Slot machine dollars earmarked for Ontario’s struggling horse racing industry were misspent or are unaccounted for due to lax oversight by the provincial government, a Star investigation has found.

How much is at issue is not known, but it was fear of an ORNGE-style scandal that led then Finance Minister Dwight Duncan last year to abruptly cancel the long-running deal that funded horse racing in Ontario using publicly regulated gambling revenues. In all, $4.1 billion from slot machines flowed to the sport over 15 years.

Premier Kathleen Wynne said in an interview her government cannot account for all of the money sent to track operators over that time period.

“Can I give you chapter and verse on everything that’s happened in the past?” she responded when asked if government can track every slots dollar spent by horse racing management.

“I can’t.”

How much money was misspent or overspent is unknown. The question being asked by many people in the horse racing world is: Did all the money designated for growing the sport in Ontario end up in the correct place?

One recent provincial audit of a track operator, Woodbine Entertainment Group, highlighted $45 million in cuts that had to be made over the next two years if the province was to keep funding Woodbine, according to a government document referencing the needed reductions. Those cuts included $4.5 million in executive compensation and salary rollbacks.

“I think there were some inequities in the system in terms of rates of salary, of wages,” Wynne said when asked if track executives, including those at Woodbine, were getting “rich” from slots deals.

A series of audits performed on Woodbine and other tracks would shed light on these issues. But the provincial Finance Ministry has refused to make the audit findings public, citing privacy concerns.

The provincial gambling regulator is probing governance and regulatory issues related to the Toronto-based group that runs Woodbine and Mohawk racetracks.

Woodbine’s longtime top executive, David Willmot, who retired last year, said his organization was free to decide how to use gambling proceeds. “There is no missing money at Woodbine. We have done absolutely nothing wrong, nothing illegal, nothing improper.”

On Oct. 11, the province announced a new deal for horse racing , committing $400 million of public money over five years in another attempt to keep track jobs in Ontario. The exception is historic Fort Erie, a thoroughbred facility deemed a risky public investment by Wynne’s government, a track which could face closure. The province has vowed “transparency” in how these new dollars will be spent beginning April 1, 2014, with contracts that stipulate track employees making more than $100,000 will be subject to “Sunshine List” salary disclosure.

The Star’s ongoing probe of horse racing issues has found that Duncan ended the previous slots deal because it had all the markings of a political bungle like that of ORNGE, senior government officials confirmed. ORNGE, the provincial air ambulance agency, had similar problems, with few controls and little oversight on how its budget of $150 million a year was spent.

Duncan would not agree to an interview for this story.

One group that tried for years to persuade the Ontario government to carefully control how slots money was spent was the Ontario Harness Horse Association. It has 3,500 boots-on-the-ground members in owners, breeders, trainers, grooms and drivers.

Brian Tropea, general manager of the association, said his group had little success urging government to install clear and accountable performance criteria.

“For the last decade, we’ve been concerned that not all the monies have been for the intended purposes to grow live horse racing,” said Tropea, holding a file filled with correspondence to provincial officials requesting more diligent policing of the slots mandate.

“We have no way of knowing where (all) the money went.”

In 1998, under the Conservative government of Premier Mike Harris, the province decided to put the lucrative slot machine program into racetracks, eventually 17 venues in all. Almost overnight, tracks like Woodbine and Windsor Raceway became the go-to place for gamblers. It had the effect of propping up the horse racing industry, which could no longer sustain itself by the late 1990s.

Those in horse racing said the program protected upwards of 20,000 to 30,000 jobs, a rich breeding tradition and the lives of thousands of racing animals. Critics claimed the money was simply a government cash grab that preyed on gamblers.

Here’s how the Slots at Racetracks Program was structured.

Slot machine revenue at the tracks was divided between the province (75 per cent) and the municipality where the track was located (5 per cent), with the remaining 20 per cent split between the host track and purses for the winners of races. The Ontario Lottery and Gaming Corp. owned and operated the machines, which were installed at racetracks — handy places already legally licensed for gambling. For Ontario, the program was lucrative, sending about $9.7 billion to provincial coffers.

When it comes to the money for the tracks themselves, the Star found there was no structure or system in place that controlled how the host track spent its share of the money — a whopping $2 billion since 1998. The funds were also to offset any negative impact of the slots on horse racing betting — an impact that was never measured — and to improve conditions at tracks.

An additional $2 billion went to purses to be won in races.

Woodbine Entertainment Group, the market giant, got the most slots money.

Using one year as an example, Woodbine’s 2009 annual statement reveals its total revenue was $348 million. Of that, about 43 per cent — $151.5 million — flowed from slot machines. Wagering and sales of food, beverages and programs helped produce additional revenues of $196.5 million.

Overall, Woodbine Entertainment’s slots total since 1999 was $1.9 billion, half of that going to purse money.

Nick Eaves, Woodbine’s CEO and president since 2010, said about $400 million was reinvested into the business as capital improvements. Eaves said those customer upgrades helped increase daily average wagering on Woodbine and Mohawk races by 53 per cent, before cancellation of the slots program.

“Woodbine has more than lived up to its responsibilities,” Eaves said.

Eaves said the company provided audited financial statements annually to the OLG and shared that information and detailed business plans with the sport’s regulator, the Ontario Racing Commission. Executive wages are reviewed by the track’s pension and compensation committee, which also employs a third-party consultant for advice.

“(Woodbine) received no complaints or expressions of concern from the ORC, OLG or any other government body in respect of its system of checks or balances on the expenditure of (Woodbine’s) financial resources, including those derived from (the slots program),” Eaves wrote in response to a letter from the Star.

