Why it’s so hard to get rid of VLTS

Government promised to phase out VLTS, but it also moved them around to make more money and updated them to make them more appealing. Part 2 of a six-part King’s Journalism investigation.

When the NDP government of Darrell Dexter introduced its gaming strategy in 2011, it appeared to follow the previous Conservative government’s policy of removing video lottery terminals from service whenever a site hosting them closed. The idea was, over time, to phase out the machines. The Conservative gaming strategy of 2005 had removed 200 VLTS by “attrition” in a relatively short time. But the NDP’S version, still policy today, took a full decade to pull 200 more from service leaving roughly 2,000 VLTS. At that pace, it would take 100 years to remove them all. (There are another 651 on First Nations that are exempt from attrition.)

One reason for the slow pace lies in the way the Nova Scotia Gaming Corporation has interpreted and implemented attrition.

King’s students obtained copies of internal policies that guide those decisions. They show that the closure of a business is defined narrowly and in many instances VLTS can cease operating in a location and be moved somewhere else.

For example, if an operator decides to simply get rid of VLTS, they are put in other locations rather than being retired under the attrition policy. A bar that closes and reopens under new

owners doesn’t qualify as closed under the policy either. These temporary closures can last months or even years, and if a closure isn’t considered permanent, the machines can be transferred to other bars in the meantime.

“The gaming strategy provides a pretty clear direction that a site that permanently closes, those VLTS must be removed; that part is very crystal clear,” said Bob Mackinnon, the gaming corporation’s president, in an interview. He said the attrition policies provide guidance about what it and the Atlantic Lottery Corporation should do in other situations. “If it’s not a permanent closure, what is it? And how do we deal with it?”

The policies, obtained through an access request to the gaming corporation, lay out a variety of scenarios not deemed to be permanent closures:

■ A business that shuts down and sells its assets to another company that establishes its own operation in the same place. Subject to approvals by Atlantic Lottery and for a liquor licence, the new operator can have VLTS. And if the new owner isn’t approved, the machines can go somewhere else;

■ A business moved some where else within five kilometres by the same or a new owner, again with a new owner having to be approved;

■ A business that closes for renovations, including total demolition, or that suffers a calamity such as a fire or flood, can close for up to a year, or longer when approved;

■ A business that shuts down while the owner searches for a buyer can remain closed for up to a year, or longer. This provision was added in a revision to the attrition policies in 2018.

“It is a normal course of business that businesses may evolve and change, such as a business may change ownership or a business may change location even, or a business may change its name,” said Mackinnon. “So there is a continuity for sites that continue to operate, just normal business continuity cycles.”

In one of the more revealing examples, the Canadiana Restaurant in the Bayers Lake business park was razed in 2018, to make way for a new hotel project. Its VLTS were removed and distributed to other locations. Today, a gleaming new tower has risen in its place and owner Peter Giannoulis is expecting VLTS will be back, in his new lounge.

“(Atlantic Lottery) looked at the place,” he said in a February interview. “We have a lounge there that’s available and we’ll put some VLTS in there.”

That scenario is within the Nova Scotia Gaming Corporation’s policies, which allow for extensions of the oneyear period for temporary closures if it is reasonable to expect the enterprise to resume operations. “We would have conversations with the site holder, the owner of the business, to understand what their plans are,” Mackinnon said, noting that the new hotel project in Bayers Lake was a large undertaking.

In the end, from 2011 to 2021, 209 VLTS in 45 locations were removed from the Atlantic Lottery system through attrition, according to figures provided by the gaming corporation. That’s an average of four VLT sites a year.

“So, we’ve absolutely had businesses reach out and say, ‘we’re shutting down, we’re not selling, we’re not renovating, we’re not moving. We’re shutting down.’ And that is a permanent closure,” Mackinnon said.

Because the NDP gaming strategy also continues with the longstanding moratorium on any new VLTS in Nova Scotia, this has resulted in a slow reduction in the total number of machines available.

But apparently because of exceptions to attrition, such as businesses exiting the VLT business voluntarily without closing and others closed “temporarily,” the number of locations that disappeared from lists of VLT outlets between early 2012 and the end of 2021 is about twice the number actually retired under the attrition policy. The rest of the VLTS spin on.

