The Nova Scotia Legislature

The House resumed on:
September 21, 2017.

Public Accounts Committee -- Wed., May 19, 1999

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HALIFAX, WEDNESDAY, MAY 19, 1999

STANDING COMMITTEE ON PUBLIC ACCOUNTS

8:00 A.M.

CHAIRMAN

Mr. Howard Epstein

DEPUTY CHAIRMAN

Mr. Hyland Fraser

MR. CHAIRMAN: Ladies and gentlemen, good morning. We do have a quorum for the committee, so now we can start. Today we are going to continue our examination of the relations between the Nova Scotia Gaming Corporation and the Atlantic Lottery Corporation. We have representatives of the Atlantic Lottery Corporation here with us this morning. I would like to welcome all of you.

So that you know who you are dealing with, my name is Howard Epstein. I chair this committee. We have a range of members of the committee and I think you will have in front of you a list. I should point out that there is one substitution. On your list it will show Rosemary Godin, but Helen MacDonald is substituting for her today. We also have, coming along the row, Neil LeBlanc and John Leefe, then Helen MacDonald. We have Darrell Dexter, Hyland Fraser and Russell MacKinnon.

The way we will proceed is we will invite you to introduce yourselves and make an opening statement. I have seen a written opening statement, so I gather you might wish to speak to that. After, we will turn to the members of the committee and invite them to pose any questions that they might have. I see that on the agenda list we are scheduled to be here from 8:00 a.m. to 11:00 a.m. It is not at all clear to me that we may need all of that time to go through the issues and we do have some other things that we have to tend to, but certainly there is ample time, I believe, to cover the issues that we would like to have a look at. So, that said, perhaps you can introduce yourselves and proceed with an opening statement.

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MR. CLUNY MACPHERSON: Well, Mr. Chairman, if I might, maybe I can introduce the staff that I brought with me. On my immediate left is Francene Phillips who is my EA. On my immediate right is my Vice-President of Corporate Services, Carmen McAffee and to his right is the Manager of Public Affairs, Cynthia Goodwin. My name is Cluny Macpherson and I am President and CEO of the organization.

Since my prepared statement has already been circulated and I am sure some of you may have had a chance to read it, rather than read it again to you, I will just run through the highlights of what I have said in that statement.

The Atlantic Lottery Corporation is very proud of the relationship it has had with its four shareholders over the 23 years that we have been in existence. We have been extraordinarily profitable to the point where we have generated funds over that period of time in excess of $2.5 billion. We have returned, over that period of time, to the Province of Nova Scotia, some $852 million and we feel that that is a record that we can be very justly proud of.

Our relationship with regard to other lotteries, in terms of how we compare, is one of the best in the world; in terms of our profitability per capita, we are ranked, I think, sixth in the world. So we have a record that I think is considered by the hundreds of other worldwide lotteries to be somewhat enviable. We have a track record that has proven that not only are we innovative, but we have been the first in the world in many things that we have done that have been duplicated.

We were the first to put bar codes on instant products to protect them from forgeries. Now there is not a system in the world where that kind of a device is not available. We were the first in the world to introduce Bingo, which is probably one of the most successful scratch-off tickets that has ever been seen. We were the first in the world to bring in Crossword which, again, is an extraordinarily successful product that we take great pride in. It has been emulated, again, throughout the world. So we are considered, as I say, in essence, a leader.

With regard to our future, we are very secure in the knowledge that three of the four remaining shareholders have indicated very strongly that they fully support the Atlantic Lottery Corporation and they intend to continue with us and to enjoy the success that we have experienced in the past. So we are quite optimistic and very comfortable with our position in the future. At that point, Mr. Chairman, I would be more than happy to answer any questions that anyone may have of us.

MR. CHAIRMAN: Mr. Macpherson, thank you very much. You were very concise. The way we proceed, I should explain, is the three Parties in Nova Scotia are represented on this committee. We take turns according to caucus. So I will turn first to the members of the

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NDP caucus and then to the PCs and then to the Liberals. We will then rotate again through. We usually go in about trenches of 20 minutes. So I will start with Mr. Dexter.

MR. DARRELL DEXTER: Mr. Chairman, I have a few background questions first and I think some of them may have been covered as a result of the testimony that Ms. Gordon gave the week before last, but I guess it is for the sake of confirmation that I go over them with you as well. You had indicated that there was a net profit last year of $318 million?

MR. MACPHERSON: Correct.

MR. DEXTER: What money comes in? What is the revenue figure for that year as opposed to the profit figure?

MR. MACPHERSON: The revenues were in excess of $800 million. I think it was approximately $820 million.

MR. DEXTER: Would you know how much of that would come out of the Province of Nova Scotia?

MR. MACPHERSON: For what we call the traditional product - which is the lottery side, not the video lottery - it is approximately $182 million.

MR. DEXTER: I'm sorry. What did you say?

MR. MACPHERSON: For the traditional product, which is what we call the lottery tickets as opposed to the video lottery, it was $182 million.

MR. JOHN LEEFE: Is that gross?

MR. MACPHERSON: That's gross.

MR. DEXTER: The VLT revenue?

MR. MACPHERSON: The net VLT revenue, and that is net of prizes, was approximately $120 million.

MR. DEXTER: So, of the roughly $300 million that comes out of Nova Scotia, roughly $119 million comes back, about one-third?

MR. MACPHERSON: Yes, roughly.

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MR. DEXTER: I guess that is kind of the substance of the dispute with the Gaming Corporation, that not enough of the money that comes out of Nova Scotia comes back to it. Is that a simplified . . .

MR. MACPHERSON: My understanding of the situation, and you have to understand please that this is a shareholder issue wherein policy is being discussed, not day-to-day management which is what I deal with, that Nova Scotia felt that they had been short changed some monies. I must also point out to you though that in 1992, they signed, along with the other three shareholders, a profit-sharing agreement that they unanimously agreed to; they being all of the four shareholders.

MR. DEXTER: How long does the agreement run?

MR. MACPHERSON: I guess it really runs until a majority of the shareholders choose to change it.

MR. DEXTER: So, it is not a five year agreement?

MR. MACPHERSON: No. When the corporation was founded in 1976, the four shareholders signed a profit-sharing agreement that they were comfortable with at that time. When we introduced the video lottery products in 1991-92, the majority of the shareholders felt that, at that time, it would be advantageous to readdress the profit-sharing agreement, which they did. They negotiated among themselves and they signed it unanimously. Like any other democratic organization, if it is to be changed, the majority have to agree to change it.

MR. DEXTER: One of the issues that has been raised for this committee, from the perspective of the Gaming Corporation, is that Nova Scotia is the only province in which the regulator and the operator are different. There was some suggestion that because of that breakdown, the way in which this system works, and the fact that there was an obligation on behalf of the Gaming Corporation to proceed in a socially responsible manner and to put in place controls and mechanisms to protect the public, this was a cause of friction with the rest of the Atlantic Lottery Corporation. The suggestion was that the other shareholders were not under the same obligation. I would be interested to hear what you have to say about that.

MR. MACPHERSON: I would take exception to the remark in that it implies that the other shareholders are not dedicated towards responsible gaming. They certainly are, as is the Atlantic Lottery Corporation. We have followed very stringent policies and the rules and regulations with regard to how we market our products in all four Atlantic Provinces. The fact that, as you point out, there is a separation of the operator and regulator in Nova Scotia does make it a slightly different scenario, but I would again dispute the fact that it necessarily makes it better.

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MR. DEXTER: Did you have an opportunity to read Ms. Gordon's testimony before the Public Accounts Committee before you came here?

MR. MACPHERSON: Yes, I did.

MR. DEXTER: So, you know what the substance of her remarks are in this regard?

MR. MACPHERSON: I do.

MR. DEXTER: Were there other things about that which you found troubling?

MR. MACPHERSON: Well, I don't want to be specific, but I would suggest to you that Ms. Gordon was in a position where she wishes to sell the position that she has presently taken. There are differences of opinion. I don't think they are major. I certainly respect the position that the Nova Scotia Gaming Corporation has taken. If this is their choice, if this is their wish, then I will certainly adhere to it. In light of some of the things that are happening in Atlantic Canada, I just find it a little difficult to understand why a group, or a shareholder, would wish to break away from probably the most successful public and/or private organization that this part of the country has ever seen. As an example, I would suggest to you the telephone companies. They have recently indicated, under Gerry Pond, that they intend to amalgamate for efficiencies of scale. This seems to run in the face of what is presently happening with the Atlantic Lottery Corporation.

MR. DEXTER: The telephone companies, of course, are a bit different. Their major shareholder, I think of all of the phone companies, is Bell Canada and they have a collective interest in that sense.

MR. MACPHERSON: I don't think they would do it at their own disadvantage, do you?

MR. DEXTER: No, true enough. I think if you read through that, you will know that I raised questions about Atlantic cooperation with respect to other vehicles, including the MPHEC and organizations like the police academy. Certainly the Atlantic Provinces have a long history of trying to cooperate.

MR. MACPHERSON: There are many fine examples. The few that you have mentioned, the IWK, the School of Medicine, the School of Dentistry, there are many numbers of them.

MR. DEXTER: As you said, this is a very successful undertaking. Perhaps you are in a position to know best what the risks are for Nova Scotia should we pursue this independently.

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MR. MACPHERSON: It would be very hard at this time to try to assess what those risks would be, simply because I have not been privy to the plans that the Nova Scotia Gaming Corporation have put together. I have not seen any of their financial documentation to justify some of the positions they have taken, nor do I have any indication as to what their intent may be in the future with regard to possible cooperation with the Atlantic Lottery Corporation or with some other lottery jurisdictions. The only thing that I am aware of is basically what I have read in Hansard.

MR. DEXTER: This is part of what I find a little bit confusing about this situation because there seemed to be, in Ms. Gordon's testimony the last time, the indication that there is going to continue to be some kind of level of cooperation. I guess I wonder a little bit about how the corporation views that. I was thinking particularly with respect to harness racing, which I understand is going to continue on with the Atlantic Lottery Corporation. Maybe these are all subject to negotiation, but I am just wondering, is there some set of objectives that will continue to be met cooperatively that have already been agreed on?

MR. MACPHERSON: Well, Mr. Dexter, you have my assurances that the Atlantic Lottery Corporation will do whatever it can to assist the Nova Scotia Gaming Corporation in whatever their endeavours are, but unfortunately I am in a position where I can't share with you what those endeavours may be because I have not been consulted. As I say, most of what I understand that Nova Scotia might do, I have either read in the newspapers or in Hansard.

MR. DEXTER: So, there have been no discussions as far as you are concerned about, for instance, the horse racing?

MR. MACPHERSON: The horse racing, there was some very brief discussion on that, but not really discussion as much as an indication from the Nova Scotia Gaming Corporation that they chose to remain within the Atlantic Lottery Corporation Harness Racing Inc. But other than that, no, I have not been privy to negotiation.

