted from the Red Deer casinos, a portion of those funds would likely now be allocated to HRA potentially resulting in a negative net impact to other GRF initiatives.
[24] Ms. Markstrom provided the estimated impact to the Red Deer casino operators as a result of the cannibalization from the REC, totaling approximately $400,000 of lost revenue per year.
[25] If The Track on 2 operated as an REC, the Red Deer charities could receive less money from the pool payout as a result of the cannibalized slot revenue from Red Deer casinos estimated to be $1,000 per two-day charity event.
[26] Ms. Markstrom confirmed that a charity, or charitable group, is defined in Section 1.1 of the Charitable Gaming Policies Handbook as “a non-profit group determined by AGLC to meet licensing eligibility requirements. AGLC is not bound by the definition of “charity” used by other authorities or jurisdictions.”
Nabil Bharwani [27] Mr. Bharwani is a Senior Manager in Network Services in the Information Technology (IT) division at AGLC. He has been in that role for 2 years and has worked at AGLC for over 7 years. In this role, Mr. Bharwani is responsible for IT infrastructure and connectivity for AGLC and gaming, particularly with respect to networking.
[28] AGLC utilizes one network provider exclusively (the AGLC provider) as they offer an isolated network with a vast reach that all of Alberta’s casinos and hundreds of gaming locations rely on. The AGLC provider offers consistent service and one source of support when needed.
[29] Mr. Bharwani explained that utilizing another provider would require AGLC to extend their network environment, resulting in significant costs and additional complexity. As a result, AGLC is not currently considering service from multiple network providers.
[30] Mr. Bharwani explained that The Track on 2 currently utilizes a different network provider. In order to become an REC, The Track on 2 would need access to the isolated AGLC network. As the AGLC provider does not currently have infrastructure in the facility area, the estimated costs for the AGLC provider to trench and install the necessary fibre-optics for the Track on 2 site would be between $340,000 and $480,000.
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[31] Mr. Bharwani assured the Panel that his staff spent two months exploring options to get The Track on 2 connected. Mr. Bharwani communicated with a representative from the current provider for The Track on 2 in an attempt to explore other options but they were unable to find a solution. He offered to have the Applicant contact their provider directly but that did not seem to positively impact the provider’s willingness to collaborate.
[32] Mr. Bharwani confirmed that slot terminals require real-time connectivity so the wireless connectivity currently offered for the VLTs at The Track on 2 is not sufficient for slot operation of an REC and cannot be leveraged. Mr. Bharwani clarified that the connectivity over the fiber has to be from the AGLC provider but the fiber itself could come from another provider. He maintained that the connection under the isolated network from the AGLC provider is the only viable option.
[33] Mr. Bharwani confirmed that when there are network costs associated with a licence application, AGLC typically incurs those costs. However, he stated that usually the infrastructure is already in place and network installation costs have been significantly less than those estimated for The Track on 2. Mr. Bharwani suggested that there is nothing barring the Applicant from sharing the costs associated with networking with AGLC. AGLC had not previously asked the Applicant if there was a willingness to share some of the costs.
Stephen Kiss [34] Mr. Kiss is the Director of Audit Services and has been in that position for over 13 years. He chaired the committee that was responsible for reviewing the application from The Track on 2.
[35] Mr. Kiss referred to the feedback received from the community at Step 3 of the application process, as outlined in the December 1, 2021 Request for Decision (Exhibit 3, Tab 2). He advised the Panel that at this step, feedback is sought from casino operators and people in the community. Mr. Kiss advised that the casino operators were generally against the application. He stated that during the Community Support stage (Step 3), sometimes operators will provide a letter of support but more typically they object to new licences to preserve their own market share in a saturated market.
[36] When the Request for Decision was brought before the Board in December 2021, the Board reserved the discussion and asked the Regulatory Services Division to provide more information, one component of which was to obtain an update from the Louis Bull Tribe as to their progress on the Bear Hills Casino.
