Regulatory momentum builds in Canada

1 May 2020

With single event betting once again on the agenda, and momentum towards regulation building in Ontario, Canada’s igaming market looks set to be opening up. However, don’t expect similar progress in other provinces, writes Jake Pollard.

When Bill C-218,‘The Safe & Regulated Sports Act’, was put forward in Canada’s House of Commons in late February, the scene was set for the federal repeal of the single event sports betting ban. Its passage would enable Ontario to capture a large part of the offshore market as it moves ahead with plans to regulate online gaming.

The bill, sponsored by Brian Masse, representative for Windsor West Ontario, was his third attempt to decriminalise single sports wagering across Canada. It was due to go in front of Canada’s House of Commons for provisional review before the Coronavirus crisis hit.

Its aim is to alter the “Criminal Code to make it lawful for the government of a province, or a person or entity licensed by the Lieutenant Governor in Council of that province, to conduct and manage a lottery scheme in the province that involves betting on a race or fight or on a single sports event or athletic contest”.

In other words, it will allow single fixed-odds bets to be offered on sporting events and pave the way for the liberalisation of online sports betting regulations and gaming products.

Across the border in the US, sports betting regulation has spread rapidly following the repeal of the Professional and Amateur Sports Protection Act (PASPA) in May 2018.

Canada could therefore no longer maintain its antiquated laws that treat (single event) sports betting as a criminal activity, according to the bill’s co-sponsor, Conservative MP Kevin Waugh.

The promised land
The truth, of course, is that Canada has long been a major unregulated (or grey) market for the igaming sector (see Chart 1 below).

One industry contact, who agreed to speak on condition of anonymity and until recently was Canada country manager for a major online casino brand, tells iGB: “Canada has been something of a promised land for the industry for a number of years.

“Certainly, when compared to regulated markets in Europe like Italy, Spain, UK or Sweden that all have tight regulations and where the authorities are aggressively monitoring operators, Canada has a claim to the best grey market out there,” they explain.

“The lifetime values of players are very good and the payments infrastructure is also excellent. Visa and MasterCard transactions have a 60% to 70% rate of approval and e-wallets and [Canadian money transfer system] Interac are very stable.

"There are also no issues like payment blocking as we’ve seen in Norway or the Netherlands.”

Against this unregulated backdrop, for politicians and groups such as the Canadian Gaming Association (CGA), a long-term advocate for gambling regulation, the main issue is and has always been always consumer and player safety

“Amending the Criminal Code to legalise single-event sports wagering will provide provinces with the necessary tools to deliver a safe and legal option to Canadians,” says CGA chief executive Paul Burns.

“[Not to mention] the power to address important issues such as consumer protection while enabling economic benefits to flow to licensed gaming operators, communities and provincial governments."

Regulatory misconceptions
Despite Canada being a highly active unregulated igaming market for many years, and the Masse bill allowing provinces to regulate their respective sectors, so far only Ontario is preparing to do so.

To some extent this is because “on the ground the reality is that many people think sports betting is already regulated in Canada”, says Burns.

The situation is further fuelled by igaming brands freely advertising their dot.net and free-to-play sites - from which players easily find their way to the real money versions.  In fact, there are very few barriers to entry for operators, or barriers to access for consumers.

“Canada is a large and mature market for most (igaming) media buyers,” according to Allan Petrilli, vice president of sales at affiliate technology specialist Intelitics. “There is an affluent population that understands gambling and has the disposable income with which to play.

“These players are also very present on social media, advertising networks and consume lots of digital media,” Petrilli says. “And because of its proximity to the US there is a significant spillover from US publishers who understand the market, culture and value that is there.”

Yet while there is clearly demand among players for igaming products, Ontario remains an outlier, in that none of the other provinces appear to share its appetite for opening up the market to private operators.

The likes of British Columbia, and its Lottery Corporation (BCLC) and Québec’s Loto Quebec remain reticent to follow suit.

However gaming lawyer Ron Segev, a founding partner of Vancouver-based Segev LLP, says this reticence should not cast the provinces is a bad light.

“What has to be considered is that Ontario Lottery & Gaming (OLG) has not been that successful with its online portal PlayOLG," he says. “[Whereas] British Columbia Lottery Corporation (BCLC) was one of the very first lottery operators to develop its online portal, PlayNow, back in 2004.