I would hasten to point out that I am not a director of the Atlantic Lottery Corporation. There have been meetings of the shareholders of the Atlantic Lottery Corporation and the directors of the Atlantic Lottery Corporation to which I have not been privy. It is not impossible that some of those negotiations may have taken place at that level and I have not been informed.

MR. CHAIRMAN: I wonder, Mr. Macpherson, if I could just supplement that by asking a couple of questions. The people responsible in Nova Scotia for gaming are the Minister of Finance and Ms. Gordon as Chair of the Gaming Corporation, and to the extent that they have made any public pronouncements about what has led to the decision to enter into withdrawal negotiations, it has focused exclusively on money. It has been presented publicly as a money issue, a question of the fairness of the allocation of the profits. I am

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wondering if, from your perspective, you are aware of whether there are any other issues that have been involved in causing this proposed withdrawal?

MR. MACPHERSON: Again, I am certainly not privy to any other reason. I would again point out to you that I am solely charged with operations. I am not involved in policy setting. It is not impossible that there may be other issues that have been raised at the board level of which I was not made aware. I have never heard of any reasons other than the fact that there is this alleged shortage of funds that Nova Scotia feels they are entitled to.

MR. CHAIRMAN: I should be clear, I am not aware of any other, it was more a pro forma question. Did I understand from what you said that you wouldn't attend board meetings?

MR. MACPHERSON: I attend board meetings and am privy to all of the items that are brought up, but the board does have the opportunity to meet in camera, at which time I am not in attendance and there are no minutes kept.

MR. CHAIRMAN: I take it then that the board has met in camera from time to time. Is that right?

MR. MACPHERSON: They have indeed.

MR. CHAIRMAN: You are not aware at all of what is discussed?

MR. MACPHERSON: I am not.

MR. CHAIRMAN: You are not aware of whether the issues of the potential withdrawal have been discussed in camera?

MR. MACPHERSON: Sir, there is no agenda and there are no minutes, and I am not privy to the carryings-on of those meetings, therefore I could not tell you or even speculate as to what is discussed in those meetings.

MR. CHAIRMAN: All right. So, no agenda and no minutes and no leaks apparently. We have heard about some potential advantages to Nova Scotia setting up an independent system here. Can you tell us anything of the impact on Atlantic Loto and its operations of the withdrawal of Nova Scotia? You did say that the other three partners or shareholders intend to continue on, but I assume that there must be some impact on Atlantic Loto and its operations. Could you elaborate?

MR. MACPHERSON: Sir, I think it is fair to say that if a shareholder were to leave a company and take 40 per cent of its business with him that there would inevitably be an impact on the organization and in our case there will be an impact. There will be an impact

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on the operations of the head office in terms of the fact that the volumes of business that we have to deal with will be substantially reduced. We are very confident that we can manage that impact, that we can come out of it as successful, if not more successful, than we have in the past.

MR. CHAIRMAN: Will there be loss of employment?

MR. MACPHERSON: There will be some downsizing, but I think that at our present pace attrition will probably look after the majority of it.

MR. CHAIRMAN: To the extent that attrition won't take care of it, how many positions do you anticipate losing?

MR. MACPHERSON: We have not worked it out to the finite detail of exactly how many positions will be affected. You must understand that a large number of the jobs that presently will be affected are the jobs in Nova Scotia.

MR. CHAIRMAN: How will that be?

MR. MACPHERSON: There are approximately 60 positions in Nova Scotia at the present time. I say approximate, because I can't recall whether it is 57 (Interruption) Excuse me, it is 65 positions.

MR. CHAIRMAN: Why will those jobs be impacted?

MR. MACPHERSON: Well, if the Atlantic Lottery Corporation is not operating in Nova Scotia, we would have no need for employees.

MR. CHAIRMAN: Yes, and then the question would be whether an independent operator in Nova Scotia would pick them up, is that right?

MR. MACPHERSON: That is correct.

MR. CHAIRMAN: Have you anything you can help us with to understanding whether that would happen?

MR. MACPHERSON: No, sir, I do not.

MR. CHAIRMAN: Okay, that is fine. Mr. LeBlanc.

MR. NEIL LEBLANC: I am trying to come to grips with this decision because we look at it in the sense of an Atlantic or Maritime agreement and it isn't only looked at in isolation and the fact that often we have ventured into agreements, whether it be through the

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Atlantic Lottery Corporation, and some of the previous speakers used examples like the IWK Hospital or the veterinary college or the police academy. We are sort of looking at this as to whether or not it will start a trend, so we are trying to, first of all, see whether this is in the best interest of Nova Scotia as a whole and not just in this one specific case.

We also asked for information from the Gaming Corporation as to the study that they have supposedly performed which shows it is in their best interest, financially, to remove themselves from the Atlantic Lottery Corporation. The Gaming Corporation is saying it is confidential and it appears there were discussions going on with the Atlantic Lottery Corporation and the other provinces, and that the release of such information could be detrimental to those negotiations. I think that is a fair assessment of what Ms. Gordon and the minister have been saying.

I would like to know whether or not there are negotiations going on and whether there are some discussions with the Atlantic Lottery Corporation and its partners that, indeed, there is some second thought, there is some reconsideration possible and that these reasons for withholding the study are actually valid. Perhaps you can enlighten the committee as to whether or not, in your opinion - and there could be some direct province-to-province negotiation that you may not be aware of, especially in your capacity as CEO of the Atlantic Lottery Corporation - can you enlighten us as to what your perception is of what is going on right now?

MR. MACPHERSON: I can't, sir, I am somewhat in the dark. There could quite possibly be negotiations going on at a higher level but I am not privy to, nor would I expect to be privy to, those kinds of negotiations.

MR. LEBLANC: So if I can understand your comments, within the Atlantic Lottery Corporation, in your official capacity, Nova Scotia is not sitting down and negotiating with you, whether as a moderator or in whatever capacity you would see it, to try to renegotiate a better deal? You are not aware of any negotiations going on, is that correct?

MR. MACPHERSON: That is correct, sir.

MR. LEBLANC: That is the reason that has been given by the Gaming Corporation that the study should not be released.

I want to go back to what the operating costs are for the Atlantic Lottery Corporation, because the concern that we have in Nova Scotia is whether or not we will actually save money. There was an audit done by the Auditor General - and I am not sure exactly what year it was, 1994, 1995, 1996, somewhere in that period - that showed that Nova Scotia, I think, was bearing too much of the expenses. The net revenue coming to Nova Scotia was not at the level that the Auditor General felt was fair, I think that is a fair way of

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putting it. First of all, going back to that audit, did you review the audit when it was done and the justification behind the Auditor General's opinion?

MR. MACPHERSON: Yes, I did.

MR. LEBLANC: Without trying to take sides, did you understand the reasoning that he put in that thing? Did you have discussions with him explaining your revenue expenses, sharing agreements that you had with the provinces?

MR. MACPHERSON: I understood what he had said, yes.

MR. LEBLANC: So the bottom line is that for ourselves, we are trying to get a feeling as to whether or not Nova Scotia can do what it is saying it is planning to do and to increase the revenues to the province. If you want to look at this as a stand-alone, let's not get into whether or not this is the right decision for the Atlantic Provinces, let's just look at this as a business decision. In your capacity as CEO of the Atlantic Lottery Corporation, looking at the expenses, the administration that you have set up, is it, in your opinion, practical for a province to do this on their own or if you want to look at it in the sense of whether or not there would be money ahead, in your opinion, would it be more feasible to be part of the group or go on a stand-alone?

[8:30 a.m.]

MR. MACPHERSON: Again, it is very difficult for me to comment on it because I have not been made privy to the plans, the budgets, the detailed expenses that I would assume the Nova Scotia Gaming Corporation has sat down and mapped out. So, without seeing those, it would be highly speculative of me to say whether it could or could not work. In terms of a general philosophy, I am a great believer in the economies of scale, which would lead me to believe that bigger is sometimes better in terms of being able to share efficiencies. But having not seen these statements, it would be, as I say, very speculative for me to comment on them.

MR. LEBLANC: There was an ad in the paper, I think it was on May 1st, by the Gaming Corporation, calling for a call for proposals for someone to administer the VLT system. In your experience as CEO, if someone were to set up a separate system just for Nova Scotia, would that system be relatively as costly as the ALC system?

MR. MACPHERSON: Yes.

MR. LEBLANC: So the efficiencies of scale in that - I shouldn't say efficiencies of scale - the costs would be relatively the same whether you run it just for Nova Scotia or whether you run it for the four provinces. Most of it is done through telecommunication

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systems and the system itself could probably handle four provinces, let alone one. Is that a fair assessment?

MR. MACPHERSON: I think it is a fair assessment. The power of computers today are such that whether you have 100 megabytes or 300 megabytes, you really aren't talking all that much of a difference in costs. So my estimation would be that the cost of a separate system would be around about the same cost of the system that we presently have in Moncton, which can monitor all four.

MR. LEBLANC: Have you been approached by the Nova Scotia Gaming Corporation to maybe subcontract some of those services? You said before that there was no movement for negotiations for whether we could get this thing resolved. Has the Gaming Corporation approached the Atlantic Lottery Corporation to subcontract some of your services?

MR. MACPHERSON: There has been some very general conversation, but I personally have not been approached with regard to contracting out certain services and there is nothing official that I am aware of. I have read in the newspapers and in Hansard that there is some talk about the possibility of requesting the Atlantic Lottery Corporation to provide services, but at this point in time I am not aware of any details.

MR. LEBLANC: Going back to what Nova Scotia would require to deliver services, and I know you have been saying that you are not privy to what they are contemplating. To deliver the services for any operator, if any province wanted to set up a new lottery corporation itself, would they have to set up, in your opinion, a relatively similar situation to yourselves to deliver other services? We have talked specifically about the VLTs and whether you would have to have a similar computer system, which you have indicated you would, because today with the powers of computers, it is amazing how much they can handle, and I think it would be a similar system to what you have.

For the other services that you provide - the administrative and the distribution systems and so forth - if any new province were to set it up, would you basically be looking at setting up a relatively similar parallel program to what you have in effect?

MR. MACPHERSON: It would be smaller scale, obviously, because you wouldn't be handling the same volumes of business or dealing with the same numbers of people. In essence, yes, if you set up an organization to operate in the hundreds of millions of dollars, you need administrative staff, you need personnel staff, you need training staff, you need sales staff, you need marketing people and, again, as I said, in maybe a smaller scale, the same kind of organization. So there is a lot of duplication, yes.

If I can give you an example, the Atlantic Lottery Corporation operates in Atlantic Canada and does approximately $800-some million in sales. Lotto Quebec operates in Quebec and does in excess, obviously, of what we do because of the much greater population, but

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their organization, while it is larger than ours, is very similar. They cover off the same kinds of services that we cover off and provide the same kinds of services that we provide. So there is considerable duplication.

MR. LEBLANC: Thank you, Mr. Chairman, I will pass to my colleague.

