Casino Niagara
RFP

Navegante Responded To The Following RFP And Was Awarded The Contract

September 1996

The emerging casino strategy in Ontario

The Ontario government is moving decisively on casino development. Recently announced initiatives, particularly the Niagara Falls Casino/Gateway Project, offer promising long-term opportunities for developers, gaming operators, entertainment companies and others with interest in the commercial and charitable casino fields.

Legal framework

• The federal Criminal Code stipulates that only provincial governments may operate or license and regulate forms of gambling such as lotteries, bingo and certain casino games. The Ontario Casino Corporation (OCC) was established in December 1993 by the Ontario Casino Corporation Act, 1993 to conduct and manage commercial casinos. Subsequently, in February 1994, the Ontario Gaming Control Commission (OGCC) was created under the Gaming Control Act to regulate both commercial and charitable casinos. The Ontario Lottery Corporation (OLC) was established by the Ontario Lottery Corporation Act, R.S.O. 1990 c. O.25, to develop, undertake, organize, conduct and manage lottery schemes on behalf of the province.

Commercial casino development

• In May 1994, the OCC opened Casino Windsor in an interim facility under an operating agreement with Windsor Casino Limited, a consortium of Caesars World Inc., Circus Circus Enterprises Inc. and Hilton Hotels Corporation. A second interim casino, the Northern Belle riverboat, was opened in Windsor in December 1995. Gross revenues for Casino Windsor and the Northern Belle for the current fiscal year are estimated at $720 million. Both interim Windsor casinos are scheduled to close when the permanent Windsor Casino Complex, now under construction, is opened some time next year.
  
• A third commercial casino, the Rama Casino, opened on July 31, 1996 on the Chippewas of Rama First Nation lands near Orillia, Ontario, and is operated on behalf of the OCC by a subsidiary of CHC International, Inc., part of the U.S.-based Carnival group.
  
• In November 1995, the government approved the development of a casino in the City of Niagara Falls and announced that further commercial casino development beyond Windsor, Rama and Niagara Falls will not be considered until a province-wide referendum has been held.
  
• On April 15, 1996, the Minister of Economic Development, Trade and Tourism identified Maple Leaf Village as the site for an interim casino in Niagara Falls. This site is now under development and in December 1996, the OCC will open Casino Niagara as an interim facility, to be operated by the Navegante Group. It will have 96,000 square feet of gaming space, an off-track betting teletheatre, dining, bar and lounge facilities and some retail operations.
  
• Finally, and most significantly, on September 12, 1996, the OCC issued a Request for Proposals (RFP) for the permanent casino at Niagara Falls, known as the Niagara Falls Casino/Gateway Project. The permanent casino complex in Niagara is the most ambitious undertaking so far announced. Building on the Niagara Gateway Project established in the summer of 1994, it is seen as a major component in the Ontario governments effort to establish the Niagara Region as a gateway to Ontario and a world-class holiday destination. Knowledge-able analysts estimate that the development costs will be well in excess of $500 million.

Key features of the Niagara Falls Casino/Gateway Project RFP

• The RFP contemplates a Casino Complex--a mix of amenities in addition to the casino--including a hotel with convention facilities, dining establishments, bars and lounges, as well as entertainment, recreation and retail operations.
  
• The Casino Complex must be situated in the City of Niagara Falls on one of 10 specific properties identified in an appendix to the RFP. These properties were selected pursuant to a Request for Offers issued by the OCC in June 1996. The owners of the selected properties have all made binding offers to sell or lease them to the successful proponent. Details of the properties, including the terms of sale and/or lease, are available to registered proponents from the OCC.
  
• Ancillary facilities, or what the RFP refers to as the "Tourist Attractors", may be located on the same site as the Casino Complex, on one of the other sites identified in an appendix to the RFP, or on any other site or sites selected by the proponent, either in the City of Niagara Falls or elsewhere in the Niagara Region.
  
• Unlike earlier casino RFPs, the Niagara document is not prescriptive (for example, it contains no restrictions on the size, scope or composition of the project). Proponents may finance, construct and own the Tourist Attractors, enter into joint ventures with other organizations or submit other models for construction and ownership.
  
• Similarly, proponents are provided with flexibility in designing their proposal for allocation of revenues. The successful proponent will be entitled to "a fair return on its investment", together with a fee for the operation of the casino complex. The return on investment and fee will be subject to negotiations in the context of the total benefits in tourism, economic development, employment and revenues that flow from the proponent's proposal.
  
