Edwards/Giguère Testimony - 11/5/98 (Part 1)

25 May 1999



Thursday, November 5, 1998

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    The Chairman (Mr. Dennis J. Mills (Broadview-Greenwood, Lib.)): Ladies and gentlemen, before we ask our witnesses to begin, we welcome Mr. Edwards and Mr. Giguère, from Racetracks of Canada Inc. We appreciate your coming and we appreciate your brief.

    The process this afternoon is that you will take the first 20 minutes or so to talk about your presentation, and then we'll go to questions from members. We usually don't begin these subcommittee meetings without Madam Tremblay. She was on her way and was to be here by 3.30, but because we have a tight schedule today, with the consent of the members I think we should proceed.

    Mr. Edwards, we turn the floor over to you and Mr. Giguère.

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    Mr. Stephen Edwards (Executive Vice-President, Racetracks of Canada Inc.): Thank you, Mr. Chairman and members.

    Let me begin by thanking you for the honour of appearing here. We are delighted to be here. Our industry is pleased to be recognized and to appear before your committee, the work of which is well known in the country and which we all continue to read about.

    It is ironic that coming into the room today my colleague, Yvon Giguère, noticed that the name of the room is the Railway Committee Room, and one could draw an analogy between the railway industry and our industry. They're both old industries. They're both facing extreme competition from all sources, but continue to survive even though the horns or the whistles aren't blowing at as many stops as they were in the past.

    Before I get into any specifics, I would like to ask any members who are here who are also members of the appropriation committee that they can put their pens and pencils and chequebooks down. The one thing we are not here to do is to ask for any money or any subsidy.

    Some hon. members: Hear, hear!

    The Chairman: This meeting is adjourned.

    Mr. Stephen Edwards: The government and government regulation are of course very important to our industry. And while in all seriousness we are not here to ask for money or subsidy, and don't expect to be asking either, there are many things that can be done between ourselves and the government to make the industry more successful.

    I'm really pleased and flattered to see that Mr. Hec Clouthier has honoured us by joining us today. He knows more about racing than I'm sure anyone around this table. I've been pleased to see him at our hall of fame annual presentations and so forth and so on.

    It's a delight to see you here, and I know that you'll correct me if I go wrong.

    Racing is quite a large industry. The bets in Canada last year amounted to some $1.8 billion, and that generated taxes of various kinds of about $500 million; in our document we say $517 million. The industry is respected around the world, as you would no doubt know. I'm sure that members of the committee will well remember the names Northern Dancer or perhaps Mr. E.P. Taylor, and certainly the name Cam Fella, whereby Canada has distinguished itself around the world. And although we have not sold any $10 million horses in recent times, the breeding industry from Canada is still a tremendous export for the country and Canadian horses continue to be sold for good prices outside of the country and race all around the world.

    In fact, one of our key horses running in the Breeders' Cup this Saturday, Chief Bearheart, is likely to run in the Japan Cup and will remain in Japan as a stallion. So the Canadian export of horses continues to be a very vigorous industry.

    Our industry has faced since 1970, when it was perhaps the only form of legalized betting in the country, an onslaught of competition from other forms of gaming. A number of those gaming opportunities are controlled by governments; I refer specifically to items like lotteries, casinos, video operations, etc. We are not commenting in a critical way that they exist; we're merely stating that they do exist. But it is very interesting that our competitors are in many cases our regulators.

    We are regulated federally through the Ministry of Agriculture and Agri-Food by the Canadian Parimutuel Agency, and I am pleased to see that they are represented in the audience this afternoon. We are also governed by racing commissions in each province.

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    Let me just take you past page 3 in the presentation we have made, past the page dealing with scope, on to the graph that shows a pie chart of the gaming revenues in Canada in 1996 and 1997. You will see the little piece of pie, a mother-in-law type slice up at the top-4% of the gaming revenue-now obtains to our industry. It would have been substantially higher in the past. One need not be very imaginative to foresee the portion taken by casinos and VLTs will continue to increase and perhaps erode the market share of the other sections shown there. Certainly in racing we know we are in very tough competition.

    The page following that is a photocopy of a statistical report from the CPMA, which I previously referred to, and it shows the breakdown of betting in Canada by province. Importantly, in the two charts on the right, the top chart shows a reduction in the number of race days and the number of races. Of course there has been a reduction also in the number of tracks. At the bottom it shows the total amount bet in Canada. You can see that although it looks like the industry has remained steady, there has been no inflationary growth, which is falling behind targets. Without the advent of simulcasting, which we started eight to ten years ago, thereby creating a larger geographical audience, so to speak, the industry would be under even more pressure than it is now.

