A com­pany built on rolling dice

The Compass - - EDITORIAL - Rus­sell Wanger­sky Rus­sell Wanger­sky is TC Me­dia’s At­lantic re­gional colum­nist. He can be reached at rus­sell.wanger­sky@tc.tc — Twit­ter: @ Wanger­sky.

To me, none of the flashy part of At­lantic Lotto’s au­dit last week was sur­pris­ing.

Not the $110,000 spent on Christ­mas par­ties, nor the hun­dreds of con­cert tick­ets shared among elected, gov­ern­ment and po­lit­i­cal of­fi­cials. Not the raises of up to 56 per cent for se­nior staff. Not the al­co­hol and en­ter­tain­ment ex­penses or the $3,000 din­ner for the board of direc­tors and se­nior ex­ec­u­tives.

Af­ter all, the cor­po­ra­tion hasn’t had a full au­dit in 10 years, and while the cat’s away, the mice will cer­tainly play.

What’s much more im­por­tant in the au­dit? The fact that there are crit­i­cal is­sues with how the cor­po­ra­tion is man­aged by its own­ers. The At­lantic Lot­tery Cor­po­ra­tion is a crea­ture of gov­ern­ments — four gov­ern­ments own it and share in its gov­er­nance, mean­ing that it can be an in­ter­nal tug of war. It’s a money mill: it’s the only le­gal sup­plier of its prod­ucts, from old-school lot­tery tick­ets to video lot­tery ter­mi­nals. It can de­cide what those prod­ucts are, and what kinds of re­turns it can ex­tract from each dol­lar spent.

But there’s a real threat in the in­sti­tu­tional prob­lems the au­dit found.

The lot­tery cor­po­ra­tion’s man­date has not been re­viewed in al­most a decade, just one of the many prob­lems of hav­ing the cor­po­ra­tion re­port to four dif­fer­ent pro­vin­cial gov­ern­ments, each of whom ap­points its own direc­tors to the board. Each of the four prov­inces gets to pick and choose what prod­ucts and ser­vices it wants — mean­ing the over­all ef­fi­ciency of the lot­tery cor­pora- tion, and any economies of scale, are di­luted, if not lost. The struc­ture means the cor­po­ra­tion can’t make sig­nif­i­cant busi­ness de­ci­sions in a timely way.

And it can make bad de­ci­sions: spend­ing $640,000 de­vel­op­ing an In­ter­net gam­bling sys­tem, only to have the plug pulled by gov­ern­ments scared of bad press; in­vest­ing $8 mil­lion in an on­line lot­tery with­out com­plete in­for­ma­tion. Be­ing told by one gov­ern­ment — Nova Sco­tia’s — where to spend money; At­lantic Lotto put $1.3 mil­lion into a com­pany called Tech­link be­cause that’s the way the Nova Sco­tia gov­ern­ment wanted it, even though it con­tra­vened the lot­tery board’s ad­vice.

There are sig­nif­i­cant hur­dles to be over­come.

I mean, think about it: the au­dit went as far as to sug­gest that the gov­ern­ments should ac­tu­ally ap­point qual­i­fied board mem­bers. To put it pre­cisely, the au­di­tors said there should be “A board se­lec­tion process that is com­pe­tency-based, pro­fes­sional, com­pet­i­tive, open, trans­par­ent and re­flec­tive of the skill re­quire­ments for the board.” Be­lieve it or not, the gov­ern­ments dis­agreed, say­ing they pre­ferred their own ap­pointees.

These are chal­leng­ing times for the lot­tery busi­ness, which is see­ing its tra­di­tional mar­ket eroded by the aging seg­ment of its customer base, and the flee­ing of younger gam­blers to faster, more en­gag­ing In­ter­net com­peti­tors.

And over the whole thing, there’s the prob­lem of re­port­ing to four dif­fer­ent masters. How bad can it be? Con­sider this: “An ex­am­ple of the in­ef­fec­tive­ness was seen when the board unan­i­mously ap­proved by­law changes re­lated to changes in direc­tor ap­point­ment pro­cesses, but then the same four board mem­bers, act­ing as share­holder rep­re­sen­ta­tives, did not ac­cept the changes they had just ap­proved.”

Who de­signed that gov­er­nance pret­zel? Franz Kafka?

Add to that, over-a-decadea­part oc­ca­sional au­dits by the pro­vin­cial au­di­tors-gen­eral, and it’s easy to see why there are prob­lems.

The sexy stuff is in the mis­steps. The real and last­ing prob­lem is struc­tural.

The gov­ern­ments who own the cor­po­ra­tion have to de­cide whether they want to fish or cut bait.

The com­pany needs to ei­ther be al­lowed to op­er­ate as a co­he­sive and in­de­pen­dent whole, or else should be bro­ken up to op­er­ate as in­di­vid­ual pro­vin­cial lot­ter­ies.

Get out of the lot­tery cor­po­ra­tion’s way, or set up your own. Sim­ple.

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