• Flexibility as to revenue allocation is subject to the government's stipulation that it will receive a "win tax" of 20 percent of the gross revenues of the gaming business. Net revenues (for example, gross revenues less the win tax and less operating expenses and the operator's fee), will accrue to the OCC for the government of Ontario. "Operating expenses" will include staff salaries, gaming equipment, capital renewals, payment of principal and interest for any third-party financing, payment of applicable taxes, a charge for policing and/or other regulatory purposes and the return on the proponent's investment.
  
• Proponents must make a direct investment in the Casino Complex of at least 25 percent of its overall cost.
  
• The successful proponent will enter into an operating agreement with the OCC for the Casino Complex portion of the project. The term of the operating agreement will be between 10 and 25 years, depending on the size of the investment and the scope of the overall development.
  
• Proposals will be evaluated against certain broad criteria:
  • Concept (design, innovation, creativity, feasibility, compatible with the Region and how other attractions/products in the Region will be showcased);
  • Economic Development (direct and indirect employment, effect on tourism expansion, etc.);
  • Financial (nature of financing arrangements, financial strength of the proponent, financial projections over the first 10 years of the project, etc.);
  • Business Plans (development proposal for the project, including use of human resources, marketing, etc.); and
  • Management Expertise (experience and track record of proponent; credentials of individuals assigned to the project, etc.).
• A Selection Committee, composed of two Assistant Deputy Ministers with tourism and finance/administration experience, a tourism expert and two members of the OCC board of directors with legal and business experience, will evaluate proposals in light of the above criteria and select the one that best meets the project's objectives. A Review Panel of four deputy ministers will be established to ensure that the selection process is fair, unbiased and based on the best available expert advice.
  
• The tentative timetable for the selection process, following the release of the RFP on September 12, 1996, is as follows:
  

• Proponents wishing to register must pay $3,000 to the OCC prior to 6:30 p.m. on October 3, 1996. Such payment entitles registered proponents to attend the Information Session on October 9, 1996, to submit questions in writing to the OCC and to obtain other relevant information, including site information and answers to questions asked by other registered proponents.

• Thereafter, if a proponent wishes to submit a proposal, such proposal must be accompanied by a submittal fee in the amount of $300,000 by certified cheque payable to the OCC, on or before 6:00 p.m., March 13, 1997, along with the full written submission. Proponents who are not short-listed (if a short list is created) will have 75 percent of their submittal fee returned, without interest. Otherwise (for example, if there is no short list or where short-listed proponents are unsuccessful), 50 percent of the submittal fee will be refunded, without interest. Submittal fees for the successful proponent will be non-refundable.
  
• Particular note should be taken that proponents may be disqualified if they or any of their employees, agents, contractors or representatives contact any of the following persons with respect to the RFP issued on September 12:
  
  • any member of the Selection Committee;
    
  • any member of the Review Panel;
    
  • any experts or other advisors assisting the Selection Committee;
    
  • any member of Cabinet or their staff;
    
  • any member of the Ontario Public Service; or
    
  • any member of the Board of Directors or advisers to the OCC.
    

The RFP contains many more important details relating to disclosure requirements, the negotiation process following the selection of a preferred proponent and other matters. McCarthy Tétrault can provide copies of the RFP and would be pleased to assist any interested proponent in its analysis of the RFP's requirements and in the preparation of any proposal, including advice on the formation of a bid consortium, financing, tax matters, property issues and the procedures to be followed throughout the bid process.

We have followed the Niagara Falls Casino/Gateway Project planning process since its inception. In scope and magnitude, this is one of the most important economic development projects undertaken in the history of the province. It will continue to attract global attention. Because of our knowledge of the origin and goals of the project, the financial and business requirements, the relevant architectural and property issues and our familiarity with the governmental structure, processes and requirements, we believe that we have a unique contribution to make to persons considering responding to the exciting opportunities and challenges described in the Niagara Falls Casino/Gateway Project.

Charitable casinos

In his May budget, Finance Minister Eves dealt extensively with charitable casinos and video lottery terminals (VLTs). Highlights included the following:

• The government will replace the current three-day roving charity events with permanent charity event sites, expected to yield up to $80 million in extra revenue for Ontario's local and community charities each year.
• Operators for the permanent charity casinos will be selected through an open competitive process.
• The OLC will be responsible for the operation and management of a limited number of VLTs at charitable casinos, race tracks and other selected locations across the province. The OGCC will oversee and control VLT gaming activity.
• Two percent of total terminal revenues will be set aside to establish a comprehensive problem gambling strategy that will include public awareness, prevention, treatment and research.
• At the initial stage, VLTs will be located only at permanent charity event sites and at race tracks, where they can be closely monitored and will complement other existing gaming activities. Once an acceptable implementation plan is developed and tested, the VLT network can be expanded to the hospitality industry (including liquor-licensed establishments).

