Ontario Online Launch On Track, Despite Cannibalization Concern

January 20, 2022
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Ontario’s government expects to soon announce a launch date for competitive online gambling, despite the province’s largest land-based casino operator calling for a delay and regulatory reset over concerns of cannibalization.

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Ontario’s government expects to soon announce a launch date for competitive online gambling, despite the province’s largest land-based casino operator calling for a delay and regulatory reset over concerns of cannibalization.

In a confidential report obtained last week by CBC News, Great Canadian Gaming Corporation warns that Ontario is at risk of losing C$550m in annual tax revenue and more than 2,500 jobs in its land-based gaming industry due to its liberal approach to regulating online gambling.

Great Canadian is urging the government to pause its planned launch of a competitive online market and instead grant incumbent land-based casinos a two-year exclusivity period, with a limited number of licenses then made available for online sports betting only.

The report comes at the 11th hour before Ontario officials inaugurate arguably the most keenly anticipated new market in the global online gambling industry, with dozens of operators thought to be preparing to participate.

In an emailed statement to VIXIO GamblingCompliance on Wednesday (January 19), a spokesperson for Ontario’s Ministry of the Attorney General acknowledged the report produced by Toronto-based consultancy HLT Advisory on behalf of Great Canadian Gaming, but said the company and fellow land-based casino operators have “at all stages throughout the development of the iGaming market … been included as important stakeholders,” with ample opportunities to provide comments through various consultation processes.

Unregulated gambling websites are already readily accessible in Ontario and the purpose of establishing the new regime is to “displace the existing grey market, attract new operators, provide opportunities to existing land-based operators and reduce the risks to consumers who play on online gaming websites,” the ministry said.

“Ontario’s new iGaming market will complement existing land-based gaming activity by providing a new opportunity for Ontario’s land-based operators to expand into iGaming to diversify revenue sources and cross-promote between online and land-based sites,” the statement added.

“The government, [Alcohol and Gaming Commission of Ontario] and [AGCO subsidiary] iGaming Ontario are working with prospective operators to ensure Ontario is ready for the market launch, and its timing will be announced soon.”

A spokesperson for Ontario’s Ministry of Finance, which has held joint consultations on online gambling alongside the attorney general, deferred to that office to comment on whether the Great Canadian Gaming report could have an impact on the timeline for launch, but said Ontario “remains committed to establishing a new online gaming market that will minimize the risks to consumers who play on online gaming websites.”

“The government will continue to meet with the gaming industry, First Nations communities and organizations and social responsibility organizations to hear their views,” the finance ministry spokesperson told VIXIO GamblingCompliance.

Cannibalization Concerns Disputed

News of the report is understood to have taken other stakeholders preparing for the launch of regulated online gambling in Ontario by surprise and initially caused some alarm, in part because provincial elections scheduled for June would mean any delay in the rollout would be unlikely to be a short one.

Acquired last year by private equity giant Apollo, Great Canadian Gaming Corporation entered the Ontario market seven years ago through the province’s so-called “modernization” process to partially privatize land-based casino operations.

The company operates a dozen casinos in different regions of the province and is in the process of developing a Las Vegas-style casino-resort at the site of Woodbine Racetrack near Toronto’s international airport.

The company’s concerns regarding online gaming were echoed in comments provided to CBC News by Canada’s largest private-sector labor union, Unifor, as well as by the mayor of Pickering, the city just east of Toronto where Great Canadian opened a new casino-resort last summer.

The HLT report notes that Ontario’s market structure is very different from those of U.S. states, with an unlimited number of licenses available and no requirement for operators to partner as the skin of an incumbent land-based casino.

Rather than inviting them to enter the regulated market, officials should take enforcement action against established operators and require future licensees to delete their databases of Ontario customers, according to a published summary of the report.

“This report includes critical learnings from other jurisdictions that introduced iGaming and cannibalized land-based operators in the process,” Great Canadian Gaming CEO Tony Rodio told CBC News in a statement. “While we support iGaming in principle, the Ontario government needs to take time to get this right.”

The forecasted cannibalization of tax revenue is based on the anticipated difference in effective tax rates applied to online and land-based gaming in Ontario.

Revenue-sharing for land-based casinos is determined by contracts signed by private operators and the Ontario Lottery and Gaming Corporation (OLG) but is believed to equate to roughly 55-60 percent of revenue. A final rate for iGaming has not yet been confirmed but has been expected for several months to amount to 20 percent.

Still, supporters of Ontario’s new online model argue the Great Canadian report fails to account for the maturity of an entrenched offshore market that has been well established for at least a decade, with any cannibalization effect likely already being felt by land-based casinos.

“The market needs to open because no benefits will flow to an Ontario casino operator or any Ontario-based iGaming company until it does,” Paul Burns, CEO and president of the Canadian Gaming Association, told VIXIO GamblingCompliance.

A Unique Market

There is at least some past precedent for a major gambling reform process in Ontario to veer slightly off course.

When it first established the modernization plan for land-based casinos, OLG initially intended for operators to have free reign to propose new sites within specified zones rather than co-locating at established racetracks, before later adjusting the terms of the scheme following pushback from the province’s horseracing industry.

However, those changes came nowhere near as late in the process with applications already submitted for iGaming. The land-based reforms also needed a reboot after several local governments, including Toronto, rejected the prospect of a new casino.

Great Canadian Gaming’s report does not represent the first criticism of Ontario’s iGaming plans, either.

In December, a report from Ontario Auditor General Bonnie Lysyk repeated concerns of a conflict of interest between AGCO’s responsibilities as regulator of gaming in Ontario and its new subsidiary iGaming Ontario’s role to contract with private operators and manage the new online market.

The watchdog expressed concern that the Ontario model could be at risk of a legal challenge related to requirements of Canada’s federal Criminal Code for provinces to conduct and manage gambling activities within their jurisdictions.

One unique feature of the Ontario gambling market is for operators such as Great Canadian to partner with OLG as the government’s management agent for land-based gaming, whereas online companies will instead contract with iGaming Ontario.

As well as parity over tax rates and market-exclusivity for incumbents, Great Canadian is calling for land-based casinos to be able to operate on an omnichannel basis through shared wallets and a single account, with operators also eligible to market online gaming to their traditional players.

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