MR. CHAIRMAN: Mr. Leefe.

MR. LEEFE: Mr. Chairman, I share a concern raised by Mr. Dexter that Nova Scotia seems to be preparing to go it alone in a number of areas. He has made reference to the police academy among others and more recently we have heard rumblings out of New Brunswick with respect to the Dalhousie Medical School, which has traditionally served the Maritime Provinces as the centre for medical education and so on. A disturbing trend, which may be full of coincidences but on the other hand it may not.

I would like to ask Mr. Macpherson, or indeed any of the other of our witnesses who are here today who may wish to respond, what in their estimate would be the cost to Atlantic Lottery Corporation if Nova Scotia were to drop out and whether or not they have given any consideration to what it might cost Nova Scotia to go it alone?

MR. MACPHERSON: We have not done all of our planning with regard to our future in terms of detailed budgets. At this point in time I feel comfortable in saying to you that if you lose 40 per cent of your business then the chances are you are going to have to look at at least 40 per cent of your expenses and at this particular stage of the game, we are trying to assess those kinds of things. So, I can't really give you in-depth detail but recognizing that there are certain aspects of the administrative side that we would have to carry on regardless.

With regard to the expenses that Nova Scotia would incur, the Nova Scotia Gaming Corporation would incur, working independently, I have not been made privy to their budget, so I don't know. It might be fair to say that if 40 per cent of the expense of the Atlantic Lottery Corporation is incurred in operating the Nova Scotia side of our business, then maybe 40 per cent of our budget might represent something along the lines of what they might expend. But there are many different ways of doing business that I have not been made privy to in Nova Scotia on how they intend to proceed.

An example would be, they may choose to go to some of the major suppliers and rather than make capital purchases, which require depreciation, et cetera, may choose to work out some sort of agreement that the operations could be done as a per cent of sales. These can have fairly dramatic impacts on the statements initially. Over the long period of time, whether you buy or you lease, it usually comes out to similar figures but initially it could make a big difference. As I say, not having been made privy to this stuff I really am not in a position to comment.

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MR. LEEFE: Mr. Chairman, I wonder if Mr. Macpherson or any of the others have a sense that there is an economy of scale available through the present arrangement which might not be available should Nova Scotia determine to withdraw as a partner and go it alone?

MR. MACPHERSON: I am not sure I understand your question. Are you asking me if I believe there are economies of scale by an organization staying together?

MR. LEEFE: Yes.

MR. MACPHERSON: Yes, I do believe there are economies of scale.

MR. LEEFE: Can you give us some examples?

MR. MACPHERSON: Well the example that I would use, again, is the purchase of capital equipment. Why duplicate two systems when you can buy one for 40 per cent? If I can maybe be a little light-hearted, you are going to need a CEO to run your organization, well you are already paying 40 per cent of my salary, why get two?

The other one I would use and is probably the best example, is advertising. We advertise throughout Atlantic Canada, obviously we advertise in Nova Scotia, you are going to have to bear the full brunt of all the advertising in Nova Scotia. You share some of those expenses right now with us when we advertise in Atlantic Canada. We would advertise throughout a television system which is obviously considerably less than advertising in one province at a time.

MR. LEEFE: I found it interesting, but I must say not surprising, that the board when meeting in camera would have no minutes kept nor would there be an agenda, at least not an agenda that would be known to anyone other than the board members. My assumption would be when the board is sitting that it must, from time to time, pass motions, give direction to the corporation?

MR. MACPHERSON: Most definitely. There are very meticulous records kept of all of the board of directors' meetings and any subcommittees of those boards but, I think like any other organization, every once in a while a group or a board would like to meet in camera. It is not an unusual procedure by any stretch of the imagination, often it is just to try and get a feel for what position they may want to go forward with and, as I say, that is certainly not unusual, it is just that when the board does meet in camera, I am not privy to that so I can't speak to what they may be talking about.

MR. LEEFE: There are equal numbers of persons on the board from each province participating?

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MR. MACPHERSON: With the exception of Nova Scotia.

MR. LEEFE: Which has?

MR. MACPHERSON: One director.

MR. LEEFE: One director. The others have?

MR. MACPHERSON: Two.

MR. LEEFE: So can you help me understand how Nova Scotia could carry the day with its point of view with one vote against how many others from the other provinces?

MR. MACPHERSON: There are two from each of the other provinces, which would mean six and, no, I can't answer that question.

MR. LEEFE: So six from the other provinces and one from Nova Scotia.

MR. MACPHERSON: There are six from the other provinces, one from Nova Scotia, but it is Nova Scotia's choice as to how many directors they would have, either one or two, and they chose at this time to have one.

MR. LEEFE: When decisions are taken, are they taken on the basis of one vote per province?

MR. MACPHERSON: Yes, on major issues. On issues of major policy, yes.

MR. LEEFE: And Nova Scotia's board member is?

MR. MACPHERSON: Dara Gordon.

MR. LEEFE: Coincidentally, she also happens to fulfil another position here in Nova Scotia.

MR. MACPHERSON: I believe so, yes.

MR. LEEFE: What position is that, now? I want to make sure we have the same person.

MR. MACPHERSON: I believe that the person who serves on my board of directors is also the Vice-Chairman of the Nova Scotia Gaming Corporation.

MR. LEEFE: And, in fact, is the Acting Chairman, I believe.

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MR. MACPHERSON: I believe the title she uses is Vice-Chairman of the Nova Scotia Gaming Corporation.

MR. LEEFE: She is the major-domo of the corporation at this point.

MR. MACPHERSON: I am not going to dispute that with you, sir.

MR. LEEFE: So what we have here then is a person representing Nova Scotia at the table who may have - and I don't expect you to comment on this, I will just pass it off, may well have another agenda which doesn't include the corporation. It seems to me that there just may be a little competition between the Gaming Corporation and Atlantic Loto, at least some of your clientele. You must be working some of the same clientele in competition with each other. I wonder if there is anybody from Superstore sitting on the board of Sobeys?

MR. MACPHERSON: I never looked into it.

MR. LEEFE: Very interesting.

MR. CHAIRMAN: Mr. MacKinnon.

HON. RUSSELL MACKINNON: Mr. Chairman, through you, to Mr. Macpherson, I am a bit intrigued by some of your comments with regard to Ms. Gordon and the Nova Scotia position on this particular issue. When you were asked with regard to Ms. Gordon and Nova Scotia pulling out of the ALC, I believe your quote was, "Ms. Gordon is selling a position that she has chosen.". Could you clarify those comments?

MR. MACPHERSON: Would you repeat what you said I said, please?

MR. MACKINNON: Well the quote that I wrote as you spoke is, "Ms. Gordon is selling a position she has chosen", with regard to Nova Scotia pulling out of the Atlantic Lottery Corporation.

MR. MACPHERSON: Yes, I believe Ms. Gordon very strongly believes in the position that she has taken and she is certainly entitled to that position.

MR. MACKINNON: But you don't agree?

MR. MACPHERSON: No sir, I don't.

MR. MACKINNON: My next question would be, you refer to 'alleged shortcomings' in terms of Nova Scotia's position that it is not receiving its fair share. It took several years for the Nova Scotia Government, certainly with the efforts of the honourable member for Queens who helped to have the Auditor General do an audit which demonstrated quite clearly

[Page 16]

that Nova Scotia was being shortchanged. You seem to infer that you are taking issue with our Auditor General's position. Is that really what you are saying?

MR. MACPHERSON: No sir, I am not. The Auditor General has pointed out what he feels very strongly is a shortcoming. All I am suggesting to you is that there is a 1992 unanimous shareholders agreement that deals with profit distribution and that agreement has not been changed.

MR. MACKINNON: But that requires a unanimous vote of approval for any change to take place. Is that not correct?

MR. MACPHERSON: No, it would require a majority vote. No, sorry. I stand corrected, it would take a unanimous vote.

MR. MACKINNON: Yes. You have also indicated, Mr. Macpherson, you do not attend board meetings as a rule, is that correct?

MR. MACPHERSON: No. I attend all board meetings. I do not attend board meetings in camera.

MR. MACKINNON: If Nova Scotia took a particular position, it is majority rule at the board on most general positions except for this one in terms of changing the allocation of funding and so on. You have indicated that Nova Scotia has one vote on the board and there are six other positions.

MR. MACPHERSON: No. Nova Scotia has one director. They have one vote as do each of the provinces. You have in total four votes.

MR. MACKINNON: I am going to fast forward a bit to New Brunswick's position with regard to Nova Scotia's pulling out of the Atlantic Lottery Corporation. Is it correct to assume that New Brunswick offered to pay for Newfoundland's shortcomings in terms of the financial distribution?

MR. MACPHERSON: Sir, that is a policy issue that I am not privy to.

MR. MACKINNON: You are not privy to that position even though you attend board meetings?

MR. MACPHERSON: This was a discussion among shareholders at a much higher level than I would attend.

[Page 17]

MR. MACKINNON: In other words, any decision or discussion with regards to whether Nova Scotia would stay or leave or any other position by any of the provinces, you wouldn't be at those meetings would you?

MR. MACPHERSON: No, I wouldn't.

MR. MACKINNON: To leave the impression that you weren't involved in the discussions, that would have been as much a decision by the other three provinces as it was Nova Scotia's. Is that not correct?

MR. MACPHERSON: Again, sir, I was not privy to those discussions so I really don't know.

MR. MACKINNON: That is because you weren't at the meetings.

MR. MACPHERSON: That is correct.

MR. MACKINNON: In terms of benefits, Moncton, I understand that is where the head office is for the Atlantic Lottery Corporation?

MR. MACPHERSON: That is correct, sir.

MR. MACKINNON: How many people in total are employed?

MR. MACPHERSON: At the head office?

MR. MACKINNON: Yes.

MR. MACPHERSON: There is approximately 270.

MR. MACKINNON: Obviously there would be considerable expenditures and revenues generated in and around the Moncton area because of that?

MR. MACPHERSON: I think that is a fair assessment.

MR. MACKINNON: Now your procurement policy, buying office supplies, anything from desks, telephone services, scotch tape for example, anything, where is that generally purchased?

MR. MACPHERSON: It would be generated out of Moncton but not necessarily restricted to New Brunswick. In actual fact you raise a very good point that maybe I could share with you. Nova Scotia does and will continue to benefit economically from the Atlantic Lottery Corporation. A case in point that I would use, two cases in point that I would use is

[Page 18]

that in September of this year we are hosting an international conference of the North American Association of State and Provincial Lotteries and the benefit to the City of Halifax will probably be about $3.5 million. We are in the process of negotiating with a company called Spielo which has its head offices in Moncton, to purchase some $30 million of new terminals. My understanding is those terminals will be built in Amherst. We are quite influential on the international scene, as I mentioned earlier, and played an instrumental role just as recently as a few days ago in attempting to convince the two national Dutch lotteries to deal with Spielo in the purchase of terminals. If the company is successful, it would be a further $60 million worth of manufacturing that would take place again in Amherst. To suggest that we do not attempt to give as much economic benefit to Nova Scotia as we can would, I think, be misleading.