[37] Mr. Kiss received a redacted memorandum (Exhibit 3, Tab 4) from legal counsel for the Louis Bull Tribe with an update indicating that progress has been made since their licensing in 2016 and there is intention to break ground in the near future. Mr. Kiss confirmed that the Louis Bull Tribe was not in favor of the application from The Track on 2.
[38] Mr. Kiss described the future Bear Hills Casino as small. He confirmed that they have approval to operate 200 slot terminals, the minimum number a casino needs to operate, with the potential for more based on their performance.
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[39] For context in terms of size, Mr. Kiss shared that two comparable RECs in Alberta, Evergreen Park and Rocky Mountain Turf Club, are operating 75 to 90 slot terminals. The Track on 2 has proposed 80 slot terminals.
[40] Mr. Kiss advised the Panel that the new revenue that would go to HRA, if the application were approved, would result in less net money going into the provincial GRF. He argued that the perspectives of the charities, the Host First Nations and HRA need to be considered. Mr. Kiss stated that the gaming model structures in their current form can be challenging to work with when assessing applications.
[41] Mr. Kiss addressed some of the other associated costs with the REC, namely, amortization and the lifespan of the slot terminals and associated replacements costs.
[42] When asked about the current underperformance of the VLTs at The Track on 2 that Mr. Zukowsky spoke about, Mr. Kiss suggested that there may be a minimum number of terminals required to attract people but he was not sure what that number is or if having more machines would improve overall performance.
[43] Mr. Kiss advised the Panel that the most significant reason to deny the application, in his opinion, is the cannibalization of revenue. The Regulatory Services Division is seeking new markets and incremental revenue. Mr. Kiss also shared that the best reason to move the application forward would be that the REC would result in more funds to HRA and would be lucrative for the operator.
IV. The Track on 2 Evidence [44] The representative for the Applicant, Kurt Belich, gave evidence on behalf of The Track on 2. Mr. Belich intended on calling four additional witnesses to give evidence but during the hearing he determined that the testimony of the last witness was not integral to his case so that witness was not called. The following three witnesses also gave evidence at the hearing:
•
• •
Shirley McClellan, Former Minister of Agriculture, Health, Finance (Chair of Treasury Board), International and Intergovernmental Affairs, Deputy Premier of Alberta, Former CEO and Board Chair of Horse Racing Alberta. Fred Gillis, Horse racing expert and executive director of Alberta Standard Bred Association Jason Reed, Director of Gaming, The Track on 2
Shirley McClellan [45] Shirley McClellan has previously acted in various ministries in Alberta and was the former Board Chair and CEO of HRA.
[46] Ms. McClellan was the Minister responsible for the Horse Racing Act that came into effect in 2001 and spoke to the importance of the inclusion of racetracks in Alberta’s overall gaming strategy. This strategy led to the creation of RECs and the related policies.
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[47] Ms. McClellan explained the formula guiding the GRF revenue sharing with HRA that was developed at the time. The 50 per cent allocation of slot revenues from RECs was established to recover the monetary losses to HRA caused by the introduction of new casinos.
[48] Ms. McClellan stated that the Government of Alberta determined that live horse racing must be a component at any REC. The July 20, 2021 Request for Decision (Regulatory Services documentary evidence, Exhibit 3, Tab 1) defines a Class “A” Track as having a minimum of 100 race days per year with Class “B” Tracks having a minimum of 15 but a maximum of 60 race days per year. The Track on 2 is considered a Class “B” Track.
[49] Ms. McClellan explained the importance of Class “B” Tracks to the horse racing industry as these tracks provide a home for horses that do not perform at an “A” Track level and provides those horses with the opportunity to develop and improve over time. She emphasized the importance of having both Class “A” Tracks and Class “B” Tracks.
[50] Ms. McClellan stressed throughout her testimony, the economic benefit of horse racing to the rural economy in the form of breeding farms, sales of hay and tack, and employment (as shown in the Serecon report provided by the Applicant at Exhibit 2, Tab 7). She suggested that the economic benefit of one job in Lacombe is worth at least 100 jobs in the Edmonton area.