VLTS VALUABLE TO BUSINESSES

Because the gaming corporation allows businesses to shut down temporarily while they find buyers, the VLTS themselves can become a selling point, an additional revenue stream in a time when operating food and beverage premises can be a tough go. That, in turn, helps keep the VLTS going.

While the liquor licences or VLT operating certificates issued by the government can’t themselves be sold or traded, the business assets associated with them can. Once a deal is made, but before it closes, the liquor licence can be transferred so long as the new operator meets requirements, and the new owner can apply to the Atlantic Lottery Corporation to operate VLTS. Once approved, the government issues the required VLT operating certificate.

“Allowing changes of ownership of existing video lottery sites to continue enables existing owners to effectively transition out of their business while allowing the continuation of the business itself,” the internal attrition policies say.

King’s students talked to numerous business owners who had or previously had VLTS. And there was broad agreement that having them makes a business more enticing if it comes up for sale. And because the total number is capped, there’s demand for the ones that remain.

“The business itself is not attractive, but what people look for in these businesses, small businesses like that, are the liquor licence that comes with VLTS,” said Chris Fraser, who runs West Side Charlies in New Minas. “That’s the selling point of a small bar like mine.”

He said in a 2020 interview that he paid $10,000 a month for rent and power and VLTS make such a business viable. “It pretty much pays my wages or contributes to my power bill.”

Brian Smith of Tommy Gun’s Speakeasy in Windsor said when he bought the bar, getting the VLTS was essential to the deal. “I wouldn’t have bought it if they were not included … because it was a large part of the total overall revenue of the business.”

Most VLT locations that remain today are in the same place, with the same name, as in 2012.

But sometimes VLTS pass through multiple business names and owners. For example, in March 2010 there were 13 at the Oakmount Station Lounge on the Bedford Highway near Highway 102, according to a list supplied at the time by the Alcohol and Gaming Division.

The corporation that owned Oakmount changed hands in 2011 and the Split Crow Bedford arose in the same place. Then, in 2015, new owners reopened as Bubba Ray’s Bedford, before getting approval in 2017 to move to the Bedford Place Mall, down and across the street. Most recently, the new location changed hands again, and now operates as the Bedford Neighbourhood Pub. Ownership changed, but each operator has had VLTS.

The owner of the Bedford Neighbourhood Pub declined to be interviewed, but Brad Hartlin was the owner when it was Bubba Ray’s, which in early 2020 had three locations in Halifax, Bedford and Windsor. The Bubba Ray’s businesses, all with VLTS, were losing money and after trying everything they could to make them viable, including considering rebranding or downsizing, the owners were looking for buyers to recover some of their investment. They were able to find new owners for the Windsor and Bedford locations, and like the one in Bedford, the rebranded Windsor location continues with VLTS.

Food and beverage businesses frequently operate in rented premises, so the only physical property that they can sell may be equipment such as cooking grills or tables and chairs. There may also be some value for “goodwill,” such as an established base of customers. Used equipment is normally only worth a fraction of what it costs new, so having a liquor licence — which can be transferred to a new owner — and associated VLTS makes the package more attractive, Hartlin said in an interview.

“It’s part of an asset that has a value, that generates revenue, and people that are closing businesses, usually in that situation will do everything they can to get everything they can out of it, to help mitigate the losses they just incurred. Because if the business closed, then that, 99 per cent of the time, means the business failed and there’s losses that were incurred. So, why would you have an asset that you could get money for and just let it go?”

The gaming corporation, in its attrition policies, estimated that 20 to 25 VLT locations changed hands every year but spokeswoman Jillian Moore said in an email that number is dated and in the three years before COVID, the number changing hands annually was about six.

The third Bubba Rays that was for sale in 2020 didn’t sell, and that location in the Fairview neighbourhood of Halifax remains shuttered, with tables, chairs and equipment still sitting in the darkened space a couple of years later.

Hartlin said he wrote off the investment, and the landlord assumed the assets. But the gaming corporation said it doesn’t consider it closed “permanently.” So the machines can remain in the system.