    The industry is very diverse, from providing jobs to entry-level people at the level of grooms, or people working on farms doing hay, doing fences, cutting fence posts, to the very high technological aspects of our business world. We have several tracks. My colleague today from Hippodrome de Montréal, for instance, would have a cost for satellite transmission of about three-quarters of a million dollars per year, and that would not be the largest communication cost of any track in Canada. So the industry has become very complex. It uses a number of other industries as associates, and uses a number of other services from industries.

    I am not going to bore you with any more introduction to the industry. We would be well open to questions. What we have done today, Mr. Chairman, is to try to select three items we think are significant to the industry and on which your committee and perhaps the federal government could be of assistance.

    I will now ask Yvon Giguère to present the first of those issues.

    Mr. Yvon Giguère (Simulcast Director, Hippodrome de Montréal, Racetracks of Canada Inc.):Thank you, Stephen.

    The difference in taxes in Canada and the United States for the racetrack industry present a problem. A player who resides in the United States and who places racetrack bets in Canada is not taxed in any way when he places his bets. For example, in New York, for a race that takes place in Montreal, no tax is charged here in Canada on his bet. If a Canadian player in Montreal places a bet on a race taking place in New York, the Canadian bettor is immediately taxed; his gains are immediately taxed at 30 percent. In the United States, taxes are on gains whereas in Canada, taxes are levied before the bet. This is a fundamental difference and Canadian bettors are deprived of access to the American pool because of these prohibitive taxes. A pool is all the bets that are placed for the game.

    We believe that negotiations should take place between Canada and the United States on this matter. Given that Canada does not levy any taxes in the case of American citizens, in Canada we could have the same privilege, that is having no taxes on gains earned in the United States when bets are placed here in Canada on a race that takes place abroad.

    This sector of the industry has developed exponentially in the last 10 years. To cite a few examples, Montreal presents races from Hong Kong, Melbourne, Australia, as well as from European countries, France and England. These signals are available for Canadian consumers. Canadian racetracks use these opportunities to increase their sales through the daily broadcast of races from all over the world. This specific point is an irritant for our bettors.

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    In the documentation that we presented, we indicate that players could bet on a pool of $5 million. Unfortunately, consumers cannot bet because of the tax treaty that is unfavourable to us for the event that's called the Breeders' Cup. All Canadian racetracks are simulcast via Toronto, but you can see that the amount of the bets will be $800,000, perhaps. Therefore, the $5 million pool cannot be accessible to Canadian consumers.

    Given this concern, the industry would like to see a change in the tax treaties between Canada and the United States.

    Mr. Stephen Edwards: Thank you, Yvon.

    The second issue deals with the deductibility of losses incurred in the business of racing.

    Today we consider racing to be a business. It is part, perhaps, of the sports and the entertainment world, but it is a business. We feel that the tax laws currently do not treat racing in the same light that it treats either businesses or some sports that are in business.

    I refer specifically to the restricted amounts on farm losses for part-time farmers or people who own horses. There was a limit of $5,000 set in 1952, and that limit was changed in 1987 to $8,750. So if a person owning a racehorse and running for purses-purses that have become more substantial in recent times-happens to have a loss, they are restricted to $8,750, regardless of the number of horses they own.

    The industry today-and when I say the industry, we speak here not only for racetracks, but we have had several meetings with horsemen and horsemen's associations, and so on-feels that we need to move ahead in the area of taxation, and have racing treated simply as a business.

    If an individual today decides to invest $10,000 into a restaurant or into a car racing operation, or into some other business pursuit, if that business is successful, they share the spoils; if that business is unsuccessful, they have a business loss that they offset to other income. We are one of the only areas where the offset of that income is restricted to the $8,750.

    I'm not going to bore you by going into the various sections, except to say that we are talking about section 31 of the Income Tax Act, with some reference to section 28. There are, I'm sure, some mitigating circumstances, and we have dealt with them. We have a committee mounted to deal with the issue of taxation in the horse industry, and we'll be making some other representations.

    The impact on racing is as follows, and this is why we think it's important. If anyone has been attending races recently, they would have noticed that the number of horses per race has declined significantly. People are no longer willing to invest in a racehorse and if they end up with a loss not be able to deduct that loss from other income. So we have suffered a shortage of horses.

    If owners are not buying horses, farmers are not breeding horses. If farmers are not breeding horses, people who grow hay, people who manufacture pharmaceuticals for use in the veterinary industry, farriers, a whole number of people and professions suffer accordingly.

    Certainly from the bettor perspective, bettors are not interested in betting on races with few horses, and we see time and time again that if we can provide full fields, we can increase our level of wagering.