[51] Ms. McClellan confirmed that The Track on 2 holds 18 race days per year currently but it is anticipated that number will grow to 60 race days as the horse population continues to grow with the stability and sustainability gained following the implementation of the Century Casinos RECs outside of Edmonton and Calgary.
[52] Ms. McClellan explained to the Panel that each REC receives a percentage of their operating funds from HRA and that percentage is based on their size and the model developed by HRA which, she advised, has been subjected to fairness reviews by AGLC.
[53] Ms. McClellan dismissed the concerns about cannibalization cited in the denial letter from the Board of January 28, 2022 (Exhibit 1, Tab 1). With respect to the proximity concerns, she specifically referenced the success of another REC in Alberta that was built within 12 kilometers of a casino and noted that the Bear Hills Casino has not yet been built. Ms. McClellan stated that when the Bear Hills Casino is operating it will permit smoking and will have live table games, giving it a major advantage over The Track on 2 if it was licensed as an REC.
[54] Ms. McClellan confirmed for the Panel that The Track on 2 would be privately-owned and would not be tax exempt.
[55] Ms. McClellan stated that without the slot revenues and resulting funding from HRA, The Track on 2 is not going to be profitable.
[56] Ms. McClellan confirmed that the Applicant currently hosts concerts and other events and is avid about their ancillary activities that draw crowds to the facility (The Track on 2 2022 Calendar of
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Events, Exhibit 2, Tab 10). However, if the Applicant was licensed as an REC, the slot terminals would encourage more activity and spending on race and event days. Additionally, the terminals may introduce new patrons to the gaming industry.
Fred Gillis [57] Mr. Gillis is the Executive Director of Alberta Standardbred Horse Association (ASHA) and has been in that position for 13 years. He has worked in the industry for 60 years. The Applicant included a letter of support from ASHA in their documentary evidence (Exhibit 2, Tab 2).
[58] Mr. Gillis spoke about the adoption of the gaming strategy that Ms. McClellan spoke about during her testimony. He described the major losses and obstacles the horse racing industry has faced including the loss of Stampede Park in 2006 and the loss of Northlands requiring lengthy commutes to Grande Prairie, as well as the impacts of the COVID-19 pandemic.
[59] Mr. Gillis described the passion-driven durability of the horse-racing community but emphasized the significant challenge it would face if The Track on 2 had to shut down and they lost the Class “B” Track. If the Track on 2 is licensed as an REC it would guarantee stability for the horse-racing community and that community would be able to make The Track on 2 its “home base.” Mr. Gillis stated that many members of the community would relocate to the Lacombe area and contribute to the growth of the local economy.
[60] Mr. Gillis described his other business and charitable endeavors that introduce people to the industry and would draw patrons to The Track on 2 but reiterated that a sustainable track is necessary for those endeavors to be successful.
[61] When asked about whether slot terminals are integral to enticing patrons to attend at the track, Mr. Gillis stated that, in his opinion, the gaming terminals are not integral but that he has seen many horse owners, who are not gamblers and do not go to casinos, play the machines while they are at the track for the day.
Jason Reed [62] Jason Reed is employed at the Track on 2 as the Director of Gaming. He has been in the industry for over 10 years.
[63] Mr. Reed completed an overview of the presentation that the Applicant included as part of their documentary evidence (Exhibit 2, Tab 14).
[64] Mr. Reed elaborated on Mr. Gillis’ testimony that the standardbred horses will not have a Class “B” Track home base if The Track on 2 is not licensed as an REC as The Track on 2 will not be able to contribute enough to the purses (prize payouts).
[65] Mr. Reed advised the Panel that The Track on 2 only received a redacted version of the market assessment report. From the excerpts they did receive (Exhibit 3, Tab 1), Mr. Reed pointed out a number
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of discrepancies in the calculations produced by the Regulatory Services Division that were presented to the Board compared to the Applicant’s calculations.