MR. MACKINNON: On the big picture, what percentage does that represent? What percentage of total expenditure in the last two years could you identify as going to Nova Scotia, Prince Edward Island and Newfoundland vis-à-vis what was spent in New Brunswick?

MR. MACPHERSON: I could not identify that for you because I . . .

MR. MACKINNON: Could you give us an undertaking to provide that information?

MR. MACPHERSON: I certainly could.

MR. MACKINNON: You mentioned about economy of scales and you seemed to raise the spectre that perhaps Nova Scotia - or at least that is the impression that I received - was going into some very dangerous and uncertain waters here and could be boxing itself in. You made reference to the $182 million in sales and that is for the online tickets?

MR. MACPHERSON: The online, the scratch off and the break-open tickets.

MR. MACKINNON: What was the net amount returned to Nova Scotia?

MR. MACPHERSON: The net amount returned in terms of profits?

MR. MACKINNON: Yes.

MR. MACPHERSON: In total it was $119 million but that includes the VLT as well.

MR. MACKINNON: Would the figure $38 million seem appropriate, the net?

MR. MACPHERSON: The $38 million in terms of our normal products, is this what you are referring to, things like the 6/49, et cetera?

MR. MACKINNON: Yes.

[Page 19]

MR. MACPHERSON: Yes, that is close enough.

MR. MACKINNON: In 1997, the previous year, according to the annual report, there was $172 million in sales in Nova Scotia? Is that correct?

MR. MACPHERSON: Yes.

MR. MACKINNON: The net return was $41 million?

MR. MACPHERSON: Yes, that is correct.

MR. MACKINNON: So if we get any better, we are going to be bankrupt, Nova Scotia, because on an economy of scale we are doing worse as we sell more. Why is it that we are getting less when we are selling more?

MR. MACPHERSON: I think in some instances some of the products that you are selling more of have a higher prize payout, such as break-open, which is one of the factors.

MR. MACKINNON: But not the major factor?

MR. MACPHERSON: One of the factors, I am not sure which one would be the major factor.

MR. MACKINNON: Could you provide a detailed analysis of that for the committee?

MR. MACPHERSON: Yes, we could do that for you.

MR. MACKINNON: I want to go back to these alleged shortcomings because I really have a difficulty with that because we value and we respect the Auditor General's opinion here in Nova Scotia quite highly.

MR. MACPHERSON: As do we.

MR. MACKINNON: So do you agree that Nova Scotia has been shortchanged, if you value his opinion?

MR. MACPHERSON: It is not my position to agree or disagree with what . . .

MR. MACKINNON: Let's go away from that. Let's be fair. Percentage-wise, okay, you are a CEO, let's deal strictly with numbers, on a percentage basis is Nova Scotia getting its appropriate percentage?

[Page 20]

MR. MACPHERSON: Based on the agreement that Nova Scotia and the other three shareholders signed in 1992 . . .

MR. MACKINNON: I am not interested in the agreement. I am just talking hard core numbers?

MR. MACPHERSON: But you have to . . .

MR. MACKINNON: We are talking a policy decision, Mr. Macpherson.

MR. MACPHERSON: I answered.

MR. MACKINNON: But you have already indicated that, number one, that is beyond your purview?

MR. MACPHERSON: Absolutely.

MR. MACKINNON: Secondly, you do not attend those meetings. Thirdly, you are taking issue with the Auditor General of the Province of Nova Scotia who has gone to great lengths over a number of years to be able to even get to do an audit on the Atlantic Lottery Corporation and you come to Nova Scotia and then you take issue. You even raise the suggestion that perhaps his assessment is an alleged shortcoming assessment. I am looking strictly at numbers, I am not looking at the policy side. On a percentage basis, is Nova Scotia getting its appropriate percentage?

MR. CHAIRMAN: These are perfectly good questions, Mr. MacKinnon. Maybe you can give him an answer.

MR. MACPHERSON: Yes, I am sure they are, but what I think Mr. MacKinnon has to realize is that I am the CEO of an organization and thereby I am, by law, required to carry out the policies as set down by the board of directors. So whether I necessarily agree with them or not is immaterial. The policy of the Atlantic Lottery Corporation, as presently set out, dictates how the profits of the Atlantic Lottery Corporation are to be divided and I follow that policy. Do I agree with it or not is totally immaterial. That is not for me to say. I am to follow the instructions of my board of directors, which I will do. I am sure there are probably laws in the Province of Nova Scotia that you may or may not necessarily agree with, but you carry them out.

MR. MACKINNON: Well, I guess, through you, Mr. Chairman, my first priority - and that is why I was elected here - is to represent Nova Scotia's interests and the detailed analysis, and certainly supported by the Auditor General is that Nova Scotia is being shortchanged. It would appear to me that if New Brunswick is going to the extent of bellying up to the bar on Newfoundland's shortcomings, there must be quite a loss in somebody's

[Page 21]

domain. Yet, at the same time, refusing, when it is quite evident that the more we sell, the less we get. They are not my figures. These are the annual report's.

MR. MACPHERSON: Yes, and there is good justification for many of those. I might also add that in total, it is up and I think that is what we look at. You can break these statements down, I guess, to indicate whatever you feel is appropriate to indicate. I am not a chartered accountant, I am not an auditor by profession, but I am aware that with a little bit of creative work you can make numbers say almost whatever you want. What I look to is the bottom line. The bottom line indicates that the profits in Nova Scotia have continually increased over the years and that is what is important to me, the fact that I can maximize the return of those profits to my individual shareholders. The fact that one segment may be a little down while the other segment is up is of concern, but certainly not of major issue.

MR. MACKINNON: What is the factor that is used as a multiplier factor in job creation in New Brunswick?

MR. MACPHERSON: I am not sure I understand you.

MR. MACKINNON: Would it be two or three? For every direct job, how many indirect jobs?

MR. MACPHERSON: I don't know.

MR. MACKINNON: So it would be fair to say two. I think in Nova Scotia, depending upon the employment, what sector of the economy, sometimes we will use two, sometimes we will use three. So if we used, very cautiously, the factor of two, that is an additional 500 jobs. So that is 750 jobs in and around the City of Moncton. You indicated there would be a 40 per cent reduction. Would that mean that you would see a 40 per cent reduction in those?

MR. MACPHERSON: Well, as I said before, we have not done all of the work that we need to do in analyzing exactly what our requirements and needs will be, so it would be premature of me to say that that impact would be as you described it. I really can't answer that question at this time.

MR. MACKINNON: I would like to fast forward on Nova Scotia going it alone, so to speak, and the concern that you raised in terms of cost. I think you alluded to the possibility that that would almost be, or could be, cost prohibitive if we are looking at the economies of scale.

MR. MACPHERSON: I didn't say it would be cost prohibitive.

[Page 22]

MR. MACKINNON: No, but you alluded to the fact that it could be very difficult to go it alone.

MR. MACPHERSON: No, I just said I thought that many of the expenses that are presently shared with the other three shareholders would have to be borne by themselves. I think that was as far as I went.

MR. MACKINNON: Mr. Macpherson, through you, Mr. Chairman, who initially contacted you to attend this session?

[9:00 a.m.]

MR. MACPHERSON: The young lady who sits here at the desk, I believe.

MR. MACKINNON: How long ago was this?

MR. MACPHERSON: Approximately two weeks ago. In actual fact, I don't believe she contacted me. She contacted my assistant.

MR. MACKINNON: You are a resident of New Brunswick?

MR. MACPHERSON: I am, sir.

MR. MACKINNON: Born and raised?

MR. MACPHERSON: No, sir.

MR. MACKINNON: Do you like New Brunswick?

MR. MACPHERSON: I enjoy New Brunswick. I have lived there in excess of 20 years but I am an eighth generation Newfoundlander and very proud of it.

MR. MACKINNON: Very good. I am part Newfoundlander myself.

MR. CHAIRMAN: Are you looking to recruit Mr. Macpherson?

MR. MACKINNON: Well, if he wants to bring those jobs to Nova Scotia.

MR. MACPHERSON: Well, you are dealing with an issue that obviously is far bigger than I could possibly come to terms with. You have to recognize that there are any number of industries here in Nova Scotia that are not duplicated in other provinces.

[Page 23]

MR. MACKINNON: I am just being a bit light there, I think you know that, Mr. Chairman.

MR. CHAIRMAN: Mr. Fraser.

MR. HYLAND FRASER: Good morning, Mr. Macpherson. I just want to go back to the jobs for a second. I think you said earlier there were 450 jobs under the Atlantic Lottery Corporation between head office and scattered around the four provinces?

MR. MACPHERSON: Yes, approximately.

MR. FRASER: How many of those would be in Nova Scotia?

MR. MACPHERSON: I believe there are some 65 or 68 jobs here in Nova Scotia.

MR. FRASER: What kind of jobs would they be? Where would these people be working?

MR. MACPHERSON: Some of them would be working in our offices in Dartmouth, a few of them, but the majority of them are spread throughout the province, basically employed in two levels. One is the repair and maintenance of our machines, and I am talking about both the VLT machines and our lottery machines, and the other group is involved with the sales and distribution of our conventional products and the servicing of the video lottery locations as well.

MR. FRASER: So if in a shopping mall or in a store, wherever there is an Atlantic Lottery booth set up, that would be an employee of the Atlantic Lottery Corporation or would that be a dealer?

MR. MACPHERSON: No, that would be a dealer, an individual retailer who would provide the services of selling you a ticket, but we would ensure that everything that is needed to back up that service would be provided by our staff.

MR. FRASER: In your annual report for 1997-98, you show total commissions of $143 million. How is that calculated?

MR. MACPHERSON: It is calculated based on the sale of our products and the sale of our products will vary in terms of the commissions paid out by product, in some instances, and by province in others.

MR. FRASER: It says in the report that draws and processes are audited. How is that done?

[Page 24]

MR. MACPHERSON: We have an internal audit department that provides some of those services to us, but that is augmented and overseen by external auditors and our external auditors are KPMG and have been for some time.

MR. FRASER: Some games, some tickets, I guess, are more successful than others; some are duds and some are good sales. I think you had indicated to Minister MacKinnon that some are more profitable than others or some are less so. Where do you come up with new games? Do you people have research? Is it something that you purchase from other places? Do you have proprietary games that are only yours that you can sell to other jurisdictions?

MR. MACPHERSON: I guess I could probably almost say yes to all of what you alluded to, but let me put a plug in for our marketing department. We have some extremely creative, very bright people who have come up with some, as I think I alluded to earlier, of the most successful games that the industry has ever seen. I might even go so far as to tell you that in one instance it was in spite of me. A number of years ago when our people came to me and suggested that a bingo game would be successful, I told them that my feeling was that bingo was very much a social game that people played together and that it wouldn't work. They obviously proved me wrong.

