Sydney’s Casino at 25: Membertou at the Table

Editor’s Note: Sydney’s casino turned 25 this summer and to mark its quarter-century, Rob Csernyik has been taking an in-depth look at the promises — and realities — of casino gambling in Cape Breton. In this fourth and final piece, he contrasts the CBRM with a community (within its own borders) that has shown how to make gaming pay — Membertou. (Read Part I, Part II and Part III.)

 

From Highway 125, Membertou First Nation’s economic development is apparent and a dedicated highway exit opened a few years ago offers the community a new sense of local prominence. Over the years, a convention center, a hotel and a bowling alley have opened in the community and across a highway overpass sits land awaiting development, part of a plan to turn Membertou into a commercial hub over the coming decades. Economic development has changed the community’s physical landscape as well as its fortunes.

Membertou was once in worse economic shape than Sydney—in 1997, a band council spokesperson estimated its unemployment rate to be around 80%. But they’ve changed the narrative, attracting national attention for their success—the community even floated as a blueprint for revitalizing a South African province.

Part of Membertou’s diversified economic strategy has been taking gambling into its own hands, establishing a gaming commission whose website, during the first wave of COVID, stated:

The Membertou Gaming Commission is centric to Membertou’s financial and operational recovery. The Gaming Commission will be Membertou’s first operation to open when deemed safe to do so.

And open it did, long before Casino Nova Scotia awoke from its pandemic-induced hibernation.

Membertou Entertainment Centre

About 3 kilometers south of the Sydney casino is the Membertou Entertainment Centre, a destination built in 2007 for bingo and VLTs. This is one of three gaming pavilions on the First Nation, which Great Canadian Gaming, operator of the Sydney casino, identifies in its annual information form as a competitor to its own operations. Prior to COVID-19, Membertou’s gaming outlets were open longer than Sydney’s casino on weekdays (22.5 hours) and they still feature smoking rooms where Sydney’s casino has been non-smoking since 2003.

I haven’t found figures that directly assess the competitive impact, but since the 2002 opening of Membertou’s gaming options, visitors to the Sydney casino have declined by about 500,000 yearly. (The First Nation doesn’t share on its website how many visitors Membertou’s gaming facilities receive.)

University of Lethbridge professor Robert Williams describes the best economic scenario for a region hosting a casino to be a wash, where instead of a clear positive or negative benefit, the casino’s presence evens out. Membertou, with its gaming operations, seems to have come much closer to this desired equilibrium than the Cape Breton Regional Municipality has over the past 25 years.

 

The CBRM needs to create a new relationship with its casino; to claw back casino revenue currently leaving the island and to have a seat at the table when it comes to casino-related decision making—something the municipality abdicated when the project was first announced in 1994 and has never really fought to regain.

As mentioned in Part II of this investigation, earlier this year acting CBRM communications advisor Christina Lamey said the municipality gets a direct payment of $620,723 a year for property tax and rent, but no hosting fee.

What’s seldom discussed in the public arena is that the CBRM doesn’t agree with this. As Lamey explained in an email:

It is the CBRM’s position that the Province of Nova Scotia should enter into a revenue sharing agreement with CBRM as the host municipality of a Casino to fairly compensate for the costs associated with having a Casino in our municipality.

It is common in other areas that the host community of a Casino will receive either a percent of revenue sharing or hosting fees.

By contrast, Halifax Regional Municipality, which doesn’t receive a hosting fee either, has no official position as to whether it should. In a July email, senior communications advisor Maggie-Jane Spray said HRM expects $1.4 million in property taxes from the casino in 2020-21.

Casino Nova Scotia Sydney

Lamey cites examples like Ontario and British Columbia where host communities receive payments for operating casinos. As mentioned in Part II of this series, 26 communities in Ontario receive hosting fees through the Municipalities Contribution Agreement with Ontario Lottery and Gaming Corporation. They earn 5.25% on the first $65 million of slot revenue, with a sliding scale for higher amounts and 4% of table game revenues if applicable. The total paid out in fiscal 2019-20 was approximately $135.4 million. Communities use the funds for municipal tax relief, infrastructure and revitalization projects and funding community initiatives. British Columbia, meanwhile, pays local host governments 10% of net casino gaming revenue.