Using information from government reports, written decisions by the sport’s regulator, the Ontario Racing Commission, legal paperwork, correspondence, annual statements and interviews, the Star found provincial watchdogs failed to protect the public trust when signs arose that the slots deal was veering from its mandate to support live horse racing and the province’s agricultural sector.

Dalton McGuinty’s Liberal government ignored red flags.

It did not react to a commissioned 2008 report that concluded “a clear failure of (the slots deal) is the lack of a benchmarking regime against which results can be measured.” No detailed benchmarks were ever defined, established or enforced by OLG, the racing commission or other stakeholders.

The report’s lead author, Stanley Sadinsky, a retired law professor and former Ontario Racing Commission chair, said government should have looked closely at how millions raised under a public regulatory regime were spent.

“Was the money being well spent?” Sadinsky said in an interview.

“Was it doing the job it was intended to do? And if you don’t have a measuring stick at the beginning and then as you go along, how are you going to know? And how’s the government going to know it made a wise decision from a public policy perspective?”

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Neither did the provincial gambling moneymaker, the OLG, conduct annual performance reviews with each facility operator as it was contractually bound to do, according to siteholder agreements obtained by the Star. The reviews were to establish unique financial performance goals at every venue and gauge the impact of slots money on live horse racing.

OLG president and CEO Rod Phillips conceded that “in hindsight,” the Crown corporation should have had better checks and balances over the first 12 years of the deal.

“It’s obvious more could have been done,” Phillips said.

In 2010, according to notes taken at OLG board meetings, the Crown agency under former chair Paul Godfrey started to press all 17 track operators to demonstrate how they’d used slots funds to improve live horse racing over the previous decade. In July of that year, Godfrey sent letters asking each track to provide formal reports.

In 2011, OLG directors discussed their financial findings and concluded that in some cases “proceeds of gaming are not clearly used for the support of horse racing,” according to board meeting notes.

During the 15 years of the slots program at racetracks, the Star found there was little transparency in how the money would be spent.

Executive salaries of track management were kept a secret. The former boss of Woodbine Entertainment, David Willmot, refused in an interview with the Star to disclose his salary or his severance package. He was Woodbine’s CEO, president and chairman, and retired last year after 30 years with the company. He remains an honorary director.

Three sources in the horse industry have said Willmot’s annual compensation was in the million-dollar range.

Referring to people who he says “hate my guts” and believe he was overpaid, Willmot said: “Screw off.”

“I was fairly paid,” Willmot said in an interview. The well-known horseman and breeder was one of the architects of the slots deal, acting as a key negotiator for the racetracks with the Harris government.

After Duncan killed the slots program, tracks that wanted provincial funding — including Woodbine — had to submit to provincially ordered audits, conducted by Deloitte from November of 2012 until March of this year.

At Woodbine, a private non-profit company that changed to a for-profit business on April 1, the issue of executive compensation became contentious in 2011. That’s when the OLG demanded to see salary and bonus structures, according to senior government sources. Those sources said Woodbine repeatedly refused to turn over the information, citing privacy, even though Woodbine’s slots agreement states the OLG has the right to see its books.

Willmot said that in early 2012, he and Godfrey had a private meeting in Toronto. The horseman said he had two folded sheets of paper in his jacket pocket with the salaries of Woodbine’s top executives on it. Willmot said he offered to show it to Godfrey on the condition the information remained secret. Godfrey refused to keep it confidential. Willmot said he did not turn over the information.

Godfrey would not agree to be interviewed for this story. But two sources with knowledge of that meeting confirmed Willmot’s version of it. That salary information was eventually disclosed to auditors.

For some facilities, it was easy to see that money was generously spent to beautify the grounds for customers and horse people. Woodbine Entertainment, for instance, did extensive renovations and rebuilding at both Woodbine and Mohawk racetracks. Grand River Raceway in Elora is a well-groomed facility too.

But not every track was as busy with paint, hammers and nails.

Peterborough-area track Kawartha Downs received about $6.5 million annually from the old slots agreement (with another $6.5 million for purses). On a trip to Kawartha Downs this summer, the Star saw empty buckets placed on grandstand seating. Horse people said the roof leaked and the buckets were there to catch the rain. Some horse people also complained about the smell of the barn water.

“I would never give my horse that water to drink, it stinks really bad — my horses won’t drink it,” said Cobourg’s Ronda Markle, an owner, trainer and breeder who has raced standardbreds at Kawartha Downs for 18 years.

“We bring our own water.”

The track’s owner, Harvey “Skip” Ambrose, confirmed buckets were used to keep grandstand areas dry until roof repairs could be made this summer to the 42-year-old building. He also said barn water is tested regularly, many people give it to their horses and that he was “disappointed” about niggling complaints when “all of us are devastated” at the state of the industry.

While there has been little disclosure of how slots money was spent, the Star found that several investment decisions by Woodbine — all publicly accessible — were not questioned by government until OLG began its probe in 2010. For instance:

Woodbine spent about $4 million a year since 2000 in a company-wide profit sharing plan. Those payments were noted on a federal document called a Corporate Social Responsibility Report. The profit sharing plan ended permanently after the Deloitte audit. Millions were invested in the Woodbine Live! project, a 2006 proposal to develop surrounding track land and provide thousands of jobs. This year, Woodbine Entertainment’s U.S. partner walked away with an undisclosed settlement, there’s not even a shovel in the ground and $120 million in City of Toronto tax incentives is set to expire in 2014.



Mary Ormsby can be reached at 416-716-0110 and mormsby@thestar.ca

Correction - October 29, 2013: This article was edited from a previous version that included incorrect information about Woodbine Entertainment Group's purchase of Hastings Racecourse in Vancouver. See correction .

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