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    So there is no doubt that we need to have new owners in the business, and we need to attract old owners back to the business. We feel that the only way to do that is to in fact make it a business. Our representation to you, and later to the appropriate ministries, will be to treat racing as any other business and make the losses deductible and any gains fully taxable. That is what that issue refers to.

    I will move on to our third issue, and I will take any questions on the issue of tax at the appropriate time.

    The third issue deals with the use of communications and communication devices. If you listen to the radio stations in your various ridings around the country, you will no doubt hear advertisements from foreign companies advertising in Canada to attract the wagering dollar on sport. This is not restricted to horse racing; it is on sport in general, but horse racing is certainly a large part of that.

    Canada has no control over it, and we as racetracks have no control over it, but the net result to us as racetracks is that revenue that would normally have accrued to our industry is leaving the country, and leaving the country uncontrollably.

    When that revenue leaves the country, none of the taxation that would come to governments is available. None of the commissions that would come to the industry and find its way into the farming community is available. So it is a net loss to the entire business, agricultural and racing community of Canada, and it's an area that needs to be addressed and addressed quickly.

    The current code or the current law, referring to subsection 204(8)-and I'm on page 10 of the English part of the presentation-allows for wagering or betting in person, of course, or by telephone calls. We are suggesting a modest change to that piece of legislation. The addition of the words "or any other telecommunications devices" would make it possible for racetracks in Canada to start competing with these offshore companies from the Channel Islands, from Antigua, and from everywhere else in the world.

    That has already been obtained by our competitors in countries like Australia and New Zealand, and some countries in Europe, where the use of the television to place a wager, or the use of a computer device, which is still using the telephone device to place a wager, is available.

    I can speak directly to the losses and the type of losses. If you are at any racetrack, you see people with telephones, and more often than not they are telephoning to their accounts in Philadelphia through a company called Ladbroke, or an offshore called "youbet". They're watching our races in Canada and deciding who they want to bet on, but declining to bet in Canada and going into larger pools in United States by telephone or through the use of their computers or other betting devices. So I repeat myself in saying that this is a tremendous loss and something that we think needs to be addressed quickly and can be addressed quickly.

    We need to be able to compete on the global stage. I had a meeting at the Ministry of Agriculture recently. The minister is on, or will be going on, a trade mission to China, and we were pointing out that we are looking at export business in China ourselves.

    The entire racing world is looking at the population of China, where there is no horse racing, and deciding to offer some type of communication-type betting to the Chinese population, who have a high propensity to bet or to wager. It is an untapped market. Countries, again, like Australia, the United Kingdom and France are way ahead of Canada in their ability to go into a country like China-and there are others-and offer the technology and the capability of having those people bet on our product.

    We need to be part of that market. The industry is now global, and we in Canada need to play our part. We ask no subsidy in being able to play that part. We don't ask for money for tours or for marketing, or money to develop the industry. We simply need very small adjustments to the tools that we have currently, and that tool I refer to would be a change to that subsection 204(8). We need that amendment, and we would like some assistance to get that amendment done quickly so we can ebb the tide of revenue being lost to our international competitors, and the flow of Canadian money going outside of the country benefiting no one.

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    Mr. Chairman, there are the three issues we have brought to you this afternoon, which we think we can make some progress on, or perhaps your committee might be able to assist us on, and we would now be open for questions at your discretion.

    The Chairman: Thank you very much, Mr. Edwards. It was very enlightening.

    I will turn the floor over immediately to Mr. Provenzano.

    Mr. Carmen Provenzano (Sault Ste. Marie, Lib.): I realize the time constraints, Mr. Chair. Thank you very much for that.

    I really appreciate the nature of the presentation that was made, because some of the comments made with respect to the range of activity involved in the industry from farms that provide the foodstuffs, from the farms that provide the breeding stock, to the tracks that hire grooms and employ drivers and trainers, right to the technological aspects that are involved in the communications to deliver the product everywhere, were very interesting.

    In your submissions, Mr. Edwards, with respect to the ability to deduct farm losses, the restrictive way in which these losses are treated with respect to owner horsemen who are in the business, you made the point that lately there seem to be fewer horses for the races. And you extrapolated that fewer horses means less business for the breeding farms and so on and so forth.

    In relation to the three submissions that were made, if you were to rate those submissions in terms of government action that would most address this aspect of the problem and would go to preserving this industry, which I might add is one of the few places where it could be a growth industry in the traditional sense, because what we've seen is industries that are growth industries are displaced usually by high technology- We have a traditional industry here that is hands-on and labour-intensive, which hasn't really changed for a long time. I think your presentation evokes that kind of thinking. If you had to identify measures that would directly speak to the preservation of the industry, which measures of the ones you propose would they be? Maybe it's all of them. Secondly, do you care to comment on that nature of your industry?