Nova Scotia’s government splits its share of the Sydney casino’s profits between First Nations and general revenues. (The rest goes to Great Canadian Gaming, a company headquartered in British Columbia for many years until a recent move to Toronto. At the time of writing, U.S.-based alternative investment manager Apollo Global Management has offered $3.3 billion to purchase Great Canadian.)

While the province’s half of these profits goes to provincial initiatives like healthcare, education and infrastructure, there’s no detailed breakdown as to exactly how the money is spent, or where. It can be spent in Sydney or in the province more generally. Considering the tens of millions wagered by a mostly local audience, only a fraction is reinvested—far from the original amount gambled away.

“But when you add up everything Sydney gets back from the provincial government compared to what they gave in, it doesn’t match,” Williams says. “So it’s an economic loss for virtually every city that has put a casino in place.”

 

This echoes the generally lopsided financial and power relationship between Cape Breton communities and the provincial government. Former Cape Breton University professor Paul Patterson wrote a Cape Breton Post opinion piece in 1999 about how a “new and just” relationship between Cape Breton and Halifax needed to be established, citing the casino as an example of the imbalance:

Who was responsible for overriding local opposition and imposing a casino on our already cash-strapped communities, behind the cold-blooded pretense that the annual $26 million drain on our economy was an economic development initiative? The proponents of the casino were business interests in Halifax, not in Cape Breton.

The feeling of relative powerlessness compared to Halifax is longstanding in Cape Breton. It’s visible, anecdotally, through the views of those who believe Cape Breton should separate from the province to better control its own destiny. (A Facebook group supporting self-governance counts almost 4,000 members.) But this feeling has recently been backed up by formal research. Engage Nova Scotia, a nonprofit focused on fostering change and engagement in the province, found in its 2019 Quality of Life survey that CBRM residents have concerns about “their ability to influence the government being low.”

Poster for "Cape Breton Liberation Army," an original production at the Highland Arts Theatre.

Poster for “Cape Breton Liberation Army,” an original production at the Highland Arts Theatre.

There are also dollar figures suggesting a disparity, as the Spectator explained earlier this year:

The situation is nonsensical: our mandatory annual payments for education, corrections, the Property Valuation Services Corporation and public housing exceed the value of our annual operating grant. In 2019-2020, our mandatory payments totaled $19.3 million while our operating grant totaled $15.3 million. And the value of that grant has been frozen for years.

Sydney-Whitney Pier MLA, and former municipal affairs minister Derek Mombourquette, has publicly defended the province’s handling of equalization payments. I contacted him for an interview hoping, among things, to get a clearer picture of how money that leaves the CBRM from the casino, comes back. After initially expressing interest in the interview, he and his office stopped replying to my emails.

When the CBRM discussed a municipal charter in 2018, a move that would have granted the municipality more authority, rights and governance privileges, CBU political science professor Tom Urbaniak suggested a novel remedy: creating a covenant within the Charter giving the CBRM a share of total provincial casino and lottery funds. Urbaniak suggested the gaming profits could be shared for a set period of five to 10 years.

From casino revenues alone, this could result in a windfall of approximately $30 to $60 million over a five-to-10-year period if the CBRM kept the share of funds which normally go to the province’s general coffers. But the charter hasn’t come to fruition and Urbaniak’s idea hasn’t been pursued further.

Williams suggests that communities with casinos should be receiving a large chunk of money to begin with.

From my perspective, I think you really should be asking for, like, 60% of the revenue because it’s coming from your local residents.

 

Earlier this year, Chief Terry Paul, who has since been re-elected to the position he’s held since 1984—a period encompassing the entire history of the Sydney casino—spoke with me in a phone interview. He was also involved in a game of chicken with the NSGC.

A 1995 internal NSGC memo warned of the potential of First Nation casinos and gaming “puts the Province generally at some risk.” It was feared such developments:

…could be viewed by the Province’s casino operator as a substantial change in the gaming regime and grounds for the operator to demand renegotiation of the operating contract or to terminate the operating contract.