“They originally provided intent to reopen,” gaming corporation spokesperson Jillian Moore said in an email. “The 12-month period given for temporary closures was extended due to the uncertain circumstances of COVID-19 on businesses. Atlantic Lottery expects a formal letter of intent to sell the business, which means the terminals are not subject to attrition at this time.”

Hartlin said some people overestimate the money to be made from VLTS. He said they bring in about $500 to $1,500 a month each for a business. For that, he said VLTS came with substantial expenses, such as rent for the space where they are located and power to run them. And he noted that there are limits on where VLTS can go because the required liquor licences are not permitted just anywhere.

The Fairview location was actually the second Bubba Ray’s to fail; a location on Spring Garden Road had closed earlier without finding a buyer.

VOLUTARY RELINQUISHMENT

Sometimes, owners decide to simply get out of the VLT part of the business. In those cases, VLTS are not retired and can be put in other bars.

“I know that when we decided to do it, when we finally made the decision, it was as simple as letting them know that we were finished with them,” said Richard Crombie, who was the manager of the former Rock Bottom brew pub on Spring Garden Road in Halifax.

After calling Atlantic Lottery, “they came in, they disassembled them and took them away, and as far as I know, they went to other bars.”

Crombie said he found it difficult to see customers losing money.

“I saw how much money people put into those machines, so I actually felt really bad being here and having them come to me (and) tell me their stories, give me their rolled quarters so that they could put $10 in the machine, or knowing that they were panhandling on the street just to make a dollar to put a dollar in the machine. It was hard to watch.”

According to numbers released by the gaming corporation, six commercial outlets voluntarily gave up 20 VLTS between 2010 and 2020. “The reason we don’t permanently remove those is that we adhere to the requirement of the site permanently closes,” Mackinnon said. “We remove those. Otherwise, we have guidelines that allow us to move the VLTS from one place to another.”

IT’S JUST POLICY

The gaming corporation’s long list of exclusions that allow the addictive machines to keep operating has kept many machines in circulation that would have been removed if the attrition policy been interpreted more strictly.

Because it is policy and not law, there’s more wriggle room.

“There’s regulation, there’s policy, and then there’s just this is what we do,” said Graham Steele, who was the minister responsible for gaming in the first couple of years of Darrel Dexter’s NDP government and today is the information and privacy commissioner in Nunavut.

“The further down the chain you go, the more often you’ll get things where it’s not in writing and it’s just based on how things have been done. And it’s very, very difficult to put your finger on that kind of stuff.”

Andrew Younger, who was the gaming minister under Stephen Mcneil’s Liberal government from 2013 to 2015, echoed that. “It’s policy, right? It’s not the law . ... and so policies are always, to some extent, at the discretion of the minister.”

Younger said sometimes gaming ministers overrode the attrition policy and allowed VLTS to remain in service. He said when he was minister he faced pressure from businesses to actually increase the number of VLTS but didn’t do that.

We asked Mackinnon if the public might have interpreted the 2011 gaming strategy’s attrition policy as being more like the Conservative approach that got rid of machines at a more rapid pace (and included VLTS given up voluntarily). He replied that the 2005 strategy was explicit about numbers to be removed and that wasn’t the case in 2011.

“We actually at that time were able to get to that 200 fairly quickly, because a target had been set,” he said. “The language of the most recent strategy was there would be a gradual reduction as a result of businesses closing. And the point that you make is the exact reason why we came up with the attrition policies, to clarify how we were interpreting that direction.”

But Peter Mckenna, a political science professor at the University of Prince Edward Island who wrote a book about VLTS in Atlantic Canada and remains an ardent critic, sees a familiar pattern in the policies.

“The position and the approach and the rationale and the strategy for provincial governments which control gaming is basically the same: find a rationale and find a justification to keep doing what we’re doing because we’ve essentially become addicted to the revenue and we’re so addicted that we can’t get off of it. So now we’ve got to find ways to finesse the policies and find a workaround just … so that we can keep the gravy train going.”

Wednesday: The VLT Shuffle. How government says it is getting rid of the machines but in reality, simply moves them to locations where they’ll take in more money.