As a prelude to SiGMA’s grand debut in Toronto, world-class lawyers Ron Segev and Negin Alavi elaborate on why now is the most critical moment for the industry’s future in Canada’s provinces
The iGaming market in Canada’s provinces is huge, and it’s only going to get bigger for B2C operators in 2022. There has been a lot of excitement around the potential size of the newly opened Ontario iGaming market, and for good reason. Residents of Ontario alone spend almost $1 billion a year on online gambling. With such significant financial and other interests at stake, it makes sense that decision-makers are taking notice and taking action.
The two biggest recent legal reforms for Canadian iGaming over the past twelve months have been the legalization of single-event sports betting on August 27, 2021; and Ontario’s launch of a new regulated iGaming regime on April 4, 2022.
These reforms work together to take a big step towards curbing the unregulated grey market that many Canadians turn to gaming and betting. For the first time, private iGaming B2C operators can register with the Province of Ontario to market directly to and take bets from one of the largest, if not the largest, regulated iGaming markets in North America.
Canada’s iGaming Landscape: A Brief Overview
The Criminal Code of Canada makes iGaming illegal in Canada unless the iGaming activity is conducted and managed by a provincial government. In order to stay on-side of the Criminal Code provisions outlawing iGaming generally (and on-side of the constitutional authority granted to the provinces under our Constitution), the Provinces must be the operating mind of the iGaming activity. Any sports betting or gaming sites in Canada’s provinces must, therefore, be conducted and managed by a provincial government.
Single-Event Sports Betting: Canada’s provinces push It over the goal line
Before Canada legalized single-event sports betting, the Provinces were only legally allowed to offer parlay betting. A parlay bet is a bet on the outcome of more than one event at the same time. Most bettors prefer to bet on single events, and the restriction previously imposed by the federal legislation had cut the Provinces out of serving this large market demand. The vacuum was filled by offshore operators, and as that action goes offshore, so does provincial revenue. Now that Canada has come up to speed and legalized single-event sports betting, Canadian punters can bet on the outcomes of single sports events and the gaming industry in Canada can enjoy the benefits that come with that. Any Province can now conduct and manage single-event sports betting offers.
Opening an iGaming regime in a market of this size while the legacy parlay betting requirement was still in place would have been missing a big opportunity to welcome the international industry to participate fully in the market. Now that the Provinces can offer single-event sports betting, Ontario’s iGaming regime can truly be competitive with the unregulated grey industry. It allows for registered iGaming operators to legally offer catalogues that many consumers in Ontario have already come to know and enjoy.
Ontario: All In on iGaming
The Ontario government has officially opened its market to third-party B2C operators who are registered with the Alcohol and Gaming Commission of Ontario. Because of the Criminal Code of Canada, Ontario can’t simply license private iGaming operators to carry on business in Ontario subject to hands-off oversight; it must continue to conduct and manage the gaming sites offered by registered iGaming operators. Still, Ontario working together with registered iGaming operators, rather than competing with them, makes sense for the iGaming industry in Canada. Private operators are incentivized to innovate in order to provide the best gaming experience possible to consumers, and consumers in Ontario have consistently shown a preference for the gaming options provided by private offshore iGaming businesses. The Ontario government expects to reap substantial tax revenues previously lost to these unregulated gaming and betting operators.
Where We’re Headed: Better Regulations, Better Outcomes
Now that both legislative reforms have come into effect, the iGaming industry in Canada is more likely to see:
- better regulations that allow for consumer protection, responsible gaming, and the reduction of gambling-related harm;
- more taxable income that grows the Canadian economy; and
- potential job creation for emerging Canadian iGaming companies or foreign iGaming companies seeking to set up shop in Canada.
This last point should not be glanced over. Since the inception of iGaming in the late 1990’s, Canadian companies have been at the forefront of the industry. Unfortunately, the Canadian legal regime did not develop along with the industry. Many of our best companies and industry professionals moved offshore and developed London, Malta, and other cities into iGaming hubs by doing so. Toronto, Montreal, and Vancouver, which are historically and currently host cities to some great iGaming companies and talent, could have realized the same. Hopefully the recent legal reforms will see the Canadian industry achieve its true potential.
The ROC: What About the Rest of Canada’s provinces?
Our clients frequently ask us when the rest of Canada will “open up”. Many operators have experience with the regulatory dominoes falling in the United States, with more U.S. states adopting regulated sports regimes every quarter. Unfortunately, we don’t expect the same to happen in Canada, at least in the short to medium term. A review of the ROC, moving from the west coast to the Atlantic provinces, will show why we think other provincial governments will wait and see.