This is why, scattered throughout the NSGC’s board of directors files which I accessed at the Nova Scotia Archives, are news clippings with headlines like “Native casinos: Closer than you think” and “Casino Regina: posh and profitable for natives,” as they tried to analyze the threat.

Membertou Chief Terry Paul (Source: Membertou website http://www.membertou.ca/)

Membertou Chief Terry Paul (Source: Membertou)

Leaders in Eskasoni, the other First Nation within the boundaries of the CBRM, signed an agreement in 1995 sharing in casino profits, permitting some VLTs and allowing it to retain 95% of VLT gaming profits, in return for a promise not to open a casino. (Other First Nations signed their own contracts with the Nova Scotia government related to gaming and VLT profits.) But for several years, Membertou refused, even musing publicly about opening its own casino. This was in part because Chief Terry Paul wasn’t impressed with the government’s offer, and for good reason.

There was supposed to be up to $2 million in profits from the Sydney casino shared between all participating First Nations, but the NSGC had net income of almost $120 million by 1997—so half the Sydney casino’s profits was thin gruel. And there weren’t even profits to distribute until the 1997-98 fiscal year.

As the early years of casino gaming in Sydney went by, with no agreement forged, former NSGC chair Ralph Fiske, became resigned to the situation with regard to Membertou:

“I guess there is nothing we can do at this stage but sit by and watch them build their casino,” he told the Canadian Press in 1997.

 

Membertou never opened the much fretted-over casino. (Although locals refer colloquially to the First Nation’s gaming options as a “casino.”) In a 2001 referendum, 77% of Membertou ballot-casters (with about 60% voter turnout) supported a gaming agreement with the province. This allowed the First Nation to operate VLTs and cash bingos, as well as receive a share of profits from Sydney’s casino. At the time, the Cape Breton Post characterized the referendum as “a direct say that Nova Scotians at large did not have, and likely will never have, on casinos, VLTs or any other gaming policy.”

The Membertou Gaming Commission, launched in 2002, now has three gaming pavilions and (prior to COVID-19) approximately 53 employees.

I asked Paul what he remembered of that years-long delay. “Other communities started signing off, while we ended up being the lone wolf barking in the woods,” he says.

Part of that reason is our community wanted to take more time and consider all of the implications of gaming. And that extended our ability to sign the agreement with the province and to commence our own gaming operations.

Today, all 13 First Nations communities in Nova Scotia have gaming agreements with the province, according to Kristen Rector of the Office of Aboriginal Affairs. “First Nations communities conduct and manage their gaming operations, consistent with the terms of their respective agreements with the province,” she says over email. “The agreements between each First Nation community and the Province of Nova Scotia are confidential.”

Exact revenues for Membertou’s gaming aren’t publicly known because they are grouped with other commercial enterprise revenues in annual reports. (Prior to launch, Paul estimated annual profits would be between $2.5 million to $5.5 million—likely on the higher end.)

There’s no doubt revenues far outweigh the payments Membertou receives from Sydney’s casino, which distributes 50% of the profit the province receives ($7.3 million in 2019) to 13 First Nations. At approximately $281,000 in 2019, this marks only a tiny fraction of Membertou’s $67,117,686 fiscal 2018-19 revenue.

Paul says the First Nation was “surprised” with the opportunities locally-run gambling offered them.

Much of the development you see in our community started through these gaming profits. Today, so many of our social, education and community funds are supported by gaming and other commercial operations.

Membertou Sport and Wellness Centre

Membertou Sport and Wellness Centre

He adds that Membertou also provides money directly to about 1,700 band members through profit sharing.

Every individual receives an annual donation from our gaming profits, and money is held in trust for minors until they’re old enough to access it when they become 19 years old.

He mentions the daycare as one project funded by gaming, adding gaming helps supplement government operational costs — “We don’t get nowhere near what we require to operate our government from the feds, that’s for sure” — and helps provide equity to commercial real estate projects and the Membertou Sport and Wellness Centre.

If it wasn’t for gaming, we would not have that building.

I asked Paul about a 2005 report that the First Nation considered buying Sydney’s casino. He remembers the province referring them to the operator at the time.

