The Honourable Edmond P. Blanchard, Q.C.
Minister of Finance
Province of New Brunswick
We are pleased to submit to you the Annual Report of the Lotteries Commission of New Brunswick for the fiscal year ended March 31, 1998.
J. E. Mallory
Commissioner
E. L. MacKinnon
Commissioner
The commission has two broad areas of responsibility. It develops provincial lottery policy and represents provincial interests in the lottery field, particularly as it relates to government operated lotteries. The commission is also responsible for regulatory policy relating to all privately operated gaming activities such as raffles and bingos. The Revenue Division of the Department of Finance provides licensing and enforcement services on behalf of the commission. See Appendix "A" for the Commission's Goals and Objectives.
The New Brunswick government does not directly operate lotteries but is a shareholder in the Atlantic Lottery Corporation (ALC) and in the Interprovincial Lottery Corporation (ILC). The Atlantic Lottery Corporation is a jointly owned corporation of the four Atlantic provinces. In 1997-98 it offered video gaming, breakopen products and the regional ticket games: "Pik 4," "Auto Plus," "TAG," "Atlantic Choice," "Sports Lottery," "Festival of Dreams," the $1 and $2 "Instant Games" and a Gift Giving game, in the New Brunswick market. The ALC also handles and markets the products of the Interprovincial Lottery Corporation. The ILC is a jointly owned corporation of the 10 Canadian provinces. In 1997-98, its products were: "Super 7," "Lotto 6/49," and "Celebration '98" - all nationwide lottery games.
The deputy minister of Finance and the president and CEO of the NB Investment Management Corporation represented the Province on the board of directors of the Atlantic Lottery Corporation. The president and CEO of the NB Investment Management Corporation also represented the Province on the board of directors of the Interprovincial Lottery Corporation.
Licensing regulations govern the licensing of all bingos, raffles, etc., in the province. Regulations are designed, in part, to ensure that the money raised from these sources is used for community, non-profit benefit and to ensure that the public is treated honestly and fairly. The Criminal Code of Canada requires that such activities be licensed by the Province.
A total of $22,110 was collected in licensing fees for the year in question.
The investigations can vary greatly in terms of complexity and duration. Some may involve a brief inspection of an approved video lottery site, to assure that the site is in compliance with the rules and to assure that there are no illegal gambling products. Others may involve a lengthy site approval process or an in-depth undercover investigation and background check arising from a complaint. These investigations can, at times, last a period of weeks. The unit also completes routine inspections of bingo sites licensed to charitable non-profit groups, and inspectors must also investigate complaints in regard to these operations.
The following is a list of the types of gaming inspections/investigations conducted during the 1997-98 fiscal year:
"The number of identified violations as a percentage of investigations/inspections by Revenue Division staff."
Enforcement priorities in 1997-98 were directed at the video lottery program. If applied to fiscal year 1997-98, the ratio of violations to investigations/ inspections shows a high degree of compliance in relation to those enforcement priorities. It is expected, however, that figures for the upcoming fiscal year will be used as the base year for the final performance indicator, not the year presented in this report.
Earnings from two separate instant types of games are earmarked for a trust fund in support of the arts and a trust fund in support of sport. In 1997-98, a combined total of $800,000 was deposited in these two trust funds. The first $10 million in video lottery earnings is earmarked annually for the Environmental Trust Fund.
New Brunswick's share of the 1997-98 net profit of the Atlantic Lottery Corporation was $85,842,000. This was a decrease of 1.4% over the previous year. New Brunswick earned 29% of Atlantic Lottery Corporation profits.
Total ALC lottery sales in New Brunswick in 1997-98 were $236.4 million. Video lottery accounted for 50.4% of the total while the "Sports lottery" game accounted for, 1.2%; "Auto Plus," 2.7%; "Super 7," 5.1%; "Atlantic Choice," 1.0.%; "TAG," 4.2%, Lotto 6/49," 14.7%; "Pik 4," 0.4%; "Breakopen Ticket" games, 4.8%; the "$5.00" game, 0.3%, the "$20" game, 0.13%; Gift Giving 0.3%, and the "Instant $1 and $2" games, 2.4% and 12%.
The regulation requires that prize payouts from the video lottery program not be less than 80 per cent and not more than 90 per cent of the money put into the video lottery machines.
