How Not To Do Provincial Cooperation
Posted January 6, 2017
The Atlantic Lottery Corporation (ALC), which is forty years old, should exemplify the opportunities that can arise when provinces cooperate. It doesn’t.
It is a big operation. Revenue in 2015-2016 was $1.19 billion, and the four provinces shared $432 million in profits. Direct expenses—primarily commissions to retailers—amount to about $150 million, and operating expenses are another $151 million.
Online gambling products are widely available to consumers, whether or not government is involved. It makes sense for governments to try to harvest as much of that revenue as possible, and to provide games in an environment that can be trusted. Having a monopoly on most products makes huge profit margins possible.
The Auditors General of the four provinces produced a combined report in October, the first time in twenty years that a review has been done.
The provinces have not thought deeply about the opportunities that ALC presents. Each province wants to have its own strategy, as if there is some mystical difference between a video lottery terminal in Amherst and one across the border in Sackville, New Brunswick. The games available on the internet from other sources are no respecters of provincial borders or regulations.
The ALC lacks a clear mandate from the provinces. Nova Scotia is an outlier, treating the ALC as a service provider rather than a manager of the business. The other three provinces have given ALC vague and incomplete directions.
The board has had some bad experiences. It committed $8 million in a hastily considered venture capital investment, which quickly went broke. It spent $640,000 investigating internet gaming before discovering that governments would not support it.
Just before the 2013 election in Nova Scotia, the premier’s office ordered ALC to contract with and prepay $1.3 million to Techlink, a struggling gaming company in which the province had invested and which has also gone broke.
The ALC Board consists of eight directors, each province appointing one who is a government official and one who is independent. This system does not work well.
The government appointees have mostly been mid-level civil servants who evidently did not have authority from their governments. Initiatives for which they voted as board members were subsequently turned down by their governments.
Beyond that, it is not obvious that their training and experience would equip them to provide strategic guidance to a billion dollar commercial operation. Correspondingly, the limited mandate of the board to provide strategic direction makes it difficult to attract highly qualified independent directors.
For an organization that prides itself on transparency, ALC is strangely reticent about its directors, refusing to disclose anything about them other than their names.
The governments have agreed to double the number of independent directors to eight, and some of the newer governmental appointments are more senior, but the fundamental problem remains.
The appointed civil servants are not able to provide decisions on behalf of their governments, nor are they able to advocate ideas that are not within their governments’ stated positions. Governments have nevertheless resisted the clearly correct recommendation from the auditors general that civil servants not be voting board members.
How efficient is all this? ALC feels part of its mandate is to ensure gaming is safe. In Nova Scotia, it receives oversight from the Nova Scotia Provincial Lotteries and Casino Corporation whose rather similar role is “ensuring games are fun, safe and responsible.”
It is also regulated by Service Nova Scotia to ensure that “…these activities are conducted with honesty and integrity.” Apparently, these three levels of oversight (which are not applied at all to internet gaming with offshore websites) are viewed as not being enough, so some ALC decisions are subject to further political intervention.
This is a mess. Each province should provide its own regulatory environment, applied only once.
ALC should have a strong Board of independent directors with a clear mandate to make the decisions on how to run the business. Then it can be a poster child for provincial cooperation, rather than a case study on why it can’t work.
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