As to the division of revenues from VLTs, the picture remains somewhat unclear. The Minister of Finance announced that the host site will receive 10 percent of total terminal revenues and that a further 10 percent will be provided to charitable organizations. While the implication is that 80 percent of VLT revenues will go to the OLC for remission to the province's Consolidated Revenue Fund, there appear to be continuing discussions within the government on this issue.

On June 13, 1996, Bill 75 ("an Act to regulate alcohol and gaming in the public interest, to fund charities through the responsible management of video lotteries and to amend certain statutes relating to liquor and gaming") was given first reading in the Ontario Legislature, and on June 22, 1996, the Bill received second reading and was referred to Committee.

The Bill defines "video lottery" as "a lottery scheme conducted and managed by the Ontario Lottery Corporation and operated on or through a video lottery terminal", and "video lottery terminal" as "a machine or device that allows a person to play a lottery scheme upon payment of money where that play may result in the receipt of a credit that can be redeemed for further play or money".

The Bill provides that no person in control of premises where there are VLTs may permit persons under 19 years of age to play or have access to VLTs. It also amends the Gaming Control Act, 1992 to provide that persons supplying goods or services for video lotteries must be registered as suppliers by the OGCC.

From a practical point of view, the most significant provision of Bill 75 is section 8.3, which gives the Lieutenant-Governor-in-Council the right to direct the OLC to pay part or all of the proceeds from video lotteries in such manner as the Lieutenant-Governor-in-Council may direct. This is a critical amendment in relation to the effective use of VLTs in charitable casinos. Without it, section 9 of the existing Lottery Corporation Act limits the distribution of proceeds to those engaged in activities related to cultural activities, physical fitness, sports and recreational matters, activities related to the protection of the environment and activities sponsored by the Ontario Trillium Foundation.

Accordingly, while VLTs could be installed in charitable casinos by the OLC under existing law, unless the expanded dedication provision of Bill 75 is enacted, many operating charities could not benefit from their use. Accordingly, the failure to enact Bill 75 would effectively frustrate the installation of VLTs in many if not most charitable casinos.

The Legislative Committee considering the Bill in clause-by-clause debate was unable to complete its consideration of the Bill this summer, principally because of the prolonged opposition of one Committee member to the introduction of VLTs. At the time of writing, the fate of the Bill is uncertain. However, assuming its passage, the path will be cleared for the establishment of up to 50 permanent charitable casinos across the province.

We are advised that the government is currently considering a number of important issues relating to the setting up of charitable casinos including:

• The number of facilities. The May budget documents refer to up to 50 facilities. It now seems likely that fewer than 50 will be approved, perhaps 35.
• The process of selection. It appears virtually certain that there will be publicly advertised RFPs.
• Timing. Since the May budget figures anticipate some financial return from charitable casinos in the current fiscal year, it is assumed that the RFPs will be published soon after the enactment of Bill 75 and that the period for a response will be relatively short, perhaps 30 days.
• The number of facilities permitted for individual operators. It seems likely that proponent operators will be permitted to operate more than one facility but that there will be a limitation on the number of sites allocated to a single operator, possibly expressed as a percentage of the authorized facilities across the province.
• The gaming facilities in the permanent sites. Although no public announcement has been made, sites will almost certainly have a combination of gambling tables and VLTs. Presumably the size of the establishment, and the number of tables and terminals, will vary according to population and customer density. Mention has been made of approximately 40 tables and 100 or more VLTs per site.
• Regional distribution. This too will likely depend on population and potential customer concentration. It is thought that approximately one-half of the approved charitable casinos will be in the Greater Toronto Area, with the rest located across the province in accordance with anticipated market demand.

We are advised that all of the above matters are still under consideration by Cabinet. In the meantime, those interested in making application to the OGCC for licenses to operate charitable casinos should be prepared to respond promptly to RFPs on the assumption that outstanding issues, including the passage of Bill 75, will be dealt with by the government expeditiously. Obviously, the incentive to apply for a charitable casino operator's license will depend, to some considerable extent, on the government's final position on the division of revenues.

McCarthy Tétrault is monitoring the situation closely and, in the absence of any conflict of interest, is prepared to assist those wishing to give consideration to applying for a license to operate charitable casinos in Ontario.

This commentary was written byTim Armstrong and Michael Crochan, both members of the Business Law Group in Toronto, and by Craig Shepherd, Student-at-Law.