We have copied games from other jurisdictions. We have shared games with other lottery jurisdictions across Canada such as Super 7 and 6/49 and we have come up with some very successful games and yes, we have on occasion come up with a few duds.

MR. CHAIRMAN: That was the end of round one, we will start again, and again we will go in 20 minute groupings. Perhaps I can start off with a couple of questions. I wonder if I heard correctly some of your answers to some of the questions that were asked about the negotiations. Can we follow through the formalities of what it is that is going on now between the Gaming Corporation and Atlantic Loto? As I understand it, at the very least, notice of intention to withdraw has been given and I believe Ms. Gordon told us that, as she said in her evidence, that formal notice of intention to withdraw was given on March 9th. Now notice of intention is, although a formal step, not quite the same thing as an actual notice that withdrawal will take place. Has any formal step been taken beyond that, that you are aware of?

MR. MACPHERSON: The only thing I am aware of is that verbal notice of intention to withdraw was given, as you say on March 9th at a board meeting of the Atlantic Lottery Corporation. Beyond that I am not aware of any other notices.

MR. CHAIRMAN: So at this point it is notice of intention but was this conditional in any sense? Have you seen a document or did you just characterize it as verbal and not in writing?

MR. MACPHERSON: It was verbal and no I have not seen any documents.

[Page 25]

MR. CHAIRMAN: So are negotiations actually taking place that you are aware of?

MR. MACPHERSON: At the board level there are some ongoing negotiations but I am led to believe that the magnitude of some of the concerns as expressed by the shareholders have escalated it to some negotiations that may actually exceed board level.

MR. CHAIRMAN: I am sorry, may actually what?

MR. MACPHERSON: Exceed board level. I believe that there have been pronouncements by ministers in more than one province with regard to the positions that have been taken. So I can only assume that there have been some, either conversations or negotiations that have taken place, possibly at the ministerial level.

MR. CHAIRMAN: Just to go back to the notice of intention to withdraw. I am looking at the Atlantic Lottery Corporation by-laws and Article 22(1) says, "Where a shareholder desires to withdraw from the Corporation, he may do so by notice to that effect to the Secretary of the Corporation.". Now it does not say that the notice would have to be in writing but I would assume that when it is something serious like withdrawal, that perhaps there is an implication. Now who is the secretary of the corporation?

MR. MACPHERSON: The Secretary of the Atlantic Lottery Corporation is Mr. Phil Wall, who is the Deputy Minister of Finance of the Province of Newfoundland. My assistant pointed out to me that back in 1997, there was a letter that was filed by the Nova Scotia Gaming Corporation. It was a notice of intent to withdraw if the issues that were before them could not be resolved. On March 9, 1999, Ms. Gordon gave verbal intention to withdraw, which I assume - not being a lawyer and not understanding how these things work - may have augmented the letter that was given two years previously.

MR. CHAIRMAN: And did this occur at a board meeting?

MR. MACPHERSON: The letter?

MR. CHAIRMAN: No, I am talking about March 9th of this year.

MR. MACPHERSON: Yes, there was a board meeting on March 9th, and I should point out to you that the public announcements were made on the 29th.

MR. CHAIRMAN: Yes. I am aware of that. So what occurred was in 1997 there was something in writing from the Province of Nova Scotia, or from the Gaming Corporation . . .

MR. MACPHERSON: From the Gaming Corporation, yes.

[Page 26]

MR. CHAIRMAN: And it was a conditional document.

MR. MACPHERSON: Yes.

MR. CHAIRMAN: Do you have a copy of that with you?

MR. MACPHERSON: No, I do not.

MR. CHAIRMAN: Could you provide us with that?

MR. MACPHERSON: Yes, I can.

MR. CHAIRMAN: Thank you, and you are not aware of any paper since then, is that right?

MR. MACPHERSON: That is correct.

MR. CHAIRMAN: The secretary of the corporation, the deputy minister from Newfoundland, is that person a member of the board of the Atlantic Lottery Corpoartion?

MR. MACPHERSON: Yes, he is.

MR. CHAIRMAN: In his capacity as secretary of the corporation, has he advised the rest of the board, at any point that you are aware of, that he has received a formal written notice of intention from the Province of Nova Scotia to withdraw?

MR. MACPHERSON: Two years ago the letter was filed at the board meeting but, subsequent to two years ago, I am not aware of any documentation that may have been filed.

MR. CHAIRMAN: Has your board met since March 9th of this year?

MR. MACPHERSON: Yes. It met most recently on May 3rd.

MR. CHAIRMAN: Were there any meetings between March 9th and May 3rd?

MR. MACPHERSON: Yes, there was a meeting in April. I can't remember the exact date. It was April 16th.

MR. CHAIRMAN: Did you attend those two meetings, the April 16th and May 3rd meetings?

MR. MACPHERSON: Yes, I did.

[Page 27]

MR. CHAIRMAN: At either of those meetings, did the secretary of the corporation advise the rest of the board that Nova Scotia had given notice of intention to withdraw?

MR. MACPHERSON: Written notice?

MR. CHAIRMAN: Written or oral.

MR. MACPHERSON: As I said, at the March 7th meeting oral notice was given but, at the subsequent meetings, no.

MR. CHAIRMAN: That was the March 9th meeting, I think, not March 7th.

MR. MACPHERSON: March 9th, yes.

MR. CHAIRMAN: Did the secretary of the corporation advise the rest of the board at either of the two meetings, the April or May meetings, that any further notice beyond that given on March 9th had been delivered to him?

MR. MACPHERSON: Not to my knowledge.

MR. CHAIRMAN: Thank you. With respect to the negotiations, if any, are negotiations taking place at the board level at the Atlantic Lottery Corporation?

MR. MACPHERSON: I don't believe at this particular point they are.

MR. CHAIRMAN: Let me be clear about what I am asking. Further on, in Article 22(4) of the Atlantic Lottery Corporation's by-laws, it goes on to say that in the event of a withdrawal the, ". . . Corporation will cause to be paid to the province of the withdrawing shareholder as soon as practicable, its pro rata portion of all surplus proceeds from lotteries and in addition an amount equal to that provinces pro rata portion of the value of the tangible assets of the Corporation, which shall be computed on the basis of the amount on its part contributed to the capital cost thereof.".

I take it you are familiar with this article or at least have seen it. Is that right?

MR. MACPHERSON: That is correct.

MR. CHAIRMAN: As I understand this article, essentially what it says is that a computation has to be done at the time of withdrawal. You add up the pluses and the minuses and money changes hands, that is really what it comes down to, isn't it?

MR. MACPHERSON: Yes, that is correct but, if you look at that note, actually it just refers to assets, it doesn't refer to liabilities.

[Page 28]

MR. CHAIRMAN: I understand, although in Article 22(7), it says that, "Before any repayments to withdrawing shareholder are made any amounts owing by the member to the Corporation as determined by the auditor . . . will be paid to the Corporation, or set off against the amount . . .", so there is at least some set-off later on. In any event, what I am wondering is what steps, if any, have been taken to implement this requirement that a computation be done.

MR. MACPHERSON: At a recent board meeting, I was requested to get the services of an individual who is acceptable to all parties who would list the assets of the Atlantic Lottery Corporation. This would be the first step before actually assessing value to those assets. We are now in the process of listing all assets and liabilities of the Atlantic Lottery Corporation. After that, there will be an evaluation done and if you look at our by-laws, you will see that if there is dispute with regard to the evaluation of these assets, there is a determination as to how that dispute would be resolved and that would be by our present auditing company coming in and determining the value of those assets.

MR. CHAIRMAN: Yes, that is in Article 22(5), it is the auditor of the Corporation that makes that determination, is that right?

MR. MACPHERSON: That is correct, yes.

MR. CHAIRMAN: Now which meeting was it at which you were asked to retain someone's services?

MR. MACPHERSON: I believe it was the last meeting, May 3rd. We have subsequently located and determined, we believe, an individual who will be able to provide these services with you. I am not at liberty to divulge that individual or his company's name just at the moment because we are still in the contractual negotiations.

MR. CHAIRMAN: Were you given authority to retain an individual or to make a recommendation back to the board?

MR. MACPHERSON: To retain an individual.

MR. CHAIRMAN: How soon do you think you may finalize your negotiations with this individual or corporation?

MR. MACPHERSON: Hopefully before the end of next week, at the latest.

MR. CHAIRMAN: Were you given, by the board, any instructions as to how long this process of calculation was to take, that is, were you given a report-back date?

[Page 29]

MR. MACPHERSON: I wasn't asked to have any evaluations done at this point in time. All I have been asked to do at this stage of the game is have a full and complete listing of assets and liabilities.

MR. CHAIRMAN: A listing of assets, with evaluation?

MR. MACPHERSON: No, without evaluation.

MR. CHAIRMAN: And this was a direction of the board given in May?

MR. MACPHERSON: This was a direction of the board that was given in May and it was unanimous.

MR. CHAIRMAN: Unanimous, meaning Nova Scotia was included?

MR. MACPHERSON: Meaning Nova Scotia was included.

MR. CHAIRMAN: Have you any estimate as to how long this process will take?

MR. MACPHERSON: I believe the implied instruction was sooner than later. Obviously, with an organization of our magnitude it will take some time but my hope is that it will be completed before the end of next month.

MR. CHAIRMAN: When Ms. Gordon appeared before us on May 5th, she said, "I expect that the negotiating process will continue for at least another month and possibly two.". It rather sounds as if this is likely to be a protracted process of negotiation. Can you give us an estimate as to when you think it might finish?

MR. MACPHERSON: I have absolutely no idea, sir, none whatsoever. I would agree with you that it probably will last longer than a couple of months, simply because my guess is that a listing of assets probably will not be available until the end of June. They will then have to be evaluated and then the evaluation would probably come under some degree of arbitration, which is another issue that had to be dealt with. My guess is that it would be longer than two months but the preliminaries may be done as quickly as within two months.

MR. CHAIRMAN: Mr. Macpherson, you have introduced now the idea of an arbitration. May I ask you to explain what you mean? Are you referring to the determination to be made by the auditor, pursuant to the corporate by-laws or are you referring to something else?

MR. MACPHERSON: I probably went outside my bounds, sir, I was speculating. If I may be so bold, I look at this situation as not unlike a reasonably amicable divorce and even in reasonably amicable divorces there usually is some contention.

[Page 30]

MR. CHAIRMAN: I wonder if you could now help me focus on another aspect of this problem. It really follows from the questions that Mr. MacKinnon was asking you before and he asked a number of times about the nature of the dispute between Nova Scotia and the other partners who make up the Atlantic Lottery Corporation. I think at least part of the difficulty seemed to be that questions were asked in terms of what was fair and what was not fair and I understand that you didn't want to commit yourself on questions of fairness. Can you help us understand the nature of the dispute without saying whether someone's position is fair or not fair? Can you just help us understand the nature of the dispute?

