Since 1997, the B.C. Lottery Corporation has paid out more than $400 million in gambling revenues to B.C. casino operators so that they can recoup their capital costs.
The payments, called facility development commissions, or FDCs, constitute three per cent of the casinos’ "net win" — the revenue remaining after prizes have been paid out.
The FDCs, BCLC spokesmen say, are then remitted to the casino operators based on each casino’s profitability.
All 17 casinos in B.C. have received FDCs.
The BCLC and the provincial government consider the payments as performance commissions that, to use the BCLC’s terminology, have to be "earned" by the casino operators.
In this way, according to the BCLC, casino operators are encouraged to build high-quality facilities.
Any way they are viewed, however, FDCs are symptomatic of a provincial government dependent on gambling revenues, and of its interest in seeing those revenues increase.
The FDCs, and payments introduced under the Liberal government in 2006 called Accelerated Facility Development Commissions (AFDCs), have gone toward paying down a significant portion of casinos’ capital costs.
Since 1997, B.C. casinos have spent a total of $960 million on capital costs.
The $400 million in FDCs and AFDCs paid out so far (the exact figure is $400,101,352.55) constitutes 42 per cent of all capital costs for casinos in the province.
And since FDCs and AFDCs are based on a percentage of the revenue generated by casinos, and since that revenue has increased dramatically in the last decade, the amounts of FDCs and AFDCs "earned" annually have grown proportionately.
According to figures supplied by the BCLC, in 2001-02, casino operators received $16.5 million in FDCs.
In 2009-10, they received $40 million.
Why is the BCLC, and by extension the provincial government, involved in defraying the capital costs of private casino operators?
Rich Coleman, minister for gaming, declined, through his public affairs office, to be interviewed on the subject, saying he was unavailable for comment.
And BCLC president and CEO Michael Graydon’s response to an interview request was a single email, in which he wrote:
"In 1997 the provincial government included Facility Development Commission as part of the compensation in the request for proposals for new casinos. The purpose was to build incentive for quality facilities into the compensation model, rather than, for instance, a higher straight commission structure. And this [FDC] compensation has to be earned based on net win generated by those facilities.
"The result 14 years later is impressive. British Columbia has high quality, uniquely designed casinos that are competing successfully for both domestic and international visitors."
Thus, Graydon’s email suggests, rather than give the casino operators a higher cut of the profits from the outset, the BCLC puts a percentage of the gross revenue into a fund and remits those funds back to casino operators to ensure a better product.
A better product, so goes the logic, attracts more gamblers.
More gamblers equals more revenue.
But the question has to be asked: In a local gambling industry where the profit margins are in the range of 40 per cent, who should be responsible for a better product?
The government or the casino operators themselves?
And should a government be actively involved in trying to attract more gamblers, the majority of which are its own constituents?
NDP MLA Shane Simpson, the party’s gaming critic, discounted the BCLC’s argument for FDCs and AFDCs.
"The argument we’re going to see from BCLC, the casinos and the government is, ‘These are casino revenues we are holding for them, and we are giving it back to them for improvements.’"
Simpson sees it differently.
"I see [the commissions] as government revenue," he said. "This is a lucrative subsidy to the gambling industry by government. A subsidy that has been done in secret and, arguably, at the expense of other programs and service that benefit the general public. It is hard for me to believe this is the public’s priority," he said.
"There are serious issues here about the secrecy of this government and BCLC, and how they’re conducting themselves."
Well, the commissions are not exactly secret. They were, after all, introduced in 1997 while the NDP were in power. And FDCs are referred to in the BCLC’s annual reports.
But Simpson’s criticism of government priorities is germane. While the amount of FDC dollars the casino operators "earn" has increased dramatically in the last decade, and casinos have returned more than a billion dollars annually to provincial government coffers for the last four years, gambling grants to charities and non-profits have steadily decreased to the point that they are now below funding levels in the 1990s.
Fundraising for charities and non-profits was, after all, the original impetus for allowing gambling in B.C. Yet those charities and non-profits not only get less money, they have no control over how gambling grants are dispersed.
Meanwhile, under the Liberals, the commission system has grown.
While FDCs, which are funded by three per cent of a casino’s net win and are paid out weekly, have been in existence since 1997, AFDCs were created in 2006 to meet the increased costs of construction.
Unl ike FDCs, however , AFDCs, which are funded by two per cent of a casino’s net win, are a one-shot deal that a casino can apply for only once.
"AFDC," wrote BCLC spokesman Seumas Gordon in an email to The Sun, "was put in place in 2006 due to significant increase in the cost of construction combined with the demand for higher quality facilities and amenities. BCLC recognized that the level of investment required by service providers was significant and initiated the AFDC."
Exactly how much each casino has received in FDCs and AFDCs since 1997 was, Gordon wrote, a "breakdown of financial data [that] will take some more time to pull together."
The Sun never did get that breakdown after several requests over a two-week period. But Gordon did provide by email a list, albeit vague in the extreme, of the use to which each casino put its FDCs and/ or AFDCs. They are, verbatim:
– Boulevard Casino -casino and show theatre development. [The theatre would be the Red Robinson Show Theatre.]
– Cascades Casino -casino development and parkade.
– Fraser Downs -casino development.
– Grand Villa -development of casino, hotel and convention space.
– Hastings -development of slot area/facility.
– Vernon -development and subsequent redevelopment/ relocation of casino.
– River Rock -development of casino, show lounge and parking.
– Starlight -redevelopment of casino.
– Edgewater -development of casino.
– Treasure Cove -development of casino.
– View Royal -development of casino and parking.
– Penticton -development of casino.
– Kamloops -development of casino.
– Kelowna -development of casino.
– Billy Barker [Quesnel] – development of casino.
– Casino of the Rockies [Cranbrook] -development of casino.
– Nanaimo -development of casino.
The eligibility requirements for FDCs and AFDCs are broad, to say the least. Wrote Gordon:
"Gaming facility construction or enhancement costs are eligible expenditures for FDC throughout the life of the service provider’s contract with BCLC." (Emphasis mine.)
"Redevelopment costs associated with relocating a casino have been FDC/AFDC-eligible for a number of casino projects -but are always subject to the approval process.
"Items such as parkades may apply if they relate to providing parking for gaming-facility patrons. Theatres may be eligible if BCLC determines they enhance the gaming experience and gaming demand."
Other eligible expenses could include the hiring of architects and construction professionals, municipal development cost charges, facility relocation and gambling-facility construction costs, and the cost of infrastructure improvements such as washrooms, heating and air-conditioning systems and generators.
And what of the proposed new $450-million Edgewater casino to be built adjacent to the re-roofed BC Stadium?
Would it be eligible to receive FDCs and AFDCs?
Yes, Gordon replied by email, it would, though the casino operator had not yet applied for an FDC or AFDC.
Asked if the construction of the twin luxury hotels proposed for the new Edgewater casino would be eligible for FDCs or AFDCs, Gordon replied that hotels "are not generally considered an eligible expenditure for purposes of earning FDC or AFDC."
In the list the BCLC provided above, however, Burnaby’s Grand Villa casino was noted as having received commissions for "hotel and convention space."
pmcmartin@vancouversun.com
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