[66] Specifically, in the document setting out Project expenditures, GST was calculated at 10 per cent. Mr. Reed suggested that GST should not have been included or, if included, it should be calculated at 5 per cent. He also suggested that the estimated capital required for operation of approximately 80 slot terminals as presented to the Board was much higher than the Applicant’s calculations. Mr. Reed is of the opinion that many of the project costs were inflated by the Regulatory Services Division.
[67] Mr. Reed demonstrated the return on investment for the Government of Alberta using the projected revenue figures presented by the Regulatory Services Division (excluding GST) and suggested that 100 per cent of the revenue to the GRF would be incremental revenue.
[68] When asked about the allocation of funds that The Track on 2 would receive from HRA as an REC, Mr. Reed clarified that The Track on 2 provides a budget for all race day expenses and projected profits and submits that to HRA in the form of a proposal. Using the model described by Ms. McClellan, HRA determines the percentage of funding they will contribute to the operating expenses. Mr. Reed confirmed that the funds are to be spent on race day costs such as staffing, equipment, track maintenance, broadcasting and production, etc.
[69] Currently, HRA has allocated a small budget for The Track on 2 so that they can continue to hold races but Mr. Reed shared that even with this funding, The Track on 2 loses money on race days.
[70] Mr. Reed advised the Panel that The Track on 2 was developed with the intention of expansion into an REC; they have the capability to proceed with construction as soon as possible.
[71] Mr. Reed suggested that The Track on 2 would triple the income it currently drives into the economy if it were licensed to operate as an REC.
[72] Mr. Reed spoke to the major events that The Track on 2 currently hosts that attract new patrons and provide exposure to the facility and to horse racing. These large events provide employment opportunities in the community and provide fundraising opportunities for The Track on 2 and provide a platform for local charities to host events.
[73] When asked to clarify a large sum of money that was generated as a result of relay race events in 2021, Mr. Reed stated that the proceeds came from admission ticket sales and sponsorship. He advised that all the proceeds were paid out as purses and donated in support of youth development.
[74] The Track on 2 is a supporter of Treaty 6 and Mr. Reed spoke to the relationship that The Track on 2 has with First Nations and First Nations racing. The Track on 2 has hosted very successful First Nations racing events and they would like to work in collaboration with the Bear Hills Casino to cross-promote events. Mr. Reed stated that their hope is to attract people to events that flow through both The Track on 2 and the Bear Hills Casino. When asked, Mr. Reed confirmed that the Applicant has not yet had formal discussions with the Bear Hills Casino operators.
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[75] Mr. Reed stated that The Track on 2 contacted the AGLC provider to discuss network installation options and scenarios but they did not make a formal request for service.
Kurt Belich [76] In response to the figures provided by the Regulatory Services Division, Mr. Belich confirmed for the Panel that The Track on 2 is about three kilometers outside of Lacombe and about 9 kilometers away from Blackfalds, which is closer than Evergreen Park is to Grande Prairie. He disagreed that The Track on 2 is more rural than Evergreen Park.
[77] Mr. Belich spoke about the anticipated growth of the surrounding communities and advised the Panel that Blackfalds is one of the top growing communities in Canada; between 2016 and 2021 it attracted many new, young families and grew by 16 per cent. Lacombe lags behind Blackfalds but is also growing.
[78] Mr. Belich also stressed to the Panel that The Track on 2 is located 53 kilometers from the Bear Hills Casino site. He asserted that 80 to 90 per cent of patrons reside within 50 kilometers of a gaming facility and he doubted the level of cannibalization projected by the Regulatory Services Division as a result of the distance that players would be required to travel. Mr. Belich suggests that there will not be a great deal of cannibalization because the Bear Hills Casino will offer table games and operates under the casino model. Mr. Belich claimed that The Track on 2 can coexist with Bear Hills Casino like other RECs and casinos coexist in Alberta.
[79] Mr. Belich reiterated Mr. Reed’s comments that The Track on 2 would like to continue the dialogue with the Louis Bull Tribe and continue to build a trusting relationship.