MR. MACPHERSON: To the best of my ability and knowledge, the dispute is in a very large part - and I don't know if I can apply a percentage to it - around the findings of the Auditor General and what is considered to be a fair proportion of the profits that are paid to Nova Scotia. There may be some other concerns that the Nova Scotia Gaming Corporation may have with regards to their dealings with the Atlantic Lottery Corporation. If so, I am not aware of any outstanding ones. We tend to respond to any of their needs or requests on a very timely basis. So, I can only assume that what I am told, what I have read and what I have heard is that it centres around the distribution of profits.

MR. CHAIRMAN: So, really the question seems to be, given the nature of the distribution of the profits, compared with sales? What is the comparator that seems to have led to the dispute?

MR. MACPHERSON: Well, with respect, sir, I would suggest that maybe Mr. Salmon would be in a better position to describe that than I would.

MR. CHAIRMAN: We have actually read Mr. Salmon's report and actually heard from him. I think we know what he said. I think what we are asking is what has been said in your presence of what you have gleaned as a member of the board? Actually, you are not a member of the board. You attend board meetings. Sorry.

MR. MACPHERSON: I think that where some of the difficulty may lie is that if Nova Scotia is to receive greater benefit, somebody else is going to have to lose and I can only assume that the other three shareholders are reluctant to lose. Again, I am basing that on the premise of an agreement that was signed back in 1992 regarding the distribution of profits.

MR. CHAIRMAN: That is fine. Thank you very much for your help. Mr. Dexter, did you have further questions? Go ahead.

MR. DEXTER: Yes, actually a couple of very brief questions. As happenstance would dictate, yesterday in this House of Assembly, Business and Consumer Services filed their annual report, the Vital Statistics. As of 1996, the population of Nova Scotia was 927,000, increasing roughly by about 5,000 a year. The revenue taken out of Nova Scotia, as a result

[Page 31]

of the Atlantic Lottery Corporation's product line, is $302 million. Would you agree with me that that is about $315 per person in Nova Scotia?

MR. MACPHERSON: Running through simple math, I would concur, but I would suggest to you that the money is not taken out of Nova Scotia.

MR. DEXTER: Well, there is $315 per person of revenue from gambling that accrues to the Atlantic Lottery Corporation as a result of its product line.

MR. MACPHERSON: And its shareholder, Nova Scotia.

MR. DEXTER: That may be true, but that is what is being spent per person. That is $6.00 per week, per person, in this province that goes into gaming directly. I actually find that astounding that we spend that much money on gaming, more than $300 per person. The adult population would be two-thirds of that? Anyway, that was my only question and I am not asking you to comment on it. I am just saying I find it astounding.

MR. MACPHERSON: Well, I think it is a very fair observation, but I would also point out to you that a very large portion of that money goes back into winnings and a very large portion of it goes back into the earnings of the Province of Nova Scotia. We have commissions and I think I heard somebody say, health care and education.

MR. DEXTER: I am not asking you to justify where the money goes.

MR. MACPHERSON: I am not going to attempt to do that.

MR. DEXTER: I am just saying that what it does is it comes out of the pockets of ordinary Nova Scotians, week after week after week.

MR. MACPHERSON: Voluntarily.

MR. DEXTER: Voluntarily. It is a voluntary tax as they say. Anyway, that is all I have.

MR. CHAIRMAN: Mr. LeBlanc.

MR. LEBLANC: I just want to ask a question. I want to pick up on what Mr. Dexter just said, that the gross amount is $315 million. Now, you look at people playing VLTs and they may start off with putting $20 into the machine, but if they stay there for any length of time, they have winnings, they replay it again. So when you have that $315 million, would that include the same money being played over again or not? I am just trying to understand this thing.

[Page 32]

MR. MACPHERSON: Absolutely.

MR. LEBLANC: So actually that is a little bit inflated, what people are actually putting into it out of their pockets? Is that a fair assessment? I want to understand it.

MR. MACPHERSON: I think you have to recognize that if you put a $20 bill into a VLT machine and you win $10, in theory you are taking it out of your pocket and putting it back into the machine again but, you are quite right, there is a multiple effect that goes into that which comes up in a number that looks like the one that Mr. Dexter referred to.

MR. LEBLANC: I wanted to make sure that I understood it because I think it is an important point as to what Nova Scotians are actually taking out of their pockets and putting into it, but it is a big amount no matter what happens.

MR. MACPHERSON: Of course.

MR. LEBLANC: The other thing. One thing that you said today, and I had not actually thought of it, whether or not Nova Scotia can do this on their own and have it make sense. You mentioned the fact of advertising and that if Nova Scotia goes on its own, Nova Scotia would have to advertise on its own. You are there from day to day and you understand this from top to bottom - what are the other glaring ones that it would be difficult for Nova Scotia to be carrying on their own? You mentioned the fact that you would have to have a CEO, and I mentioned the fact that they would have to have a system to monitor their VLT system, but what are the other major ones that would make it difficult for someone to go on their own? I am looking at this as a business, just strictly as a business.

MR. MACPHERSON: Well, 40 per cent of our expenses are IT expenses - information technology expenses - information technology development and all that that entails. Obviously, the level of sophistication is fairly high with regard to our communications, our machinery, the manner in which we process our bets, the manner in which we control and monitor our video lottery machines, and all of that would have to be duplicated.

MR. LEBLANC: Let me understand it. You are saying 40 per cent of your administrative costs are in IT, is that correct?

MR. MACPHERSON: Approximately, yes.

MR. LEBLANC: So if Nova Scotia were to do this on their own, in your opinion, would they virtually have to duplicate those expenses?

MR. MACPHERSON: To the best of my knowledge they would. There may be some areas where they could possibly contract out, but whether you are contracting out or you are actually doing it yourself, it is still a fairly significant expense and my experience has been that

[Page 33]

generally we can do it less expensively ourselves than contracting out because, when we contract out, obviously there is a profit factor for the person you are contracting with.

MR. LEBLANC: You also brought up in prior testimony the fact of the matter that you are in the process of engaging someone to do evaluations or assessments of the assets and so forth.

MR. MACPHERSON: Listing.

MR. LEBLANC: Listing, okay, but my understanding is that you have been directed to contract someone . . .

MR. MACPHERSON: To list the assets and liabilities of the Atlantic Lottery Corporation, that is the first step.

MR. LEBLANC: The first step in determining evaluations and so forth?

MR. MACPHERSON: Yes.

MR. LEBLANC: Is there a date when this will take place? Right now we are talking about removing ourselves from the ALC, is there . . .

MR. MACPHERSON: The total listing? Are you talking about just the . . .

MR. LEBLANC: No, I mean the whole, overall. If Nova Scotia is going on their own, right now I am asking you, today, what is the date that Nova Scotia has indicated they are pulling out? Have they given you a date?

MR. MACPHERSON: Yes, they have. They gave us the date of November 30th for the video lottery side of the business and March 31, 2000, what we consider to be our conventional products, yes.

MR. LEBLANC: So I go back. If they are moving along at this rate, Dara Gordon, who is the chairperson of the Nova Scotia Gaming Corporation, is saying that this information, this study, this consultant's report that they have that shows that they are going to be making big money and saving a lot of money for the people of Nova Scotia has to be kept confidential because there are negotiations going on. As you are aware, there isn't. To the best of your knowledge, those negotiations are not going on. They are going full bore ahead with this. Can you comment on that? (Interruption) I am asking the question, Mr. Chairman.

MR. MACPHERSON: I am not sure whether that was a question or a comment that you made.

[Page 34]

MR. LEBLANC: No, I am telling you what the chairman of the Gaming Corporation told this Public Accounts Committee, that the reason that this information should be kept confidential, that Nova Scotians should not be made aware of what this consultant's report says, is that there are negotiations going on, that its release could imperil negotiations or the position.

[9:30 a.m.]

MR. MACPHERSON: Not having seen the report sir, I am not in a position to comment. I don't know what is in the report, I don't know what is considered to be confidential, nor do I know how it may or may not impact the other shareholders and their negotiations. It is impossible for me to assess.

MR. LEBLANC: I will just make the comment that I am concerned. This seems to me that it might be a make-work project for certain people or Nova Scotians. If there was going to be a decision, it should be made as to whether or not this makes sense for Nova Scotia.

I want to ask another question. In regard to compulsive gamblers - because we talked about the fact of the matter that a lot of people are gambling - does the Atlantic Lottery Corporation itself offer any assistance towards compulsive gamblers or is that the responsibility of each province?

MR. MACPHERSON: It is the responsibility of each of the individual provinces. We do some publicity in terms of advising people to play sensibly, to play within their means. We have notices on video lottery machines that indicate that people should game responsibly. We have taken some pains and efforts to try to distribute some of this material. We make reference to it in our annual report and there is usually some segment in most of our ads that indicates that responsible gaming is the way to go. And of course our mission statement is quite evident there.

MR. LEBLANC: I am going to pass on to my colleague, Mr. Chairman.

MR. CHAIRMAN: Mr. Fage.

MR. ERNEST FAGE: Mr. Chairman, to Mr. Salmon, the Auditor General, would you care to make a comment on that?

MR. ROY SALMON: I wanted to help Mr. LeBlanc with his first question with regard to the credits in the machine and how information is displayed with regard to video lottery activities and we have made this point in my report. You mentioned a figure of $300-some million in Nova Scotia that is the cash that goes into the machines. Nova Scotia's profit out of that is approximately $100 million in terms of net of that.

[Page 35]

The regulations governing payouts on video lottery terminals in Nova Scotia is that 95 per cent is the number. That means that the net is 5 per cent that comes out. That means that when you add the credits to the cash that goes in that Nova Scotians are putting $2 billion a year at risk. (Interruptions)

MR. MACPHERSON: Mr. Salmon, if I may, there is just a very small correction. The regulation is not 95 per cent, the policy is 95 per cent; the regulation indicates that it must be in excess of 80 per cent.

MR. SALMON: Yes. Nova Scotians decided on 95 per cent.

MR. FAGE: Thank you, Mr. Chairman.

MR. SALMON: I think it is important that that information be out there that that is what is at risk. That is what citizens of this province are putting at risk when they play video lottery terminals on a gross basis.

MR. FAGE: Mr. Chairman, I will direct a few inquiries to Mr. Macpherson at this time. Mr. Macpherson, some of this will probably be repetitious of some of the other interventions. The Atlantic Lottery Corporation is a sales and promotion organization of the four provinces here in Eastern Canada, is that an approximation of what the Atlantic Lottery Corporation does?

MR. MACPHERSON: I would add another word and that is operations.

MR. FAGE: Operations, sales and promotions would accurately describe it. Okay. The shareholders in the Atlantic Lottery Corporation are indeed the four provinces.

MR. MACPHERSON: No. Actually three provinces and the Nova Scotia Gaming Corporation.

MR. FAGE: Okay. If there is a negotiation to occur then it would occur between Dara Gordon and the three ministers, is that what you are telling me where a negotiation would occur for any additions to the formula or deletions of a partner?