    Mr. Stephen Edwards: Thank you, Mr. Provenzano. It's a complex and tough question. I thank you for it.

    I don't know that I would care to rate in terms of priorities the issues we've put forward, only because they're so different in nature. The issue of taxing you have quite rightly and succinctly identified.

    We employ a wide range of people in this industry, and there are thousands of jobs, well over 100,000 jobs, generated by horse racing in Canada. The range of jobs is very wide. For instance, with the new technology there is a department at the Ontario Jockey Club in Toronto where over 40 people are employed now in television production, because our races are exported to tracks all across Canada, sometimes the United States and sometimes overseas. But we have a large agricultural sector, grooms, hot walkers, and people who work on the backstretch, who would perhaps-some of them, or a large percentage of them-be on the government string one way or another were they not racing, because they have no skills they could take into another industry. Certainly they're not capable in the high-tech world of today.

    There is a huge spinoff from racing, particularly in the agricultural sector. Harness racing in particular has been a family type of activity. It is a group of small farms; some of them are large and world-famous in Canada. But wherever you go in the country you can find farmers with two or three horses who race and train them themselves, sometimes on tracks right on the farm. There is a tremendous amount of spinoff from this activity.

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    So certainly it is important that in order to keep the horse racing industry going at all we need to make sure we can attract the people who provide the product, and they are the owners. If the owners are not buying the horses because of tax reasons, the breeders cannot sell their horses for competitive prices. It's a set of dominos from there on in.

    The other two issues are also very important, and we don't think they are issues of the magnitude that would take a long time, or should take a long time, to put into effect. The issue of the telecommunication devices, for instance, and the negotiations of the U.S.-Canada tax treaty, which we understand is an ongoing affair anyway that needs constant adjustment, should be things we could achieve in the short term and the short run.

    I don't know if I've answered your question. There is lots of employment and lots of stability for those people, but we do need to make sure we can keep an owners' base.

    In the motor-racing industry, there are large groups of people who get together and have sponsors and finance the racing car as a business. We feel that this is how horse racing has to go. The ownership of a racing horse is in fact a business. If you win money by owning it, you should pay the taxes. If you have losses, those taxes should be deductible.

    Mr. Carmen Provenzano: Thanks.

    The Chairman: We will go to Mr. Mark and then we'll come back to Mr. Clouthier.

    Mr. Inky Mark (Dauphin-Swan River, Ref.): Thank you, Mr. Chairman.

    Thank you for appearing before the committee. I'd like to continue on that same topic and the same line of questioning.

    I come from central Manitoba. My riding is rural. As a former mayor, for many years I spent a lot of energy trying to figure out how to sustain harness racing in rural Manitoba. I know the biggest concern they have is the frequency of races and the amount of money in the purse. I agree with you that there is a huge impact certainly for the farm economy when it comes to the whole racing sector. You can drive almost anywhere in rural Canada and never escape seeing a horse somewhere, whether it's for recreation or for racing.

    I'm sure that section 31 of the Income Tax Act will certainly be of help. That is a good idea and a good proposal. My question to you is, how do we make this whole business equitable and sustainable outside of large urban centres, in small communities and small cities, where it is more difficult to sustain a level of interest?

    Mr. Stephen Edwards: Thank you, Mr. Mark. That was a very good question.

    We are in touch with Manitoba. Only this week I called Mr. Wayne Anderson, who is the chairman of the Manitoba Racing Commission.

    In answer to your question of how we can sustain it in rural rather than urban Canada, in many cases the person who is victimized by the $8,500 deduction is a person who has another job or is carrying on another business. Those people are rural. Some of the urban groups who might own horses quite often do it on a full-time basis. They have a stable of 15 or 20 horses and they live at the racetrack and that is their full-time business. They don't have a problem because they are only in the business of racing.

    However, it is the person you're referring to who may work at a plant and live 70 miles from Winnipeg or in Brandon who is affected. He has a horse in the backyard, or he has a horse at the farm down the street, and the horse does not perform and he breeds it. Then all of a sudden he has $20,000 worth of losses that he can do nothing with.

    We think that by changing this particular section of the act, not making loss restrictive, it will encourage a number of those people to get back into horses and therefore provide more jobs in the rural areas of Canada.

    And the jobs are real. I took a provincial minister on a farm tour, and as we arrived at this farm-and this was not set up in any way-in drove a truck with 500 fence posts and about 200 metres of wire fencing. These are the types of jobs and sales that occur if we can keep this industry going.

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