“We had a discussion with the operators, but we never went any further,” he says, adding there would have been interest in both casinos. “It involves many millions of dollars. We were not in a position to do that.” Ultimately the operator sold the casinos to Great Canadian Gaming for about $USD74 million.

Even without this acquisition, Membertou has achieved something the CBRM hasn’t. It’s possible to see what legalizing gambling has accomplished for the community, as opposed to the CBRM, where no specific programs or projects can be directly linked to the Sydney casino’s profits. I point out this difference to Paul.

“I know that if we were running things, most of the money would stay in Cape Breton, that’s for sure,” he says.

 

The jobs are welcomed and 20 years later the sky has not fallen over Sydney,” former Sydney mayor and longtime Liberal MLA Manning MacDonald wrote in a 2016 Cape Breton Post column.

In it, he paints the casino’s arrival as a test of loyalty to his caucus. While he supported the jobs coming to Sydney, he was torn because he didn’t like the idea of casino gambling being supported financially by the government. Loyalty overrode his misgivings and the ultimate conclusion he presented in the column was vague.

The value of the casino to Sydney depends on who you talk to. One thing is certain, it will always be a topic that invites discussion.

Taking that as an invitation, I contacted him for an interview, to get the long view of someone whose combined career as mayor and in the legislature spanned the better part of four decades.

In a May phone conversation, he was more direct. He thinks the lack of convention infrastructure hurt the casino’s viability by making Sydney unable to attract this market, and thinks the fact the casino contained mostly VLT-like slot machines was problematic.

“To me, they were, and in my opinion still are, the crack cocaine of gaming. Very addictive,” he says.

Manning MacDonald

Manning MacDonald (CBC photo)

MacDonald says locals on fixed incomes, like senior citizens or seasonal and shift workers, are the people keeping the casino open today. He also notes there’s less money to draw from locally than 10 or 15 years ago when workers were bringing home incomes from Alberta’s oil fields or offshore rigs.

“As an MLA, I was torn between the people in my constituency who didn’t want the casino for a number of reasons,” he recalls. “And those who wanted the jobs in the area, no matter what they looked like.”

As in his column, MacDonald said he didn’t express these feelings publicly much because a caucus needs to speak with one voice. He said he supported other job creation ideas like developing the film industry—the sort of thing nobody railed against.

“But everybody railed against the casino coming here,” he says. Despite this opposition, MacDonald says it wasn’t up for discussion once the province decided to forge ahead.

“I can’t recall Minister Boudreau ever talking to me about what my thoughts were on it,” he said.

And Bernie was hell bent on putting the casino in Sydney and forging ahead. I don’t recall the MLAs from the area having much in the way of discussions with Minister Boudreau at the time regarding the casino. It was announced and done. And we were all there dutifully standing around the ribbon-cutting.

I asked MacDonald why the same problems seem to rear their heads over and over locally. Even after getting casinos in the province, some of the issues they were supposed to tackle, like bringing in big bucks and creating jobs, remain unresolved today.

He says a big part of the problem is the CBRM looking backwards, expecting to be saved by coal or other declining industries, for instance. “We never seem to be able to get off of the traditional stuff,” he says. Or seeking a “home run” to save the economy like opening another super port, when there may not be a strong business case.

If the problem that’s plagued Cape Breton for years is attempting the same thing over and over, then moving forward with the casino, business as usual and expecting the negative economic and social impacts to solve themselves is just history repeating itself.

 

The province’s contract with Great Canadian Gaming Corporation expires in 2025. And it’s been acknowledged that the casino is viewed less as a growth business, than one whose goal is merely to sustain revenues.

This was discussed in April 2011 at a provincial Supply Subcommittee meeting by former Sackville-Cobequid MLA Dave Wilson. (Not to be confused with the former Glace Bay MLA with the same name who spoke to the Spectator for this series.)

Wilson said:

The Sydney facility or casino has had a flat revenue over the last number of years, I believe at least three or four years now—relatively flat. So there haven’t been any changes, increases or decreases. I think that indicates that they’ve kind of reached what the expectations are when it comes to revenue for that facility, and we realize that.

