Tax Rates, Grey Market Transition Key Issues In Alberta

June 24, 2024
With Alberta government leaders intent on following Ontario’s lead into a privately operated online gaming model, industry leaders say the role of existing land-based facilities could be a key differentiator between the two provinces.

With Alberta government leaders intent on following Ontario’s lead into a privately operated online gaming model, industry leaders say the role of existing land-based facilities could be a key differentiator between the two provinces.

Following the confirmation from minister Dale Nally last week that the province intends to borrow heavily from Ontario’s pioneering regulatory model, one issue raised by multiple stakeholders is how Alberta’s existing land-based casino industry will affect the decisions of policymakers.

One key issue, according to experts speaking at last week's Canadian Gaming Summit in Toronto, is the revenue share the province will collect from registered private operators of online gambling.

Under the existing casino model in Alberta, private operators retain only 17 percent of slot machine revenues, with 68 percent going to the government and 15 percent going to local charities.

Charities also earn between 25 and 50 percent of table game revenues depending on the scale of the casino.

“If Alberta truly wants to do a new gaming model and have iGaming at the center of that, I think you have to be a level playing field,” said Rob Scarpelli, managing director of HLT Advisory, a gaming and leisure consultancy based in Toronto. 

“You have two choices; the tax rate equals what the land-based guys make, or the tax rate for the iGaming, you move the land-based [casinos] up to. Then you'll have an equal footing.

“When you’ve got existing stuff at 60 percent, you have got a challenge with essentially [online operators] saying we'll stay black or illegal if you don't make the taxes lower, but if you make a lower tax rate, they have a competitive advantage over the existing [land-based] operators who generate revenue, so you create an unlevel playing field,” Scarpelli added.

Establishing a tax rate for online gambling close to the effective tax rates that land-based operators pay would not be an appealing proposition for prospective market entrants, said Canadian gaming consultant Amanda Brewer.

“None of the conversations that have happened with Alberta at this point in time have even hinted at that,” Brewer said. “Their population base is smaller than Ontario's, and a really good way to get operators to come in happily is when you have reasonable tax rates. 

“[A rate of] 50 percent would not be considered by operators to be a reasonable tax rate in any province in Canada, so I think that would be a non-starter,” she continued.

One challenge Brewer pointed out when it comes to setting revenue share is that part of the equation for Canadian provinces opening up a regulated online market involves convincing current grey-market operators to enter the regulated space.

“We didn't have regulation in place to prohibit the activity, so if you're trying to get entrenched operators to come into compliance, then you do have to look at a tax rate that will be attractive to them, and that's certainly not anything north of 20 [percent],” she said.

“A lot of our clients, they’re sort of hemming and hawing and they’re reconsidering the grey market for that reason, and we’re hearing buzzwords like 'grey all day' and 'black is back,'” added Alon Segev, managing partner of Vancouver-based law firm Segev LLP. “And I tell them, just because it rhymes, it’s not a good idea, so I think tax rates are critical.”

Ontario’s solution to the issue was to set a 20 percent revenue share through operating agreements with iGaming Ontario, and to permit unregulated operators who were already offering games in the province to apply to enter the regulated market, as well as continue to operate while their application was pending through October 2022, or six months after launch.

No indication has been given yet by Alberta officials whether they will take a similar tact, other than Nally saying that the market will be open.

“The hope would be that if you hold a license in Ontario, and you're a licensee in good standing, and you're also active in Alberta, then you'll be able to come in,” Brewer said. “We haven't heard the minister make any noises about bad actors or restricting anyone in that sense.”

“Alberta has the same issue Ontario did before it licensed and regulated,” she added. “You've got a whole bunch of activity, and the only way to kind of force them into compliance is to develop a [competitive] model, because you can't restrict the number of operators you're going to bring in and expect the rest of them to just voluntarily exit out of your market, they won’t do that.”

Another open question is whether Alberta will take a similar approach when it comes to the stringent advertising restrictions that exist in Ontario.

Those Ontario restrictions include a prohibition on offering inducements such as free bets or deposit bonuses in public advertisements, as well as a ban enacted last year on using active or retired professional athletes, as well as other celebrities who could appeal to minors in advertisements, except for the narrow purpose of promoting responsible gaming.

“I think what we will see in the province of Alberta is something very similar to what you see right now in Ontario, and if a jurisdiction like Alberta wants to go very, very quickly, and launch a regime, the easiest way to do that, is I don't wanna say cut and paste, but to borrow a lot of the elements of an already proven model,” said Troy Ross, president of TRM Public Affairs.

“And so, I think you will see a very similar approach on a variety of things, potentially, including advertising standards and restrictions in Alberta.”

There are stakeholders who are in favour of additional restrictions on advertising volume, however.

"I don't think the social license for marketing in iGaming is lost by the use of athletes and ambassadors at all, I think it's lost by the sheer amount of what's on people's screens,” said Patrick Harris, managing partner of Rubicon Strategy. “So if I were Alberta, I would advise them to look at that.”

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