MR. MACPHERSON: In the past the majority of negotiations that have taken place, actually all of the negotiations that I have been privy to that have taken place, have taken place at the board level. This one appears to have escalated to a level above that in a sense that ministers from the provinces have been involved to the extent that they have made comments. So exactly where the negotiations sit at this time is difficult to say. There are negotiations going on at the board level on a continuous basis but where the final decision will be made, I am not sure.

[Page 36]

MR. FAGE: So this negotiation, if there is one, is much more partisan and politicized than anything that you have been party to since your ascension to President of the Atlantic Lottery Corporation, would that be accurate?

MR. MACPHERSON: Let me rephrase it in my own words, they are different than anything I have experienced before.

MR. FAGE: Well, from your previous comments, I would have to say that it is much more politicized when you have made the comment to me that the ministers are involved and indeed, we have all seen them take a crack at it in the press, so I guess in my view it certainly is much more politicized. Is Dara Gordon's assertion as to what is to be gained through the Auditor General's Report - approximately $4 million extra in net revenue - would you concur that that is the figure that is in dispute, that Nova Scotia feels it should be entitled to receive in net profits, extra?

MR. MACPHERSON: I can't confirm the number other than to say that is the number that I have heard but I have not gone back to financial statements to confirm it.

MR. FAGE: Okay, $4 million when you look at operations, promotion, and sales in an organization that is doing in excess of $300 million for this province, is a fairly small percentage factor. Obviously, would you concur if the $4 million is going to be achieved for this province it has to virtually be done on the expense side, rather than the increase in the revenue side from extra gambling?

MR. MACPHERSON: It would be speculative of me to answer that question because again, I haven't seen nor am I privy to many of the plans that I am sure the Nova Scotia Gaming Corporation has worked out. There are certain things that I am aware of that the Gaming Corporation could incorporate shortly after they became independent that would have a positive effect on their revenue. There might be some things that they may choose to do that could have a positive effect on their expenses.

MR. FAGE: The minister here, in commenting on expression of interest to purchase all brand new machines for the province has said that he is purchasing recreational non-addictive machines that people will play purely for their recreational purposes and obviously, are not designed to generate cash. Obviously, any achievement of the $4 million has to be achieved on the expense side, not on the increase in revenue because he is buying non-addictive machines and recreational machines for this province.

MR. MACPHERSON: Sir, the minister has not chosen to take me into his confidence so I am not sure exactly what that is about.

[Page 37]

MR. FAGE: No, I am relaying to you what he has relayed to us in the House, in the press, and in the province, that is the type of machines that he is buying out there. I guess my next question would be, are those type of machines available in Atlantic Canada, North America, or worldwide, non-addictive recreational VLTs?

MR. MACPHERSON: I have not seen any at this point in time and I am not aware of any.

MR. FAGE: I was listening to some of the earlier comments, and I know that in Amherst, Nova Scotia, some of the board circuitry and boards are produced in one plant there and it is certainly very helpful to the local economy and appreciated in Nova Scotia and I think it is wise. Certainly Nova Scotians appreciate that business and I know the company does a quality product and are glad to be involved. But the assembly of machines, the almost 200 employees involved in that are located in Dieppe, are they not under a different company name?

MR. MACPHERSON: My understanding, in conversation with the president of Spielo as recently as 48 hours ago, was that their intention was to do the assembly in Amherst.

MR. FAGE: Now, that is on the new machines that are out there for tender, not on current machines. The current machines are not assembled in Nova Scotia.

MR. MACPHERSON: We may be talking at cross-purposes here in the sense that you may be talking about VLTs?

MR. FAGE: Yes.

MR. MACPHERSON: I am talking about the new terminals, the lottery retailer terminals that we have signed a contract with Spielo to purchase from them, together with the potential of a $60 million order they may have out of the Netherlands.

MR. FAGE: Yes, we were talking at cross-purposes, mine was the VLTs and the current situation on who manufactures, the Spielo company, where it is located and the direct economic benefits to the different provinces and communities. Obviously, I think that is a very important concern as we here in Nova Scotia as well as our other Atlantic Provinces partners because employment is extremely critical for all provinces and any benefit that can be derived from the industry other than direct interaction with the public on gambling or gaming certainly is of great benefit to any community. I think as a whole we, as governments and elected officials, are always very cognizant of that, everybody likes to be there for the opening, not the closing. So it is a little easier and palatable to go down.

[Page 38]

The situation when we had Dara Gordon in a couple of weeks ago, one very disconcerting area, certainly to me, was in the break-open tickets involving Newfoundland where Ms. Gordon appeared, on behalf of Nova Scotia, to not be allowing those sales to occur. I certainly know that retailers make the highest profit level on them and I have been contacted by a number of retailers wondering what is going on and wondering if that is part of some of the problems. Newfoundland has certified them that the probability of the game of chance is proper and have put them back on the market and have been selling them again for several months. What is the status here in Nova Scotia, New Brunswick and P.E.I. on those particular break-open tickets for retailers?

MR. MACPHERSON: The board asked for an independent review of the whole issue to be done by independent auditors, actually KPMG. They are in the process of writing their reports. The board at this point in time is awaiting the outcome of those reports and other reports in terms of testing to assure that the manufacture of this product meets the standards which were in place when these tickets were manufactured and security reports to indicate that the tickets are not compromised, that they do offer a fair random choice. Many of these reports are in the process of coming down to us and as soon as we have these reports available to us, we will make them available to the shareholders. My guess is that the shareholders will then make their decisions as to whether or when they intend to reintroduce the product and how.

MR. FAGE: The obvious implication is if one province certifies a sufficient okay with their inspectors, why would it be any different in any other province? I mean, that is pretty serious when you look at it. It must be very disconcerting to you as president of an organization that encompasses four provinces, when you have a province selling, or not complying across the entire four markets where one is offering and selling a particular product, the other three aren't doing it and you have an organization that agrees to market in sales and hopefully an even equity across that market. It must be a little tough when those things are going on.

MR. MACPHERSON: Each individual province or each individual shareholder has the right to determine what they require in order to allow them to sell product. It is not unusual for the Atlantic Lottery Corporation to sell products in some provinces and not in other provinces. Over the years we have done it on any number of occasions for a myriad of different reasons. This is not an unusual position for us to be in.

MR. CHAIRMAN: Mr. MacKinnon.

MR. MACKINNON: Mr. Macpherson, I am going to switch over to the expenses side of the Atlantic Lottery Corporation. I notice, looking at the annual reports, for the 1997-98 annual report, video lottery was about $9.3 million in expenses to the Atlantic Lottery Corporation, and on the inter-provincial tickets, that was $31.1 million in expenses which is approximately $40.4 million in operating expenses. I am rather curious about that because for

[Page 39]

the most part this is computerized, it is machine operated. Why would the expenses be so high? If you are doing everything . . .

MR. MACPHERSON: Sir, could you assist me here and tell me where you are reading?

MR. MACKINNON: This is for 1997-98 on expenses.

MR. MACPHERSON: The Nova Scotia Gaming Corporation's report?

MR. MACKINNON: Yes, Nova Scotia's.

MR. MACPHERSON: I am sorry, I don't have those numbers.

MR. MACKINNON: That is what they are. I am just perplexed as to why they would be so high if everything is machine operated. I would think there would be very low maintenance on these machines and yet the expenses would be so high.

MR. MACPHERSON: Are you talking about video lottery?

MR. MACKINNON: Yes.

MR. MACPHERSON: First of all there is considerable maintenance to be done on those machines on an ongoing basis.

MR. MACKINNON: Could you provide your expenses on this aspect? Could you provide to the committee a breakdown of those expenses?

MR. MACPHERSON: For the video lottery machines in Nova Scotia?

MR. MACKINNON: The inter-provincial tickets too.

MR. MACPHERSON: In terms of the expenses?

MR. MACKINNON: Yes, please, in terms of the machinery, the expenses. You say it costs quite a bit to maintain them.

MR. MACPHERSON: Yes, it does. There is the maintenance on the machines, there is the communication with the machines in terms of the . . .

MR. MACKINNON: Would you give an undertaking to the committee to provide a breakdown of those?

[Page 40]

MR. MACPHERSON: Certainly.

MR. MACKINNON: You indicated that 40 per cent of your overall expenses was the IT component.

MR. MACPHERSON: That is correct.

MR. MACKINNON: Could you explain that a little more in detail? Is it because you are upgrading the machines for whatever reason or are you buying new machines or . . .

MR. MACPHERSON: We have the most employees in that section of our organization so our salary expense is quite high. Our communication expense is quite high. Our maintenance expense is quite high. Yes, there are from time to time depreciation expenses that have to be incurred. This equipment is anything but inexpensive. A video lottery machine can have a value of $10,000 or $12,000; a lottery retailer machine would have a value of approximately $10,000 as well. We have some 10,000 of these machines throughout Atlantic Canada, slightly in excess of that.

MR. MACKINNON: I am going to fast-forward again on that one as well. You indicated that if Nova Scotia were to pull out, obviously they would incur the same difficulty or expense, similar expense that the Atlantic Lottery Corporation is in terms of the start-up with the machinery and so on. But a certain percentage of those machines, if you break down the assets, let's say if Nova Scotia had 40 per cent of the assets, for the sake of discussion we will use that figure, then technically or legally they would own 40 per cent of the machinery.

MR. MACPHERSON: I am not disputing that.

MR. MACKINNON: In fact, there would be no real additional expense over and above that because they already have them.

MR. MACPHERSON: No. What I think I said, and I was not referring to the capital outlay for the machines that currently exist in the Province of Nova Scotia, what I was referring to is that there are central systems that presently reside in Moncton that are shared by four shareholders. Those central systems, which again are extremely expensive, would have to be duplicated here in Nova Scotia and the software development that would support that would also have to be developed here in Nova Scotia. What I am referring to is what I consider to be a duplication of efforts, that Nova Scotia would have its own stand-alone central system and all the software expenses that would be incurred to support it, and the three other provinces would have that exact same system or systems, for all intents and purposes, in Moncton. So there is duplication there.

[Page 41]

MR. MACKINNON: Yes. It was not your intent to leave the impression that Nova Scotia would all of a sudden be just kind of walking into the dark and I have to buy all these machines in order to get up and started?

MR. MACPHERSON: No, no, there was certainly no intention for me to leave that implication, it is part of the acquisition.

MR. MACKINNON: Thank you. With regard to the notice to withdraw, I think you indicated that there were two meetings, one in March and one in May?

MR. MACPHERSON: The Board of Directors of the Atlantic Lottery Corporation meets generally the first Monday of each month, so there were meetings in March, April and May.

MR. MACKINNON: But to your knowledge there was no written official notice other than that oral notice that was . . .

MR. MACPHERSON: Other than the letter that was received back in 1997 that said . . .

MR. MACKINNON: Back in 1997?

MR. MACPHERSON: In 1997.