[80] In response to the projected lift on race days that Mr. Zukowsky provided, Mr. Belich confirmed that the population used was correct (approximately 42,000 people in the region) but he clarified that The Track on 2 sees a lift in the range of 48 per cent to 87 per cent, depending on the day of the week.
[81] In response to the cannibalization of revenue, Mr. Belich pointed to the Alberta Gambling Research Institute report “Gambling in Alberta: History, Current Status and Socioeconomic Impacts” (Exhibit 2, Tab 12) and suggested that accessibility and proximity to gaming is a major factor that was not properly factored into the cannibalization projections from the Regulatory Services Division. He suggested that although there may be cannibalization from Red Deer as some players in Blackfalds and Lacombe will travel the five to ten kilometers to The Track on 2 instead of further to Red Deer, those players end up visiting one and a half times more than they would if they had to travel to Red Deer. Mr. Belich argues that this, in turn, results in more revenue and therefore suggests that the portion of revenue gained from cannibalization is closer to 35 per cent.
[82] Mr. Belich argued that the Regulatory Services Division misrepresented the total revenue from cannibalization (56 per cent) as revenue being cannibalized from Red Deer casinos specifically (which was clarified to be 5 to 6 per cent). Mr. Belich challenged Regulatory Services Division’s overall definition and calculation of cannibalization.
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[83] In response to the current performance of VLTs at The Track on 2, Mr. Belich cited the capacity limitations and lengthy closures as a result of the COVID-19 pandemic as major contributors to the underperformance since December 2020.
[84] With respect to the network installation costs, Mr. Belich advised the Panel that the current provider for the Track on 2 has asked that a request for service come directly from AGLC.
[85] Mr. Belich stated that if the AGLC provider must be used, although it has been the understanding of The Track on 2 that typically AGLC incurs the costs of the networking and installation, The Track on 2 would be willing to negotiate cost-sharing. However, Mr. Belich advised the Panel that he would be seeking remuneration from the AGLC provider in the future if the work required for network installation at The Track on 2 was then utilized in future residential developments.
[86] Mr. Belich expressed his passion and dedication to the track and to the industry but that he is also a business owner and, without the REC licence and resulting slot revenues, he is not sure that he would continue to be able to operate The Track on 2. He expressed his gratitude for the support he has received in the forms of letters of support from various MLAs, organizations and municipalities (Exhibit 2, Tabs 1 to 5 and 11), the community and in the funding from HRA but even with that it will be difficult to operate under the status quo.
V. Summation Regulatory Services Division [87] Mr. Arnston clarified the issue about GST being included in the market assessment report excerpts at 10 per cent. He confirmed that when costs are involving gaming, GST is paid at 10%.
[88] The objective of the Regulatory Services Division was to demonstrate to the Panel that the AGLC staff provided the Board with a fulsome, unbiased report and analysis of the application from The Track on 2. The Regulatory Services Division asserts that the staff involved in the review committee did a thorough job in their presentation of the application to the Board.
[89] Mr. Arnston acknowledged the in-depth evidence provided by Ms. McClellan, Mr. Gillis, Mr. Belich and Mr. Reed on behalf of the Applicant and that the Regulatory Services Division has no doubt that the Track on 2 serves as an invaluable resource to Lacombe County, standardbred horse owners and the horse racing industry as a whole. That said, Mr. Arnston reiterated that the purpose of the hearing was to determine whether the concerns that gave rise to the Board’s original decision are still valid.
[90]
Mr. Arnston reiterated the four major concerns identified in the denial letter:
• •
substantial negative impact to the viability and the employment opportunities at the not yet built Bear Hills Casino; significant cannibalization of the proposed gaming revenues and resulting impact to existing gaming operators in Red Deer;
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• •
negative impact to local charities in the area (by about 5% per year); and considerable network installation costs to AGLC.
[91] Mr. Arnston reminded the Panel that Mr. Kiss confirmed in his testimony that the Bear Hills Casino has financing and will be starting construction in the near future. As well, Mr. Kiss also advised the Panel that the Bear Hills Casino will start operating with 200 slot terminals, making it one of the smallest casinos in Alberta. Given the relatively small size of Bear Hills Casino, The Track on 2 becoming an REC would have a significant adverse impact on both revenue and employment. The Applicant provided no evidence that they have had substantive discussions with the operators of the Bear Hills Casino regarding prospective collaboration.
