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Rising profits in gambling industry help bankroll social services in B.C.

Great Canadian Gaming’s earnings in B.C. are being fuelled in large part by wealthy Asian visitors
Chuck Keeling, Great Canadian Gaming executive director of stakeholder relations: accounting quirks can make his company’s year-over-year profitability appear volatile

The good news for B.C. taxpayers is that the earnings from one of the province’s most profitable companies help pay for health care, education and community arts programs.

Last year’s entire $1.2 billion profit from the British Columbia Lottery Corp. (BCLC), which ranks as B.C.’s third most profitable company on Business in Vancouver’s list of top 100 most profitable companies, went to the provincial government.

Some of that profit comes from Great Canadian Gaming Corp. (TSX:GC), the province’s largest casino operator and B.C.’s 26th most profitable company.

BCLC is linked into Great Canadian databases so its staff can see Great Canadian’s casino winnings as they accrue. The Crown corporation then takes roughly two-thirds of Great Canadian’s winnings as BCLC revenue.

Much of Great Canadian’s revenue and profit is generated in B.C., given that nine of its 17 properties are in the province, including its biggest venue, Richmond’s River Rock Casino.

Gaming authorities in other provinces similarly take a slice of Great Canadian’s winnings in their jurisdictions. All of that is done before Great Canadian counts the money as revenue or watches it trickle down to become profit.

Despite the grasping hands of governments, Great Canadian posted a $63.1 million profit in 2013 after suffering a $27.6 million loss the previous year.

Most of that huge swing can be explained by accounting quirks.

Great Canadian booked a $64.3 million writedown that hit its 2012 profit because the Ontario Lottery and Gaming Corp. (OLG) cancelled its slot-machine revenue agreement with Great Canadian. Without taking that hit, Great Canadian would have recorded a $36.7 million profit in 2012, said Chuck Keeling, Great Canadian’s executive director of stakeholder relations.

The OLG reached a new agreement with Great Canadian in 2013, which partly reversed the previous year’s hit to Great Canadian’s bottom line.

Keeling said without that reversal Great Canadian’s 2013 profit would have been only $34.6 million.

So far this year, Great Canadian profits have grown, thanks in part to wealthy Asian visitors, Great Canadian CEO Rod Baker told analysts in August on his company’s most recent earnings conference call.

“Vancouver continues to be an important place for our Asian demographic to either live or have families or invest.”

Baker added that many of River Rock Casino’s guests are visitors who also frequent Las Vegas and Macau, where casinos combine to generate “$40 billion” annually – virtually all from table gaming in so-called VIP rooms.

In contrast, Baker said River Rock generates between $200 million and $300 million annually in table gaming.

“One could view this as literally an absolute little pimple on the size of the opportunity here.”

But aspirations to court more wealthy Asian investors don’t sit well with gambling critics.

Sandy Garossino, spokeswoman for the lobby group Vancouver Not Vegas, rhetorically asked Business in Vancouver why wealthy Asian visitors would come all the way to Vancouver to gamble money and then head home when there are other destinations much more established and known for their gambling facilities.

“It’s called money laundering,” she said. “Look at the Macau business model. Every major casino in Macau is dependent on triads and organized crime that launder money from China through visitors to its VIP rooms. This connection is so concerning that New Jersey regulators in 2010 directed MGM to sell its interest in Atlantic City, though an accommodation was finally reached in September."

Garossino also argued that gambling income is essentially a regressive tax because Statistics Canada data shows that, as a percentage of household income, money spent on gambling is three times higher in low-income households than in top-earning households in Canada.

One thing both sides agree on is that without gambling, either provincial taxes or the provincial debt would be much higher.