British Columbia’s iGaming market is Canada’s third largest market.
The Independent Gambling Control Office (“IGCO”), formerly known as the Gaming Policy and Enforcement Branch (“GPEB”), is B.C.’s gambling regulator. GPEB transitioned into IGCO due to concerns about a potential conflict of interest with GPEB both enforcing gambling policy and advising the government on business matters to do with the B.C. provincial government’s gaming and betting corporation, British Columbia Lottery Corporation (“BCLC”). Now that the regulator is separate from decisions about revenue generation and other potential conflicts, IGCO regulates all gambling in B.C., including regulatory oversight of BCLC. BCLC offers gaming options like lottery products and iGaming through its website www.playnow.com.
Given the relative success it has seen, we don’t foresee B.C. changing its gaming and betting regime – at least in the short term. In its 2020/2021 financial performance release, BCLC reported that www.playnow.com alone brought in revenues of $421.4 million. The report stated that
[f]iscal year 2020/21 revenues represent an increase of $242.4 million from prior year and exceed budget by $230.7 million.
Furthermore, BCLC is based in Kamloops, with a secondary office in Vancouver. Each of these offices employ hundreds of people. Kamloops has a growing population of over 90,000, with approximately 50,000 people working in the city. Traditionally a resource-dependent economy, these BCLC jobs are valuable to the Kamloops community.
With strong financial returns and job creation for B.C., we believe B.C. may to want to wait and see how Ontario’s iGaming regime fares before trying something new with its gaming sector. We don’t believe that there will be changes to iGaming in B.C. in the short term.
Alberta Gaming, Liquor and Cannabis (“AGLC”) has taken an interesting approach towards revitalizing its gaming and betting market.
Currently, AGCL offers www.playalberta.ca as the only regulated online gambling website in the province. It offers a variety of iGaming products and lottery options. Recently, AGLC put out two requests for proposals to help implement legal sports betting on www.playalberta.ca, and the two sports book operators selected will be announced later this year.
In a news release, AGCL has stated:
AGLC is working towards retail and online sports betting options with mobile extensions, to be established in 2022. As a first step in this process, AGLC is seeking two proponents to provide some flexibility and options in the first phase, and will consider additional opportunities as the market continues to develop.
Given these decisions, it seems that an Ontario-style iGaming regime is unlikely, as Alberta has chosen a different path for the moment.
Saskatchewan Liquor and Gaming Authority (“SLGA”) operates and regulates many forms of gaming in Saskatchewan and registers all provincial gaming employees and suppliers. SLGA acts on behalf of the Province when it comes to gaming matters.
The Saskatchewan Indian Gaming Authority (“SIGA”) is an experienced land-based operator that has been operating in the province since 1995, established as a non-profit to create economic opportunity for First Nation people and to give back to Saskatchewan. SIGA has recently been named the provincial operator of online gaming in Saskatchewan, and in 2021, the Federation of Sovereign Indigenous Nations and the Province signed a revenue sharing agreement and established a 50/50 revenue split between them. SIGA is responsible for coordinating implementation of the agreement on behalf of the province. For Saskatchewan to change this partnership’s dynamic by adopting an Ontario-style iGaming regime and open the market to private operators, terminating SIGA’s exclusive iGaming mandate in the province, would be a political mistake of national proportions. Considering this current political and social climate, it is very unlikely therefore that Saskatchewan would adopt an iGaming regime similar to Ontario in the near future.
Manitoba Lotteries works to offer residents of Manitoba gaming and betting products, including casinos and VLTs.
In partnership with BCLC, Manitoba also offers online gaming to Manitobans through BCLC’s www.playnow.com. BCLC provides site design, development, and management of most aspects of the website. PlayNow’s online revenue continues to grow, and Manitoba continues to benefit from that growth: 2020/2021 revenues brought home $72.4 million. The partnership is ongoing. Given the smaller size of the Manitoba market and the ease and profitability of their arrangement with BCLC, it’s likely that Manitoba will stay the course for now.
Québec is home to Canada’s second largest iGaming market by population.
Loto-Québec is Québec’s gaming and betting corporation, offering a range of gaming products such as lotteries. Loto-Québec has several subsidiaries, such as Société des casinos du Québec, which runs casinos in the province.
Québec presents unique barriers to offshore operators entering its iGaming market, such as Québec’s unique consumer protection, privacy, commercial, and language laws that may make compliance more cumbersome for the broader market. As a result, despite the size of the market, it may be less attractive to many operators who don’t have the ability or interest to comply with Quebec’s unique legal regime.