Sydney’s casino contributed $8.3 million to government coffers in the 2010-11 fiscal year and aside from its $9.9 million contribution in fiscal 2011-12, revenues in subsequent years have fallen below “expectations.”

Great Canadian Gaming Corporation logo

By 2014, a Great Canadian Gaming representative would tell the Cape Breton Post:

We have consolidated results, so we don’t have the Sydney and Halifax property separated. Most Canadian jurisdictions are challenged with either flat or slightly declining revenues, so we need to turn the revenue line in a different direction for sure.

That same year, NSGC CEO Bob MacKinnon said the province’s aging population was a concern for the gaming operator. But chatter about the future of Sydney’s casino in the media—positive or negative—is sparse, and late ‘90s rumors about its imminent demise proved premature. Even if the revenues are recycled from Nova Scotians, enough money pours in to keep the casinos profitable for the operator and appealing enough to the province to keep open.

There has been some musing about moving the casino to the waterfront as part of an overall waterfront development plan presented to council by Harbour Royale Development Ltd. But this wouldn’t necessarily make a big change in revenues. A casino consultant told me such a redevelopment might have a small impact on increasing the frequency of local visits, but they couldn’t think of a case where a redevelopment project by an established Canadian casino dramatically increased profits or attracted more tourists. Nova Scotia’s also experienced the relocation and expansion of Halifax’s casino, which didn’t offer the anticipated boost in revenues.

It’s easy to accentuate the supposed positives of such a move, to argue the casino would be adjacent to waterfront hotels and the cruise ship terminal, but there’s no guarantee being several hundred meters closer to certain patrons would improve the casino’s fortunes.

With the casino closed from mid-March to early October, CBRM residents got a taste of what life would be like without it. Unlike other jurisdictions, where lost host fees will impact budgets, when you’re not getting a cut, it doesn’t make a difference.

If Sydney’s casino closed permanently, the main loss would be the local jobs, most of which have already disappeared over the years. In theory, many employees would be reabsorbed into the labor market through the restaurant and hospitality industries. But the region’s chronic unemployment and the fact these positions aren’t the best-paying would create challenges for erstwhile casino employees.

Harbour Royale Development Ltd's Sydney waterfront plan.

Harbour Royale Development Ltd’s Sydney waterfront plan. Note casino located in expanded Holiday Inn.

Unless it found another tenant, the CBRM would also lose the lease fees and taxes associated with the casino—and any loss of revenue is worrisome for the municipality. But the real beneficiary of the casino, as the deal now stands, is not the CBRM, but the operator and the province. This should embolden the CBRM to improve the terms of its deal.

This could include not only financial incentives like a hosting fee to bring the relationship between the casino and the CBRM into something closer to economic equilibrium, but improved data on local gambling addictions to better understand the true impact of the casino on CBRM’s residents. Or even efforts to combat addictive gambling, like sticking to the pandemic-induced reduced hours and continuing to avoid the sale of alcohol, which can lower inhibitions. (Though Great Canadian Gaming would likely see this as commercial castration, even if it does reduce harm for gamblers.)

To mark the 25th anniversary of the Sydney casino, I’ve looked at numerous issues touching on many parts of the CBRM’s economic, political and social fabric, although there are still many other corners of life into which casino gambling creeps and addressing them all would take far more than a four-part series.

There’s no changing the casino’s past, but 25 years later, we have the knowledge required to make better decisions going forward. As long as there’s a casino, there’s a chance to try and do right by the local residents who lost when it came to town and to claw back some benefit from the project. And there’s still a chance for the CBRM to try and regain some of the power that disappeared when the casino arrived, despite local opposition.

Winning this battle isn’t a sure thing, but it’s a shot the CBRM and its citizens need to take.

Feeling lucky?

 

Rob Csernyik

Rob Csernyik is a freelance journalist who was born and raised in Sydney, but currently lives in Saint John, New Brunswick. He has written for The Globe and Mail, The New Republic, Quartz at Work and Vice and edits Great Canadian Longform. Rob was selected for the 2019 investigative journalism intensive at The Banff Centre for Arts and Creativity where he started his research on the impacts of Nova Scotia’s casinos.