[92] valid.
Therefore, Mr. Arnston suggests that the concern with respect to the Bear Hills Casino is still
[93] With respect to the significant cannibalization, Mr. Arnston admits that this was reflected harshly in the reports but confirms that 56 per cent of the projected revenue for The Track on 2 represents money that is already being spent in the gaming industry and is being reallocated from other facilities.
[94]
Mr. Arnston asserts that the concern about significant cannibalization is still valid.
[95] As outlined in the projections by Mr. Zukowsky and Ms. Markstrom with respect to the cannibalization of revenue, this cannibalization would adversely impact Red Deer charities by diverting a portion of funds from casinos to HRA.
[96] Mr. Arnston verified that both casinos in Red Deer hold 180 two-day events each year, resulting in a total of 360 Red Deer charity casino events per year. With the implementation of an REC and the projected cannibalization, it is estimated that the charities’ share of revenue would decrease by about $1,000 per event. Mr. Arnston reiterated that RECs do not have live table games and they do not allocate revenue directly to charities for each of their events.
[97]
As a result, Mr. Arnston suggests that the concern about impact to local charities is still valid.
[98] Mr. Arnston reiterated that Mr. Bharwani testified that AGLC relies exclusively on one network provider and, given the location of The Track on 2 relative to Lacombe, significant costs would be required for network installation. AGLC typically bears these costs but has not encountered such significant costs in the past. The Regulatory Services Division is of the opinion that unless AGLC entered into a cost-sharing arrangement with the Applicant, the costs would be incurred by AGLC.
[99] Mr. Bharwani and his team have devoted time and effort to work with The Track on 2’s current provider for a solution but that provider was unwilling to do so.
[100]
As such, the network installation costs concern is still valid.
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[101] Based on the review of the criteria for denying the Application, the Regulatory Services Division recommends that the Panel uphold the decision of the Board to end the approval process for licensing of The Track on 2.
The Track on 2 [102] Mr. Belich addressed the four main concerns outlined in the denial letter from the Board and as cited by the Regulatory Services Division in their summation.
[103] Mr. Belich cited the 4 per cent projected cannibalization of revenue from the Bear Hills Casino and is of the opinion that 4 per cent is not substantial. Mr. Belich advised the Panel that The Track on 2 has no intention of soliciting people from the Louis Bull Tribe to work at the Track on 2. Mr. Belich is of the opinion that The Track on 2 is not a threat to the employment at the Bear Hills Casino.
[104]
[105] Mr. Belich is of the opinion that the incremental revenue that The Track on 2 would generate for the GRF is substantial and the costs of the transition to an REC would be recovered in the first year.
[106] Mr. Belich confirmed that RECs operate under a different funding model than traditional casinos. The Track on 2 acknowledges that this model does not allocate funds to charities but that The Track on 2 does not wish to negatively impact local charities. It is for that reason that The Track on 2 gives back to local fundraisers and charities to the best of their ability.
[107] The Track on 2 intends to reach out to their network provider again to discuss network solutions, however, Mr. Belich confirmed some willingness to participate in a cost-sharing arrangement with AGLC if necessary.
[108] Mr. Belich advised the Panel that The Track on 2 is flexible and would be willing to discuss the option of more VLTs to supplement the slot terminals if the licence is granted but they are not approved to receive 80 slot terminals as proposed.
VI. Analysis [109] This Panel of Board Members approached the hearing bearing in mind the principles of administrative justice and, although they are members of the Board that received the presentation on the application in 2021 and earlier this year, the Panel only considered the evidence and arguments before them at the Hearing.
[110] Despite the moratorium in place at the time this proposal was received, the Board has the authority to identify market opportunities as appropriate, pursuant to Section 7.1 of the Racing Entertainment Centre Terms & Conditions and Operating Guidelines.
