BYGARRY SMITH

AGRI CONFERENCE (APRIL 8, 2011)

BANFF, AB

Gambling Scandals: Why they Happen and how to correct them

Introduction

Aim of the presentation

Definition of ‘scandal’

Why govt. scandals are mainly found in liberal democracies

--Existence of a free press

--Competing political parties --Adherence to the “rule of law” --A belief in due process

Elements of a Scandal

A wrongdoing

Someone to reveal it

An interested public

Figure 1 - Key Ingredients of a Scandal

Transgression Public Disclosure + + Public

Disapproval Concealment/hypocrisy Public Allegations

Scandal Severity Factors

HypocrisyCover upWeak or implausible denialsSerious or uniqueness of transgressionSocial status or celebrity of those involvedContamination effectWho gets blamed

Common Types of Gambling Scandals

Sports-related

Cheating Scams

Government/political

OLG Scandal

Transgressions 1. Ignored or trivialized customer complaints. Came to a head when the inadequate response to senior Bob Edmonds three year claim that an Ontario store clerk stole his winning lottery ticket became public.

2. Lottery ticket retailers winning lottery prizes at a statistically improbable rate (1 out of 10 instant ticket wins was paid out to a lottery retailer).

3. Millions of dollars paid out to dishonest retailers with OLG doing little to crack down on the problem.

Revelation Details

1. Two CBC TV Fifth Estate programs: the first exposing the situation, the second following up the investigation.

2. Massive local, regional and national print and broadcast media coverage.

3. FOI request by CBC TV that showed lottery retailers winning prizes at impossibly high rates.

OLG Scandal

Complicationsthat Exacerbated the Problem

1. The David/Goliath confrontation between a soft-spoken senior citizen and a seemingly callous OLG bureaucracy.

2. Foot-dragging, spinning and quibbling by OLG officials.

3. Initial refusal of OLG’s CEO to speak on camera and OLG security’s removal of CBC cameras and interviewer from OLG premises.

4. OLG bureaucracy shown to be secretive, insensitive, lumbering and thuggish.

Public Reaction 1. Disgust, outrage, ridicule.

OLG Scandal

Consequences

1. Erosion of public trust in OLG—in delivering his report the Ombudsman opened his press conference with the words: “Confidence in our lotteries is shattered.”

2. Calls for Minister’s dismissal, instead OLG CEO and several other senior officials fired, but given generous severance packages.

3. Contamination effect--the OLG scandal led to in-depth inspections of other Canadian lottery corporations.

4. Ontario Ombudsman investigation launched leading to a scathing report featuring 23 recommendations all of which were accepted and implemented.

5. Some customers defrauded out of legitimate lottery wins.

6. Cost to taxpayers for legal fees and court settlements, severance pay, and suspect prize payouts (OLG spent $427,000 in legal costs to fight Edmond’s $250,000 claim).

OLG Scandal

Lessons Learned

•Methods of verifying lottery wins improved; now background checks on lottery retailers; OLG employees not allowed to buy lottery tickets; some lottery retailers have gone to jail and rightful winners paid out.

•OLG continued to experience problems; for example, the next CEO and Board of Directors were sacked due to expense account irregularities.

•Several pending lawsuits against OLG are related to issues such as negligence by casino employees in spotting and intervening with known problem gamblers; duty of care with regard to keeping voluntary self-excluders out of gambling venues; and failure to protect lottery ticket buyers from abuses such as lottery retailer theft and continuing to sell scratch and win tickets after all of the major prizes have been won. All lawsuits against OLG have resulted in out-of-court settlements that include confidentiality agreements.

BCLC Scandal

Transgressions

1. Complaints about lottery ticket retailers winning an inordinately high percentage of prizes over $3000

2. Irregularities in BCLC’s lottery ticket verification process.

Revelation Details

1. Following in the wake of the Fifth Estate’s exposure of OLG’s problems, the Vancouver Sun, thinking that conditions in BC might be similar to Ontario, made a FOI request asking BCLC for the number of retailers who won prizes of $3000 or more and a copy of all investigations into fraudulent lottery claims since Jan. 1, 2005.

2. Widespread print and broadcast media coverage.

BCLC Scandal

Complications that Exacerbated the Problem

1. Initial denials; BCLC said it would never pay out a major prize if there was anything irregular about the ticket or the information provided by the claimant, and since there had been few customer complaints, the system must be working. It turns out there were many more customer complaints than were passed on in the FOI request.

2. Both BCLC and BC’s Gaming Policy and Enforcement Branch (GPEB) conducted internal investigations of BCLC’s lottery sale and prize verification practices. Both reports concluded that although it was possible for an unscrupulous retailer to misrepresent ticket wins/losses and/or exchange tickets, there really was no problem. Retailer win rates were seen to be within statistical norms and the lottery system was being operated with the highest level of integrity.

3. Given the whitewashed internal reports the BC Ombudsman’s office did a five month investigation and found numerous gaps in BCLC’s ticket validation and prize payout procedures that opened the door to lottery retailer fraud.

Public Reaction

1. Declining trust, indignation, and a sense of betrayal.2. Citizens become cynical about government.

BCLC Scandal

Consequences 1. The Ombudsman’s report produced 23 recommendations related to improvements in customer complaint tracking, retailer ticket validation procedures, and the monitoring of retailer play and win rates, all of which were accepted by the BC government and BCLC.

2. BCLC CEO fired and given a substantial severance pay-out.

3. Integrity of BCLC’s lottery ticket agents and operating systems questioned.

Lessons Learned

While lottery ticket verification standards and the handling of customer complaints have improved, BCLC has encountered a series of mini-scandals related to money laundering and loan sharking in BC casinos; and technological breakdowns of its Internet gambling software resulting in a security breach of customer’s private information.

Conditions Underlying These Scandals

Structural Conduciveness

Dysfunctional Corporate Structure--Misplaced Priorities--Willful Blindness--Perils of Puffery--Public Expectation of Sanity and Probity

Scandal Resolution

Three Common Reactions

Redemptive Organization

Treading Water Organization

Rogue Organization

Concluding Thoughts

Has there been substantial change?

Continuing slip-ups

Gaining credibility