PEI·Analysis

Is P.E.I. getting a 'raw deal' on its share of gambling profits?

​Opposition parties on P.E.I. are worried the province may be receiving a “raw deal” when it comes to the way Atlantic Lotto divvies up its profits among the four Atlantic provinces.

Opposition parties raise concerns about profit distribution from Atlantic Lotto

Some P.E.I. politicians are raising questions about the portion of gambling revenues the province receives. (Jessica Hill/The Associated Press)

Opposition parties on P.E.I. are worried the province may be receiving a "raw deal" when it comes to the way Atlantic Lotto divvies up profits among the four Atlantic provinces.

At a recent meeting of the province's public accounts committee, Green Party Leader Peter Bevan-Baker noted the profits P.E.I. receives from ALC are well below what the province would receive if the money was divided on a per capita basis among the provinces.

He also noted, based on information in the recent joint audit of Atlantic Lotto, Islanders are paying well above their per capita allocation of shared expenses at ALC, that includes the spending on hospitality and executive salaries over which the auditors raised concerns in their report.

P.E.I. Green Party Leader Peter Bevan-Baker. (CBC)

Bevan-Baker concluded only two things could explain P.E.I.'s lower profit share.

"Either we gamble half as much here as we do in the rest of the Atlantic provinces, which I find hard to imagine. Or else we're paying a higher percentage of the costs of ALC," he said.

"It seems to me our province is getting a raw deal here."

It isn't just the Green Party raising concerns about the distribution of lottery profits to P.E.I.

"It certainly appears right now the Prince Edward Island is getting the short end of the stick," said PC MLA James Aylward, chair of the Public Accounts committee.

P.E.I. receives lowest per-capita profit share

Every year Atlantic Lotto makes a profit from gambling and lotteries on P.E.I., and after deducting expenses, sends a profit share to the provincial government.

According to the joint audit report, P.E.I. received $10 million from ALC in 2014-15, out of the corporation's total profits of $368 M.

If you break down the profit share on a per capita basis, you can see what Bevan-Baker was getting at: averaged over the last five years, P.E.I. has received by far the lowest per capita profit distribution from ALC.

Average annual ALC per capita profit distribution, 2010-2015
Newfoundland & Labrador $219
Prince Edward Island $92
Nova Scotia $125
New Brunswick $158

(Sources: Joint Audit of Atlantic Lottery Corporation, Statistics Canada)

(ALC provides higher per capita profit figures in its annual reports, but those don't factor in costs including millions of dollars in pension payments, or losses such as the failed investment in Geonomics Global Games. Figures in the audit report factored in these other costs.)

Islanders do spend less on lottery tickets and VLTs

Revenue and expenses from lottery tickets and VLTs go to the provinces where the sales occur, and Islanders spend below the regional average on these things.

Islanders do spend less per capita than other provinces on lottery tickets and VLTs.

So part of the issue is that Islanders do indeed spend less on lotteries. But that's only part of the reason lottery revenues here are so much lower.

The Red Shores factor

In an email to CBC News, Atlantic Lotto explained how operating the two Red Shores casinos on P.E.I. increases the corporation's operating costs in the province. ALC does not operate casinos in the other Atlantic provinces. 

"Profits share is generated primarily by lottery revenue generated in each province and from that we deduct expenses. The P.E.I. profit margin is lower than other provinces because of the sales mix in that province and also the comparative lower margins associated with operating two gaming facilities on the island," it said.

"Across the gaming industry, when compared to ticket lottery and video lottery operations, gaming facilities like Red Shores are more labour and capital intensive and therefore yield lower margins."

For 2014-15, P.E.I.'s two casinos operated with a profit margin of 4.4 per cent, generating $683 thousand for the province.

Islanders pay far more per capita on ALC expenses

Overall Islanders pay a much higher per capita cost to run ALC — almost three times as much as the cost to the other Maritime provinces.

ALC 2016 per capita operating and other expenses
Newfoundland & Labrador $108
Prince Edward Island $184
Nova Scotia $71
New Brunswick $66

(Sources: Atlantic Lottery Corporation, Statistics Canada)

One of the problems for P.E.I. is the way common administration expenses are divided among the provinces. According to the most recent shareholder agreement between the provinces, P.E.I. is responsible for 10 per cent of shared expenses, and each of the other provinces is responsible for 30 per cent.

But P.E.I. represents only 6.2 per cent of the population of the region, and a similar proportion of gross lottery revenues.

Members of P.E.I.'s Public Accounts Committee question Auditor General Jane MacAdam at a meeting on Oct. 26, 2016. (Kerry Campbell/CBC News)

Issue headed to legislature?

In 2014 Atlantic Lotto began deducting millions of dollars in profit allocation to the provinces to fund a pension shortfall. For P.E.I. it amounts to a loss of $1.9 M per year until 2019.

Again it could be argued that P.E.I. appears to be paying a disproportionate share of this expense — 13 per cent of the total of $14.1 million. ALC said the payments are based on the number of employees in each province, and P.E.I. has a disproportionate number because of staffing at the two Red Shores casinos.

Bevan-Baker suggested this is a topic MLAs are likely to discuss when the legislature sits later this month.

ABOUT THE AUTHOR

Kerry Campbell

Provincial Affairs Reporter

Kerry Campbell is the provincial affairs reporter for CBC P.E.I., covering politics and the provincial legislature. kerry.campbell@cbc.ca

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