MR. MACKINNON: That was the only correspondence?

MR. MACPHERSON: That is the only correspondence that we have.

MR. MACKINNON: Perhaps, Mr. Chairman, I could table this letter that was sent to Mr. Philip Wall, the Secretary of the Atlantic Lottery Corporation, March 9, 1999, which clearly states the official withdrawal notice.

MR. CHAIRMAN: That would be very useful.

MR. MACPHERSON: Could you tell me whether or not I was copied on that letter?

MR. MACKINNON: I don't know. I would imagine - you are all in the same organization - if you are chairman, you should have received a copy.

MR. MACPHERSON: I am not chairman, sir, I am president and CEO. Am I copied on that letter?

[Page 42]

MR. MACKINNON: Well, c.c. Ginger Breedon, Wayne Green, John E. Mallory, Ernest MacKinnon, Michael O'Brien. Who are these individuals?

MR. MACPHERSON: They are directors of the Atlantic Lottery Corporation, but I would point out . . .

MR. MACKINNON: Which you would report to?

MR. MACPHERSON: That I would report to.

MR. MACKINNON: So it was their decision not to include you obviously.

Thank you. Mr. Chairman, that is the only line of questioning I have. Quite frankly, I see a little bit of sour grapes here; that is my take on it. Nova Scotia seems to have made a good policy decision and I think it is on good, sound, social and financial and economic planning for what we were commissioned to do. If we disagree, then we will agree to disagree. Thank you.

MR. CHAIRMAN: Thank you for tabling that document, Mr. MacKinnon. The secretary of the committee will make copies for all members of the committee, so we can all have a look at it. I suppose by implication we better make a copy for Mr. MacPherson. Sorry, you were about to say?

MR. MACPHERSON: I was just going to comment on the closing remarks that Mr. MacKinnon made, that he sensed sour grapes. There are no sour grapes. Our job is to do what our shareholders instruct us to do to the best of our ability, and when you asked me a question as to whether I agree with some of those policies or not, I assumed that you expected me to tell the truth. I certainly would not suggest to you that there are any sour grapes. I respect the decision of the Nova Scotia Gaming Corporation to do what they intend to do and, as I think I said earlier, if we are requested to provide services to them, we will do the very best we can.

MR. CHAIRMAN: Okay, I guess we have a follow-up question from Mr. LeBlanc.

MR. LEBLANC: It will be very quick. You talked about the advertising being an expense, that Nova Scotia would have to go it alone. Of your expenses that you have for the Atlantic Lottery Corporation, your administrative side of it, what percentage is advertising of that expense? Is that quite high?

MR. MACPHERSON: It is approximately between 15 per cent and 20 per cent. It is about $9 million out of our total expenses of $58 million.

[Page 43]

MR. LEBLANC: So it is 15 per cent to 20 per cent. It will be up or down depending, okay. We talked, just awhile ago, about the fact that the IT - I just want to make sure that I perfectly understand it - the information technology, those are the systems that are based in Moncton that we are referring to, that would be that percentage of about 40 per cent?

MR. MACPHERSON: That is the total expense right across the organization. There would be people working for IT in all the individual provinces but the majority of the expenditure is centralized in Moncton, but you have to include in that all of our landline costs, all of our telephone costs that are incurred in each of the individual provinces as well.

MR. LEBLANC: Thank you very much, Mr. Chairman.

MR. CHAIRMAN: I have one small point. Mr. Macpherson, you indicated to us that some of the ministers responsible for gaming in other provinces had made some public comments about the proposed Nova Scotia withdrawal. I have to say I don't think I have seen those. Can you just tell us what it is that has been said in other provinces?

MR. MACPHERSON: Specifically I can't because I don't recall specifically what was said. I am aware of the fact that some of the ministers in some of the other provinces have made statements with regard to the Atlantic Lottery Corporation and Nova Scotia's proposal to withdraw.

MR. CHAIRMAN: Not even the general tenure of the comments?

MR. MACPHERSON: I am very reluctant to quote politicians unless I have something in front of me in writing, to be quite honest with you. I am really not quite sure exactly what was said.

MR. CHAIRMAN: A wise policy, perhaps. Now that you have in front of you this letter, perhaps we can all just have a look at it and take a moment to study it and then we will see if there is any follow-up to this.

Mr. MacKinnon.

MR. MACKINNON: Mr. Chairman, just an additional point on that, subsequent to that letter, after the respective parties couldn't come to an agreement and the notice was served, there was a press release on that.

MR. CHAIRMAN: I see there is a press release attached to it and it is dated March 29th.

MR. MACKINNON: It is public knowledge.

[Page 44]

MR. CHAIRMAN: Thank you. Now we are all going to have a look and see if there are any questions about this letter.

MR. CHAIRMAN: Perhaps I will see if Mr. Macpherson can help us with this. You will see the letter is addressed from Dara Gordon in her role as Vice-Chairman of the Gaming Corporation to Mr. Phillip Wall, in his role as Secretary of the Atlantic Lottery Corporation. It invites a meeting of the shareholders to be held prior to a board of directors meeting scheduled for March 29, 1999. It says the objectives of the meeting would be to discuss and agree upon a general withdrawal process and a set of principles for carrying out this process. Are you aware whether that meeting took place?

MR. MACPHERSON: There was a meeting of the board in camera on that day but I was not aware of what transpired at that meeting. This is the first time I have seen this letter, nor have I ever seen the agenda that is made reference to in this letter.

MR. CHAIRMAN: Right, and you have not been advised as to what process, if any, was agreed on, is that right?

MR. MACPHERSON: That is correct.

MR. CHAIRMAN: Okay, that is fine. Are there any other follow-up questions of our witnesses? If not thank you very much for appearing here today. I would like to thank Mr. Macpherson, Mr. McAffee, Ms. Goodwin, Ms. Phillips and Mr. Brunet, for appearing in front of us at the hearings today.

The committee does have another item of business in front of it. Mr. Dexter advised us two weeks ago that this was coming, and I will ask Ms. Stevens to distribute a document that he has just now filed this morning. You will see this document and I think I ought to read into the record the covering letter. While it is being handed out, I have a copy in front of me, I can read it. It is a letter addressed today to the Standing Committee on Public Accounts, signed by Darrell Dexter. It says:

[10:00 a.m.]

"Dear Committee Members:

Further to the notice I gave at our May 5 meeting, attached is a detailed review of the testimony and evidence that came before the Committee during its examination of the allegations by Mr. Ralph Fiske.

As I indicated at our last meeting, and last year, members of the NDP Caucus have prepared this detailed review, after the other two Caucuses indicated that they did not wish to participate in a detailed review of the evidence.

[Page 45]

The NDP MLAs are certainly willing to accept any additional information or analysis that other Caucuses would like to put forward for inclusion, should this detailed examination form part of a minority report.

Members of this Committee may also wish to consider whether to consider and adopt this detailed review as part of the Committee's report to the House, instead of simply reporting recommendations in a majority report.

Yours sincerely,

Darrell Dexter, MLA"

Mr. Dexter, the copies have been distributed. Do you wish to speak to this?

MR. DEXTER: As I point out in the letter, this is simply following through on the commitment that was made some time ago and on which I reported at the last meeting of the Public Accounts Committee. I want to note for the members that you will find throughout this document that I have on every page, in fact, listed it as a draft. I treat it in that fashion. I invite the members to take an opportunity to review it.

There is nothing that would please me more than if this would become a unanimous report of the Public Accounts Committee, but at the very least if it was a majority report, that too would be good. I do admit that I hold out somewhat more hope among the Progressive Conservative caucus perhaps than with the government caucus, but nonetheless I hope they will approach it with an open mind.

MR. CHAIRMAN: To that I would add two points that I think readers of this document would want to pay attention to. One is I noticed that the index or table of contents page which lists page numbers, those page numbers do not actually seem to correspond to the pages as printed. I think there has maybe been a difference in the printing process between the generation of the document on someone's disk compared with how it is printed. That is just a warning for readers.

The other is that I note of course that the document does not include conclusions and recommendations. I take it that is to be discussed on a future occasion. I remind members of the committee that I did circulate to the committee possible conclusions and recommendations or possible recommendations I should say for the committee to consider. I take it that we are not yet ready to move to that, but on some date soon we probably should. I thank Mr. Dexter.

I wonder if there are any immediate comments with respect to this, otherwise we can adjourn. Mr. Samson.

[Page 46]

HON. MICHEL SAMSON: I understand that there is no confidential or anything on this. I know that as a result of that, it is certainly my intention to make this document available to all witnesses who came before us and specifically their personal legal counsel for their own review. I take it there is no problem with that.

MR. CHAIRMAN: None that I am aware of. It certainly isn't confidential. It is publicly filed now. It is part of the record of the committee. Any other questions or points anyone wants to raise? Mr. Samson.

MR. SAMSON: Mr. Chairman, I see that we have Economic Development coming in. It doesn't show a list of witnesses or anything. This morning we were scheduled for three hours for in essence one witness. I think that is a completely inappropriate amount of time. You have tied us up now - we have had to cancel our mornings - for three hours. We have only taken up two hours.

I would certainly recommend to the committee that if we only have one witness that we look at one and one-half hours rather than the full three hours to try to give consideration to members' time and their schedules especially in light of the House being in session. Three hours for one witness, I think it is completely inappropriate. One and one-half hours would be more than sufficient, and would allow members an appropriate amount of time to take care of other MLA duties that they have, especially with the House being in session.

MR. CHAIRMAN: Mr. LeBlanc.

MR. LEBLANC: I will agree to some extent with what Mr. Samson is saying. I believe that oftentimes two hours would require us to be more focused in our questioning. When you have three hours, you take liberties, maybe your form of questioning is broader, and if you have two hours, you are going to have to sit down and say if you want the information, you have to remain focused in questioning. I tend to think that a two hour session would be perhaps more appropriate. I would have to agree that I think that would be a common-sense approach.

MR. CHAIRMAN: I think that is right. Two hours is probably a reasonable target. Mr. Leefe.

MR. LEEFE: Mr. Chairman, two hours is the time in my experience, at least from 1993 forward, and my recollection in speaking with members who had served on the committee prior to 1993, two hours was the normal time that was allotted for committee work. Of course, the committee by virtue of a vote can extend beyond two hours but I concur with my colleague, Mr. LeBlanc, two hours, if we are well focused, gives us ample opportunity to make the exploration that we may desire. If, in fact, we wish to bring people back, we have the liberty to do so. If we have a number of witnesses in on one day, then I

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would think we would want to discuss whether we should go beyond two hours, but I think two hours should be our standard fare.

MR. CHAIRMAN: I think that is right. That is just fine. As for your earlier point, Mr. Samson, I am sure the Committees Office can help distributing copies to the witnesses who appeared and I think that is entirely appropriate to make sure that everyone gets a copy. If there are no other procedural points, we stand adjourned. Thank you very much.

[The committee adjourned at 10:07 a.m.]