09/30/2013 3:04PM

Woodbine Entertainment Group cancels profit-sharing programs


Woodbine Entertainment Group canceled a profit-sharing program for its 2,000 employees and cut the pay of its top executives earlier this year in response to a demand from the provincial government, the chairman of the company’s compensation committee and its chief executive said Monday.

Clay Horner, who has been the chairman of Woodbine’s compensation committee for the past seven years, and Nick Eaves, Woodbine’s chief executive since 2010, said the cuts were made as of March 31 after the Ontario Lottery and Gaming Corp. formally replaced a 12-year-old contract that awarded Woodbine a 20 percent cut of revenues from government-owned slot machines at the track with an agreement giving Woodbine a direct transfer from the province’s operating budget.

“The government imposed a condition that we wouldn’t be able to have a profit-sharing program,” Horner said. “We acquiesced.”

The cancellation was first reported by the Toronto Globe and Mail in an article Saturday. The article said the Alcohol and Gaming Commission of Ontario launched a probe into Woodbine’s compensation practices in April 2012 after receiving “a complaint about lucrative pay for Woodbine’s top executives.”

The article said the profit-sharing plans and executive compensation deals “were key factors” in a government-led decision last year to scrap the slot-machine contract with Woodbine, a non-profit company that also owns and operates Mohawk Raceway. The current transfer-payment scheme is considered a short-term arrangement while the province’s current government works out a new plan for the integration of casino gambling and horse racing.

The probe appeared to revolve around whether Woodbine should have awarded annual bonuses to its employees while deriving the brunt of its revenues from government-owned slot machines. According to the Globe and Mail, bonuses for 79 management employees in 2009 averaged $28,000, while profit-sharing payments also were awarded to rank-and-file employees such as mutuel tellers and dining-room employees.

Horner said that all 2,000 employees of the company qualified for profit-sharing payments and that the program paid out approximately $4 million to $4.5 million annually, or 5 percent of the company’s gross profits from all of its revenue sources. He said the existence of the program was known to the Ontario Lottery and Gaming Corp. since it was launched in 2000 and that government agencies had never raised any concerns about the program until 2012.

The Globe and Mail said that “some managers were also eligible for further payouts under a long-term incentive plan,” but that “the cost of that is not known.” The article also said that Nick Eaves, the current chief executive of the company, was paid “just over $1 million before his compensation was rolled back this year at the urging of the government.”

Eaves would not disclose his prior compensation, but said that as a result of the new arrangement with the province, his current compensation and that of other executives will be disclosed later this year.

“Now that we are receiving a direct transfer from the government, that has changed the rules of our reporting disclosures, including compensation,” Eaves said.

While he would not discuss individual salaries, Horner said that Woodbine determined the compensation for its executives through a review of compensation at companies of “comparable size” in the gambling and entertainment industries and an assessment of the company’s financial performance.

According to data compiled by the AFL-CIO, the average compensation of a chief executive of 13 publicly traded gambling companies in 2012 was $6.6 million, ranging from a low of $877,000 for the chief executive of Monarch Casino and Resort Inc. – the owner of two small casinos – and to a high of $17.7 million for Stephen Wynn at Wynn Resorts. The list includes data from racetrack-casino operators, including Churchill Downs Inc., Penn National Inc., Pinnacle Gaming, and Penn National Gaming Inc., and casino giants like Wynn and MGM.

At the time the probe was launched, casino companies were aggressively lobbying the government to end the deals with Thoroughbred and Standardbred tracks in the hopes of getting a share of the province’s casino business. The government eventually voided the deals at all 17 tracks.

Horner said that he did not believe the Alcohol and Gaming Commission was actively pursuing the probe because of Woodbine’s earlier decision to drop the profit-sharing program, amend its executives’ pay, and put in place “new governance procedures” that he would not detail.

“I would presume they would continue to monitor the implementation of those, but we have no reason to believe that they remain concerned about the profit-sharing program,” Horner said.