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Mature products, flattening profits and increased competition from cyberspace have pushed the Atlantic Lottery Corporation to quietly seek out new opportunities – they just aren’t very keen to discuss them
The Atlantic Lottery Corporation says its players have been “dreaming big” since 1976. That’s when ALC began offering lottery games on behalf of the governments of Nova Scotia, New Brunswick, Newfoundland and Labrador and Prince Edward Island.
Fast forward 35 years, and ALC seems to be dreaming big itself. The corporation is working to expand its suite of games both beyond the geographic confines of Atlantic Canada, and into the brave new world of cyberspace.
That quiet, behind-the-scenes search appears to be a major shift in philosophy for the corporation, which until now has been focused on offering gambling options to the two-plus million people living east of Edmundston and west of St. John’s.
The broader focus has led ALC to some surprising places.
Last year, the Illinois government announced plans to outsource the management of its state lottery. ALC met with officials there, but ultimately decided not to pursue that business opportunity.
And ALC is also eyeing the possibility of running the national lottery in the eastern European country of Albania. Albania, while now seeking EU membership, is among the poorest countries in Europe and has a checkered history that includes a near-civil war in 1997 dubbed the “Lottery Uprising.”
To date, the new focus on external opportunities has seen ALC ink one deal, with a U.K. company that offers a web-based lottery game.
The corporation has also spent millions on the pursuit of online casino gaming that its shareholders — the four Atlantic governments — have yet to sign onto.
The overall strategy is not something ALC officials are keen to discuss. The corporation redacted the locations of those foreign business opportunities from documents released under freedom-of-information laws, and turned down requests to reconsider the decision. Atlantic Business Magazine independently confirmed ALC’s dealings with Albania and Illinois. When confronted with that information, ALC defended the initiatives. The corporation declined interview requests, offering only written responses to questions.
The stakes are big. ALC is a $1-billion-a-year business in Atlantic Canada. The corporation funnels all of its profits back to the four Atlantic governments, which can use them to do things like build hospitals, hire teachers and fix roads. But those profits have f lattened in recent years, and operating expenses have skyrocketed.
There has been little to no public discussion about ALC casting a wandering eye to opportunities outside the region. And there has been similarly little disclosure of exactly what the strategy entails — what the rewards are, and what the risks and costs may be, as a company that oversees gambling makes its own roll of the dice.
So why? Why would ALC look beyond Atlantic Canada’s borders?
The answer lies, in part, on the lottery corporation’s balance sheet. In recent years, ALC has funnelled between $371 million and $398 million in annual profits back to the four provincial governments. That’s big cash.
But those earnings have been flat — in fact, annual profits were down 5.8 per cent in 2010-11 compared to 2005-06.
Meanwhile, ALC’s operating expenses (before capital-related costs) are up sharply over the same time frame, jumping to $125.1 million from $78.3 million — an increase of 60 per cent. The corporation cites a number of factors for the jump, including costs associated with new lines of business, opening race track and casino operations in P.E.I., transition costs for outsourcing of IT services, increased pension costs due to market conditions, and increases in sponsorships and marketing.
In an interview last year, Newfoundland and Labrador Finance Minister Tom Marshall said ALC is projecting declining revenues from its current game offerings. That is not good news for governments whose thirst for revenues is never slaked.