Québec’s current iGaming regime may also be profitable enough to discourage provincial experimentation with the current model. The website run by Loto-Québec, www.espacejeux.com, offers a variety of iGaming options. From April 1 to September 27, 2021, Loto-Québec generated $135.9 million from its online gaming alone.
Based in Montreal, Loto-Québec also has thousands of employees, with approximately 1500 of those employees working outside land-based casinos.
For these reasons, its possible Quebec will be slow to implement a change to their iGaming regime and will be adopting a “wait and see” approach instead.
The four Atlantic provincial governments, being a relatively small market, came together to establish the Atlantic Lottery Corporation. Held by the New Brunswick Lotteries and Gaming Corporation, the Nova Scotia Gaming Corporation, the Prince Edward Island Lotteries Commission, and the Province of Newfoundland and Labrador, Atlantic Lottery offers everything from draw games to online gaming experiences, returning profits back to Atlantic Canada. Atlantic Lottery Corporation has more than 600 employees.
For four Atlantic provinces to manage a single iGaming regime with multiple global operators and suppliers, while technically feasible, may be a political and administrative hurdle too difficult to overcome. Secondly, given that Atlantic Canada has a relatively small market that may not attract a large number of operators, the business case for adopting a new Ontario-style iGaming regime may not be compelling enough to warrant the Atlantic provinces to undertake such a large overhaul of their current iGaming regime. With respect to the administration of such a regime, there are many questions that would need to be answered. What would the Atlantic Canadian equivalent of iGaming Ontario look like? How would point of consumption taxation work? Where would the jobs be located? While there are answers to these questions, we suspect that given the size of the market, the four Atlantic lottery corporations and commissions may not be compelled to take on the task of creating its own Ontario -style iGaming regime any time soon.
Northwest Territories, Yukon, and Nunavut’s gaming markets, even when combined, represent a very small gaming market compared to other parts of Canada. These Territories do not offer a separate online gaming website. Both Lotteries Yukon and NWT & Nunavut Lotteries work with the Western Canada Lottery Corporation, which is described as “a non-profit organization authorized to manage, conduct and operate lottery and gaming-related activities as agent for its Members” and in which Yukon, Northwest Territories and Nunavut participate as associate members. Given the size of the market and current lack of online gaming resources by the Territories, it would be very unlikely that they would adopt an Ontario-style iGaming regime in the near future.
Only Time Will Tell What Comes Next
Given how Canada’s provinces has never seen anything like Ontario’s new iGaming regime, the Provinces and Territories are watching closely to see how it all unfolds. If Ontario’s iGaming regime is a huge success, developing a thriving industry and generating good jobs, then the chances of other Provinces and Territories following suit will be much higher. Only time will tell how Canada’s provincial gaming and betting sectors will evolve – perhaps this is the very beginning of a new era in Canadian gambling?
If you’d like to learn more about Ontario’s new iGaming regime, have questions about legalized sports betting in Canada, or have any other gaming-related questions, contact our talented and knowledgeable lawyers at Segev LLP at 604-629-5400 or via email at [email protected] This article was penned by Ron Segev and Negin Alavi.
Ron Segev is the Founding Partner at Segev LLP, a full solutions law firm with a specialization in interactive entertainment including online gaming and esports. Ron has assisted operators, platforms, data companies, marketing companies and other businesses in the industry on regulatory and compliance, M&A, commercial, capital finance and other issues.
Ron has been rated as a Band 1 gaming lawyer by Chambers and Partners – their highest ranking – and is also a General Member of the International Masters of Gaming Law.
Negin has a practice that focuses primarily on general commercial and technology matters. She also has extensive experience with writing legal opinions and editorial pieces on areas of the law such as online gambling, charitable gambling licensing, video games, and cryptocurrency.
Negin received her J.D. from the Peter A. Allard School of Law at the University of British Columbia in 2020. She also has a B.A. in Philosophy and English from Simon Fraser University. Negin was called to the Bar in September 2021.
Join us for SiGMA Americas – Toronto:
Toronto is the perfect hub for SiGMA’s growth in North America, making it a nexus of networking and business development in the region with regards to land-based, iGaming, sports betting, and more. Playing host to a massive iGaming industry, Toronto will be the home for the SiGMA Group’s initiative to link the industry pioneers of the continent together for 3 days of networking, workshops, and awards. To learn more about sponsorship and speaking opportunities or to inquire about attending the event, please contact Sophie on [email protected].