Ontario's Online Opening Breaks New Ground In Canadian Gambling Market

September 28, 2021
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Ontario is weeks away from establishing Canada’s first online gambling licensing regime, although key policy questions still remain for a market that will be unique in North America.

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Ontario is weeks away from establishing Canada’s first online gambling licensing regime, although key policy questions still remain for a market that will be unique in North America.

The Alcohol and Gaming Commission of Ontario (AGCO) this month adopted final standards for online casino gaming and sports betting, while a new AGCO subsidiary has released a draft version of the commercial contract that approved operators will have to sign to be able to operate fully lawfully in a Canadian province for the first time, potentially as soon as December.

Canada’s regulated online gambling market is currently limited to state-owned lottery agencies, including the Ontario Lottery and Gaming Corporation, that offer casino, lottery games and now sports betting online in almost every province.

However, the lottery corporations have long faced fierce competition from a thriving offshore market amid uncertainty about whether prohibitions under federal law can be applied to operators outside the country and limited desire to test that through enforcement actions.

“It is a significant change because Canada has had a significant grey market in the online space forever,” said Paul Burns, CEO and president of the Canadian Gaming Association (CGA), which represents private companies active in Canada’s gambling industry.

“Really there’s only one solution and it’s what Ontario is doing — creating a regulated marketplace.”

Canada egaming

Dozens of operators from Canada, the U.S. and Europe are expected to seek to become registered and contract with AGCO’s iGaming Ontario subsidiary to participate in a competitive online market VIXIO GamblingCompliance forecasts will be worth almost C$2n within a few years.

The Ontario market offers several attractive attributes compared with the line-up of U.S. states including neighboring Michigan and New York that are in equally sharp focus for the global industry.

Unlike most states, Ontario’s regulatory regime will encompass casino games alongside sports and event betting.

There are no limits on the number of licenses available nor any market-access requirement to partner as the "skin" of an incumbent land-based casino, as is the case in most U.S. online markets.

Operators already active in the offshore market are being encouraged to register, with Ontario officials seeking to regulate sites that are already popular with their residents in an approach more akin to those taken by European countries over the past decade or so.

“It’s a really unique opportunity for gaming companies who want to access the North American gaming market that can’t get in other places — smaller companies, early stage start-ups and others to try to get their foothold,” Burns told the VIXIO GamblingCompliance Podcast earlier this month.

Still, if market-access is much less limited than the U.S., Ontario will also arguably be more like a European market when it comes to strict responsible gambling and advertising requirements.

For example, approved online casino games must comply with game-design standards that mirror those of the UK, with bans on certain features such as auto-play and a minimum spin time of 2.5 seconds for online slots.

Bonus offers and other “inducements” cannot be included in advertising, although operators will still be able to directly offer bonuses to their registered customers with their express consent and via their own websites.

The AGCO has looked to established European markets in developing its standards, but they also reflect Canada’s sophisticated responsible gaming programs already in place for other forms of gambling, said Burns.

“In some ways, Ontario is last-man-in in the regulated iGaming marketplace because so much of the world has already created a regulatory regime,” Burns said. “They’ve tried to pick from best practices, pick from the current standards and approaches to gaming that they’ve had in the province, and meld that into the framework.”

Canada’s Criminal Code

The AGCO has stated that it is aiming for the regulated market to launch before the end of 2021.

However, there are still several aspects of the new regulatory regime that are not yet set in stone, including the effective tax rate.

iGaming Ontario is understood to have indicated in its draft contract that the province will receive a 20 percent share of gross gaming revenue. But a definitive rate has not been confirmed and there remains some degree of hope that it could be changed to at least allow a slightly lower rate for sports betting.

Officials have also suggested that the Ontario market will not allow for international liquidity, making it impossible for Ontarians to play poker, fantasy sports or other pooled games against players in other provinces or countries, as they currently do in the grey market.

The proposed restriction appears to stem from language in Canada’s federal Criminal Code that permits provincial governments to manage gambling activities taking place “in that province”, as well as an early 2000s court case that found an online lottery game available to players outside the province of Prince Edward Island to be unlawful.

Industry groups are advocating for international liquidity to be permitted, however.

There is no legal impediment under Canada’s Criminal Code to suggest that Ontario cannot regulate the activities of an Ontarian player on an Ontario platform even if he or she is participating alongside another player who may be subject to regulation by another jurisdiction, said Jacqui Code, a partner at law firm Osler, which has submitted a legal memo on the matter to Ontario’s attorney general on behalf of the CGA and the UK’s Betting and Gaming Council.

International liquidity would also be better from a policy perspective, said Code and Eric Levy, chair of Osler’s gaming law practice in Toronto, because it would generate more revenue for the province, provide a better product and experience for players, and encourage channelisation to the legal market.

“The hope and our expectation is that before launch we will have an open liquidity model,” Levy told VIXIO GamblingCompliance.

The ongoing debate over international liquidity is just one area that underscores how Ontario’s regulatory regime is being informed by the scope of Canadian federal law.

The Criminal Code generally prohibits gambling activities unless provincial government agencies “conduct and manage” them themselves.

Ontario’s new regime will be the first time any province has strayed from direct state operation in the context of online gambling, although Ontario, British Columbia and other provinces have afforded a significant operational role for private companies partnering with provincial agencies to run land-based casinos.

One unique feature of the Ontario market flowing from the conduct-and-manage requirement is the obligation for operators to establish a joint bank account with iGaming Ontario, from which the provincial agency will collect revenue and disburse the operator with its share.

Unlike for land-based casinos, iGaming Ontario will not have ownership of player data but it will control how data can be used via the commercial contract.

At least one prominent Canadian gaming lawyer has recently argued that Ontario’s groundbreaking approach to online gambling stretches the Criminal Code’s conduct-and-manage construct too far and would likely be found unlawful in the event of a legal challenge.

But if Ontario’s online regime does not comport with the Criminal Code, then various existing gambling offerings in the province and elsewhere in Canada would also fall foul, believes Don Bourgeois, a former AGCO general counsel and director of the Ontario Racing Commission who is now a lawyer in private practice with the firm of Fogler Rubinoff.

Ontario already has a competitive market for land-based casino gaming, while the history of gambling in Canada has shown that interpretations of the Criminal Code have continually evolved, Bourgeois said.

Through a joint bank account, commercial contract and other requirements, Ontario “does more than what is necessary” to comply with the Criminal Code, said Bourgeois. “I think the iGaming Ontario model is a very robust conduct-and-manage structure.”

Ontario is a really unique opportunity for online gaming companies who want to access the North American gaming market that can’t get in other places.

At least for the time being, only Ontario’s online gambling market is being opened to private operators that may already be active across Canada’s ten provinces.

But other provinces are likely to be watching closely and taking notes as the Ontario market opens, said Burns of the CGA, although it is also possible that other jurisdictions will consider alternative models tethering online gambling to land-based venues or applying a more limited licensing regime.

“Ontario will stand out as a unique model, probably in North America, for the immediate term if not longer term,” Burns said.

The VIXIO GamblingCompliance Podcast · Episode 48. Ontario Online Opening Begins New Era In Canadian Gaming

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