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March-29-2007,
The Ontario Government is Clueless...By Hartley Henderson

Last fall the CBC TV show, "The Fifth Estate", profiled an elderly gentleman Bob Edmonds who was involved in a long dispute with Ontario Lottery and Gaming regarding a winning lottery ticket. In 2001, Edmonds purchased a Super 7 lottery ticket from a variety store in Fenelon Falls, Ontario and also paid an extra dollar for the additional game called Encore. When he went back to the convenience store to check his tickets, the clerk (Phyliss LaPlante) told him he had won a free ticket although Edmonds was sure he heard two chimes from the machine which would represent 2 separate wins. Later that month, the LaPlante's asked Edmonds for copies of any old lottery tickets he had lying around with those same numbers, and also asked him for details on how he picked the numbers. The man seemed confused but provided the information to the convenience store owners. The following month, the LaPlantes went to the Ontario Lottery and Gaming's (OLG) main office, and claimed the $250,000 prize for themselves. Edmond's realized he had been defrauded by the LaPlantes and went to the police with the info. After investigating both parties, the police told OLG that they believed Edmonds was the real owner of the ticket. OLG staff thanked the police for the info and then shelved the report. Edmonds sued OLG as being an accessory to the fraud, which convinced the Organization to conduct an internal investigation.

The OLG concluded that Edmonds was likely the real owner of the ticket, but decided it was not their responsibility to identify the "real" ticket winner. They felt their only duty was to pay out the prize to the person with the ticket in their possession; how the ticket got to the claimant wasn't their concern. The case went to court and lasted almost 4 years (in the CBC report Edmond's lawyers stated he was in poor health and the OLG was hoping by prolonging the case he might die before a settlement was necessary), but the judge argued that OLG was responsible for ensuring the integrity of their ticket agents. He ruled for Edmonds and OLG settled out of court with the proviso that Edmonds not speak to the media about the case. It was later revealed that they paid Edmonds $200,000 and court costs, and also that OLG spent over $600,000 fighting the 1/4 million dollar payout.

While this represented one case, the CBC looked into the history of wins by lottery retailers and determined that in the last 7 years there were 267 lottery retailers that won prizes of at least $50,000 with total payouts over $100 million. Winnings of that magnitude were statistically abnormal and indicated vast fraud by the retailers. An independent statistician determined the odds of retailers winning that much by chance were "one in one trillion, trillion, trillion, trillion." Consequently, following the airing of the story, the Ontario Ombudsman, Paul Marin, received over 400 calls from citizens claiming similar circumstances to those of Edmonds, which convinced Marin to launch an inquiry into the issue. On Monday, Marin released his report. He declared that OLG was an incompetent group that turned a blind eye to allegations of corruption and were only concerned about profit and not public interest. He stated that the OLG was too cozy with retailers and instructed them of how to respond to customers who cried foul. He also indicated that on scratch and win tickets, many retailers "pin pricked" the tickets in strategic places to determine which tickets were winners and then kept the winning tickets for themselves while selling the losers. Marin suggested that the whole system is flawed and issued a series of recommendations with the main conclusion being that the Lottery Corporation shouldn't be both the owner and regulator of lotteries in Ontario. Two of OLG's head managers were let go, and on Tuesday the Ontario government announced that it was putting a different ministry, the Alcohol and Gaming Commission of Ontario (AGCO), in charge of regulating all lottery sales in the province.

While the news may appear better for consumers, it really doesn't solve the problem. Passing off the regulation of tickets (which includes the Sport Select lottery) to another government bureaucracy will not resolve the issue. The AGCO is mandated to regulate the sale and consumption of alcohol in Ontario, and also to ensure that all gambling at casinos is run in the public interest. The AGCO is not without fault and scandal of its own, but more importantly they still are a quasi government agency that is paid by the public purse. Hence you have one government agency that is overseeing another government agency and the public is still left hoping that they know what they are doing. Ontario has had charity casinos and charity lotteries both of which have been run much smoother than the current OLG casinos and lotteries.

Granted, the charity lotteries and casinos are run on a much smaller scale, but the fact is there have been no scandals with them. For that matter, even free contests like Tim Horton's roll up the rim to win are run more efficiently than OLG run games. The charities hire management teams that know how to properly run the lotteries and casinos, and in turn they take a percentage of the profits for the charity. Most charity lotteries are run for health care facilities, research organizations and amateur sporting agencies and ironically when starting up the lotteries in the late 1970s (Wintario), the Ontario government stated it was good for the province's citizens because it provided resources to fund health care, research and amateur sports. There are allegations that very little of the money from Ontario lotteries goes to those purposes and actually just goes to general revenue, but that's another issue altogether.