“And while there is still an offshore presence in the province, BCLC has good traffic and platform, and is a full-feature platform in terms of products. It has been very successful and returned considerable revenues to the government.”

This is borne out by the numbers. In the fiscal year ended 31 March 2019, BCLC reported total revenue of CA$2.6bn, of which $149.8m was generated online. Loto-Québec beat this total marginally, with revenue of $2.8bn, of which $105.4m came from its digital offering.

OLG was by far the largest operator, with total revenue of $4.9bn. However, of the ‘big three’ provincial lotteries, its igaming contribution was significantly lower, at $91.9m.

Loto-Québec, Segev notes, has taken a similar stance to igaming as BCLC, but is arguably more interested than its Kamloops-based counterpart.

“This is partly because Loto Quebec has not achieved the same online success as BCLC, and there are additional issues such as dual language requirements in Quebec,” Segev points out. “Operators might not want to take on the associated costs if regulations required French-speaking customer service or dual language websites.”

Progressive approach
Regulation is often seen as an ideal scenario for igaming operators wanting to enter markets with the full array of marketing tools and legal security. Lotteries, in turn, find themselves cast in the role as blocking this progress due to fears over cannibalisation.

Segev, however, makes the point that an operator such as BCLC is far from the narrow-minded, protectionist state or province-licensed company often criticised by industry insiders.

“The executives [at BCLC] are very focused on technology, innovation; always looking for new products and developments,” he says. “They are eager to meet new operators and suppliers, who are also given a route to the British Columbia market if they work with BCLC.

“A province liberalising its regulatory regime to adopt a B2C system is not the only marker of success that the industry should consider. You can have a thriving igaming industry in a province like British Columbia that is not targeting the province or even the whole of the Canadian market.”

There is some truth to this; for example, live casino specialist Evolution Gaming has opened a new studio in Vancouver, specifically to cater to BCLC.

It shows that the province is a busy and active hive for igaming, while there is a strong revolving door between executives who work for BCLC and private suppliers and operators.

However, having only one state-licensed operator through which suppliers and/or operators can enter the market in a completely legitimate fashion immediately reduces the options for the sector.

It also limits choice for consumers. British Columbia sports fans wanting to bet on more than the two or three-game parlay that is authorised by the province have little difficulty finding unlicensed, reputable sportsbooks that will take their custom.

It also means the province is missing out on potentially substantial tax revenues.

Of more relevance currently, British Columbia’s stance is political. It should be placed in the context of the New Democratic Party gaining power in 2017.

The political capital and energy the party expended in setting up new gaming oversight committees that will become active in 2021 means the province currently does not have the bandwidth to look at regulating igaming.

“For British Columbia there is also an element of wait and see and monitoring how the situation develops in Ontario,” says the industry contact quoted at the start of the article.

“The regulatory system in Ontario will likely be very similar to that of New Jersey, with land-based casinos ‘subletting’ their licences to B2C brands and suppliers,” iGB’s contact explains.

“But it will also require companies applying for licences to stop all activities in other provinces, so the regulations will have to be optimal to justify the investments by those groups.”

Ontario will also have to be highly proactive when it comes to enforcement, geo- and payment-blocking of unlicensed sites.

The contact reveals they are working on a new online casino project targeting Canada but will do so as “a grey market operator”.

While British Columbia, Quebec and other provinces show little inclination towards opening their igaming markets, many existing or new unlicensed operators will continue to target the country in this way.

While the revenues are tax-free and the legal risks low, as they are now, that situation looks likely to carry on for some time.

For the CGA and the province of Ontario, regulation will enable better consumer protection and tax revenues for the region. All the executives interviewed for this article were very upbeat about the future of igaming in the country.

“We’re seeing many companies and investors active in the space, capital is available and we are currently working on a number of IPOs,” says Segev.

Allan Petrilli adds that the Canadian grey market is in fact “very light grey”.

“The government isn’t prescriptive about it and companies can promote their brands on mainstream media. Operators must localise their content and offer the right payment and processing methods, if not the traffic won’t convert.”

These trends are going to continue, whether, or rather whenever, Ontario regulates its igaming sector. But Canada is already a mature market with strong history in the sector.

If OLG and Ontario are successful in generating market share and revenues in a truly competitive environment, it might act as a positive test case and eventually push British Columbia and Quebec to follow suit.

In the meantime, the many offshore operators already active in the country will just continue working there and enjoy tax free revenues with minimal legal worries.