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[111] While the Panel considered all written and oral evidence provided by both the Regulatory Services Division and the Applicant, they weighed their decision considering the following factors:
• •
• •
impacts to the not yet built Bear Hills Casino; cannibalization of the proposed gaming revenues and resulting impact to existing gaming operators in Red Deer; impacts to local charities in the area; and network installation costs.
[112] The Track on 2 is encouraged to take a strong step towards building a relationship with the Louis Bull Tribe and to work in harmony with the future Bear Hills Casino.
[113] The Applicant provided reported findings (Exhibit 2, Tabs 8 and 12) that demonstrate the relationship between proximity and cannibalized revenue. The Panel finds that 53 kilometers is a significant distance for persons in the area of the Bear Hills Casino to travel for a job opportunity or attend a casino or REC facility.
[114] A distinction was made during the hearing with respect to the projected cannibalization of gaming revenues; the 56 per cent shown in the excerpts from the market assessment report represents the percentage of The Track on 2’s revenue that is anticipated to be cannibalized from all other operators. The anticipated revenue that would be cannibalized from the casinos in Red Deer is 5 to 6 per cent. The Panel found this to be an important distinction.
[115] As illustrated by Ms. Markstrom, Ms. McClellan and Mr. Reed, 50 per cent of the projected incremental slot revenue of The Track on 2 as an REC would be allocated from the GRF to HRA. Further, HRA was established as a not-for-profit corporation as a result of the government’s requirement for regulation and governance of horse racing and horse racing rules in Alberta. HRA is governed by a provincial statute and the Panel finds that any slot revenue allocated from the GRF to HRA has been proven to beneficial to the horse racing community and to Albertans.
[116] The Panel finds that the slot revenue allocation to HRA will be returned to the community by way of the HRA funding model and local charities can benefit from this model by Track on 2’s commitment to support local charities. The Panel is of the opinion that The Track on 2 will continue to host local charities and provide opportunities for fundraising where possible.
[117] The Panel cannot provide assurances to the Applicant on behalf of the AGLC network provider but cost-sharing of the significant network installation costs, as proposed by the Applicant, is a tenable solution.
[118] The Panel finds that additional VLTs to supplement The Track on 2 as it currently operates, without an REC licence and slot terminals, is not a viable solution as this model would not provide a portion of the revenue to HRA, with no benefit to the broader horse racing community.
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[119] The Track on 2 is the only racetrack in Alberta that is not operating as an REC. The Panel finds that the impacts The Track on 2 has on the horse racing industry are significant. The community in this region is growing quickly and the events The Track on 2 hosts creates community and will foster further growth in the area. The Panel is of the opinion that some of the financial losses projected will be made up with increases to the population and subsequent positive economic impact.
[120] The Panel acknowledges the thorough analysis that was presented to the Board by the Regulatory Services Division but finds that the Applicant was able to provide a different perspective and approach. It offered another angle on the identified concerns that gave rise to alternative solutions.
VII. Finding [121] After consideration of the evidence provided and for the reasons noted in the analysis above, the Panel finds that the negative financial impacts identified by the Regulatory Services Division have been addressed by the Applicant and the application is conditionally approved.
[122] In accordance with Sections 94(2) and 94(7)(b) of the Gaming, Liquor and Cannabis Act (the Act), the Panel replaces the decision of the Board of the Alberta Gaming, Liquor and Cannabis Commission (AGLC) to deny the application from The Track on 2 to become licensed as a Racing Entertainment Centre (REC) with a conditional approval of the application to move to Step 4- Construction and Licensing as of May 11, 2022.
[123]
The conditional approval is issued subject to:
•
The Track on 2 and AGLC working collaboratively with the network provider to facilitate the network installation required to accommodate slot terminals at the REC. The Track on 2 and AGLC shall each bear fifty per cent (50%) of all costs relating to the network installation.
Signed at St. Albert, this 11
th
day of May, 2022
Len Rhodes, Presiding Member, Hearing Panel
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