Following the release of the ombudsman's report, the OLC issued a lame public apology and promised to do better. The opposition parties in Ontario are calling for the resignation of the minister in charge of the OLG, although in reality the lottery was just as corrupt and incompetent when those parties were in power. And yesterday a lawyer issued a billion dollar class action lawsuit against OLG on behalf of anyone that bought lottery tickets since 1975. It's all showy politics, but it doesn't change the real problem - the government should not be in the gambling business. The government's purpose throughout history in all jurisdictions has been to protect the interests of its citizens and the lottery is not in the public interest. The citizens that lose the most in lotteries are those that can least afford it. Yet the government encourages the poor in the province through advertising to participate in the lottery---that the lottery may be their only chance to financial freedom. So instead of buying a loaf of bread or bag of milk for their family, many poor people buy a lotto 649 ticket instead, despite the fact that a person has a better chance of being hit by lightning twice than winning a major prize in the big lotteries. The government somehow believes they are good businessmen, but the truth is that study after study has shown all government businesses including the sale of alcohol and gambling would be much more profitable if it was run privately.

As such, the government should get out of the gambling business and turn it over to companies that are competent in the area of gambling and will ensure that profits are maximized and that the games are not compromised. This can be done in 3 steps. First, the government should stop selling lottery tickets at every convenience store and instead set up licensed establishments that are routinely checked and are seen to be above board. This would not only stop the shady convenience store owners who put a losing ticket through the machine and tell a customer they lost while keeping the winning ticket for themselves, but it will also make it easier to stop underage betting. While the minimum age to bet is 18, it is clear that minors are playing the lottery without concern. As well, the stores can be strategically placed so that in the extremely poor areas of town there will be no establishments selling the tickets. This will help stop the welfare parent from trying to "feel the freedom" instead of buying milk for their child on the spur of the moment. If they have to travel to purchase the tickets they may have second thoughts.

The second step would be to turn over the ownership of all games to private companies who in turn can run it like a business. They can still offer traditional lotteries to the public while maintaining or even increasing payouts for the purposes government said they were designed to do - i.e. health care, research and amateur sport, and at the same time they can offer games with higher returns and higher stakes whose profits can be split between the "owners" of the games and the government for it's general revenues. Included in this can be a sports select type lottery, but one where the odds are pari-mutuel and change according to the amount bet. Woodbine Entertainment would be an ideal company to actually take ownership of the products as they have the model in place and have been very successful revitalizing horse racing in the country. Their share of the funds would also help rejuvenate the horse industry in Canada, which in turn would help the governments in terms of tourism. In jurisdictions where Woodbine Entertainment does not exist, other horse racing agencies can run those lotteries. It should be noted that while the OLG is the agency that has been reprimanded, lottery irregularities have been found in all provinces in Canada.

Finally, the Ontario government, along with other provincial governments, should ask the federal government to repeal the law that prohibits single game betting on sports. When repealing the federal law banning betting on dice games in 1999, the federal government indicated they would be willing to revisit any gambling law if the provinces ask them to. Sports betting should be legalized and turned over to companies that can run businesses both in land and mortar buildings and online. Britain does precisely that with licenses for William Hill, Ladbrokes, Betfair, Stan James, etc., and the government reaps a vast amount of money from them just through taxes. The revenue is guaranteed and the companies assume all the risk. Furthermore, because their existence is at stake, they ensure that any rules are followed to a tee and that all bets are fair and in the bettor's interest. More importantly, the sports bets will be handled by companies that know what they are doing. Sports Select should be far more profitable than it is, but the truth is that the government "oddsmakers" are useless and put up odds that are always off by quite a bit and smart bettors win handily on it. In fact, this year the government dropped betting on golf and auto racing because they couldn't make enough on it to make it viable. That's quite a sad statement for a game that requires a minimum 3 team parlay on 80 cent lines. To appease the horse racing agencies, it can be agreed these sportsbooks can not offer betting on horses.

This is where the government can get involved to feel they are not left out of the process other than taxing the businesses and taking other fees. Clearly, if the government is not the owner of the lotteries or sports betting, then someone has to regulate it to ensure that the businesses are operating in accordance with set rules. The AGCO would be the ideal agency to be the regulators. They can determine who can set up a business, what resources are necessary, what auditing procedures should be undertaken, etc. And because they are "the police" over the private businesses that own the gambling, it would work well. In the stock market a government agency oversees the trading of public companies, and for the most part it works as it should.

If the government took these steps, all Canadians would be better off. As it stands now, just shifting regulation from one government bureaucracy to another will solve nothing.

03-29-2007
Hartley Henderson
MajorWager.com
henderson@majorwager.com



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