I conducted my audit in accordance with generally accepted auditing standards. Those standards require that I plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
In my opinion, these financial statements present fairly, in all material respects, the financial position of the Commission as at 31 March 1998 and the results of its operations for the year then ended in accordance with generally accepted accounting principles.
Daryl C. Wilson, FCA
Auditor General
Fredericton, N. B.
12 June 1998
_____________________________ Member
_____________________________ Member
The Lotteries Act provides that the the First Nations may be paid 95% of all profits received from the Atlantic Lottery Corporation Inc. for the operation of video lottery on reserves having agreements with the Province. Where these agreements are in place the Province also rebates all provincial earnings from the sale of breakopen tickets sold on reserves. As of 31 March 1998, five First Nations bands have signed agreements: Fort Folley, Oromocto, Woodstock, St. Mary's, and Burnt Church.
The investments in Atlantic Lottery Corporation Inc. and Interprovincial Lottery Corporation are carried at cost. Net profits of these corporations are distributed annually to the shareholders.
It is not possible to determine the amount of the settlement of the above court action. Any settlement resulting from this court action will be accounted for as a charge or credit to income in the period in which the settlement occurs.
NOTE: The Province has one other signed agreement with Madawaska-Maliseet; it does not, however, receive any lottery revenues by way of the agreement.
Atlantic Lottery Corporation Board of Directors
Atlantic Lottery Corporation
P.O. Box 5500
922 Main St.
Moncton, New Brunswick
CANADA E1C 8W6
Dear Board of Directors:
Enclosed, please find a copy of the spreadsheet produced by Gaming Laboratories International, Inc (GLI) for the Atlantic Lottery detailing all of the payout percentages of the current VLT games being played in ALC.
The spreadsheet data was compiled by combining the original mathematical payout percentages provided by Gaming Laboratories International, Inc. difference report for ALC and details all games province wide by manufacturer and game identifier. This is a summary sheet. Spreadsheets numbers 2 through 5 are the individual provincial games listed by manufacturer and game identifier. The following is a detailed summary of the results.
1. DEFINITIONS of certain Terms used in this report.
A. Volatility: Volatility is the mathematically calculated "range" in which a game will play. Let's assume for example, that a game has 1 million possible combinations of cards or symbols that can be presented to a player and only one of these combinations will result in a jackpot. The "Cycle" of the game is 1 million plays. If the game is random this jackpot could occur at any time during the 1 million game cycle. If the jackpot occurs on the first game, the overall payout percentage will look very high until enough losing games reduce the payout percentage. Conversely, if the jackpot is hit very late in the cycle, the game will have a very low payout percentage. The range between the highest possible payout percentage to the lowest possible is called the volatility of the game. The range will be very large when few games are played and will gradually narrow down as the game gets closer to the 1 million game mark in our example. It is not uncommon to see games designed with cycles of over 1 billion combinations. These games may take millions of plays before the game can be accurately assessed as to overall payout percentage.B. Randomness: All games approved for use in the ALC lottery market use some form of a Random Number Generation algorithm. The certification criteria require that the RNG be accurate to the 99th percentile (mathematically, it is impossible to be 100% random). The criteria also require that the game show no detectable patterns with regard to the outcomes of the games. Gaming Laboratories International, Inc. has pioneered many different tests and requirements regarding random number generators and how they must operate in a gaming environment. All ALC games have successfully passed Gaming Laboratories International, Inc. tests for randomness.
Based on the analysis conducted by Gaming Laboratories International, Inc. it is our opinion that all games having a sufficient number of games played, either meet or are within the appropriate volatility curve for the regulated jurisdictional limits listed below:
Limits Lower Upper New Brunswick 80% 90.00% Newfoundland 80% 96.00% Nova Scotia 80% NONE Prince Edward Island 80% 93.00%
If you should have any questions regarding this information, please feel free to contact our office.
| Sincerely, | |
| Todd Elsasser | |
| Director of Operations & Client Support |
Video lottery software is sourced from numerous suppliers. In many instances, a game is in the field under more than one manufacturer and also from the same manufacturer a game can have different game specifications. The payout percentages disclosed above are weighted average calculated for each game category by applying the payout percentages for each game to the number of plays.
This schedule includes only active games at March 31, 1998.
