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Online Gambling is Almost Here in Ontario and the Province is Asking for Feedback

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Technology, Media and Telecommunications Bulletin

In its 2019 budget the government of Ontario announced its intention to bring legalized, online gambling to the province (“iGaming”), in part to capture and regulate the already existing $500 million a year Ontarians spend on grey-market gambling websites. In the November 2020 budget, we learned that iGaming would come under the purview of a new subsidiary of the Alcohol and Gaming Commission of Ontario (“AGCO”). Fast-forward and on March 3, 2021, the government released the next step in its plan: a discussion paper that outlines initial plans for shaping the market and a call for responses from provincial stakeholders. From here, the province will finalize a ‘framework’ for the operation of the market, proposed for the fall of 2021, and then launch iGaming, potentially by the end of the year.

This bulletin summarizes the key takeaways from the just launched discussion paper.

Overview

The Ontario government’s proposed model for iGaming in Ontario is built around potential partnerships between a new provincial regulatory oversight body falling under the AGCO, and private sector providers of iGaming platforms. In the discussion paper, the government describes a “framework” for implementing four objectives that it has set for iGaming in Ontario:

  • Consumer choice based on fair competition that will enhance the entertainment value of iGaming platforms;
  • Consumer protection to ensure gaming integrity, responsible play, and to prevent underage access;
  • Growth of a legal iGaming market that leverages existing private expertise to address existing unregulated markets and to capture revenue, currently flowing out of the province; and
  • Reducing red tape to establish a market based on reasonable and equitable regulatory standards and requirements.

The government’s discussion paper indicates that Ontario intends to chart a path forward based on partnerships with private gaming providers, rather than building its own solution or relying on transitioning existing gaming operators (such as casinos) to the digital world.

Legal Background

The legal regime in which iGaming may live is based on the prohibition in Part VII of the Criminal Code that makes gambling illegal, subject to narrow exceptions. Provinces are granted an exemption to “conduct and manage a lottery scheme”. The discussion paper confirms that the government believes that this exception is broad enough to include the iGaming regime proposed in the discussion paper.

However the narrowness of the Criminal Code exemption, requiring that the province conduct and manage the activity rather than administer a regulatory regime in which private parties run their own iGambling enterprises, will require the new AGCO subsidiary to be more closely involved in the operations of private platform operators than may be the norm among most other regulators. The services and types of gaming offered on the platforms will, similarly, need to comply with all restrictions imposed under the Criminal Code.

Practical Considerations

Revenues

Ontario has chosen to forgo a revenue strategy based around taxation—which has been favoured in Europe and the United States— in favour of revenue sharing based on contracts. The new AGCO subsidiary will enter into agreements with private operators who will pay it a share of their revenue derived from iGaming; the final form of these agreements is not yet established. The discussion paper mentions two revenue sharing models under consideration: a single rate applied against gross revenues of the operations and variable rates individually applied against different gaming products, based on their unique features.

These revenue models under consideration directly impact on the potential profitability of platform operators and the viability of operators developing the iGaming market. Feedback on this point is specifically requested from stakeholders to address these issues and to create a business-friendly iGaming environment.

Operations

The discussion paper proposes forming public-private partnerships governed by commercial agreements between the new AGCO subsidiary and private operators and the terms of these agreements will need to meet the requirements of the Criminal Code restrictions. The discussion paper suggests that commercial agreements will need to include some form of commitments from operators that their iGaming products with be kept to certain standards and that the new AGCO subsidiary will have enough access to conduct effective oversight.

Three key areas of consideration are mentioned. First, the province may need to implement expectations around data capture, including data as it pertains to specific players (e.g., player account details and usage patterns) and more general platform reporting requirements. Second, consumer protection and financial integrity requirements will require operators to implement systems to monitor their platforms for fraud and money laundering. The role that existing payment systems play in supplying those tools will need to be defined. Third, protecting individual gamblers will require building out policies and technical features, such as age verification tools and geo-location capabilities. The discussion paper notes that the eventual framework will include required measures to protect individuals, including prohibitions on certain forms of advertising and minimum requirements for identity verification tools.

Games

Again, the Criminal Code is the key factor in what games will actually be available to play on Ontario’s iGaming platforms. To the extent that they are currently permitted, the discussion paper envisions existing casino-style games (such as slots, blackjack, and roulette) forming the core of the platforms’ offerings, but other types of games are also being considered.

Novelty event wagering—betting on non-sports events—has already been implemented in other provinces and the discussion paper signals that the framework will allow for such betting in Ontario, according to consumer demand.

Peer-to-peer gaming, which includes poker, will also be permitted. More niche versions of these games, including some versions of peer-to-peer sports betting, are also under consideration, although the legality of these offerings will need to be considered in light of the Criminal Code limitations.

Finally, the biggest potential category that could be added is single event sports betting. While “Parlay”-style betting—bets that depend on the outcome of multiple sporting events—have a long history in Canada, betting on the outcome of single events is illegal for now. However, Bill C-13 An Act to amend the Criminal Code (single event sport betting) is currently under consideration at the federal level and, if passed, it would legalize betting on single sporting events. The discussion paper notes that this would be a major market opportunity in Ontario and that sports betting would be expected to be a major plank in the offerings under an eventual iGaming framework.

Next Steps

The Ontario government is currently soliciting feedback on its proposals. Stakeholders are invited to join virtual discussions that will be held in late March and written feedback may be submitted until April 16.

There are some big questions outstanding that feedback at this phase may affect. For instance, what role existing gaming operators, such as Ontario’s casinos, will play in the move to an iGaming framework is not yet answered. The existing operators are invited to propose roles for themselves, but the government is not considering them to be required partners for new online-only operators that want to build a market in Ontario.

How the new framework addresses the concerns of Indigenous peoples, including those that currently operate gaming sites on their lands, is also not answered in the discussion paper, although the government does invite feedback on this point.

Interested parties should consider intervening now to ensure that their perspectives are incorporated as the government settles on a final framework and begins to move towards a launch of iGaming in Ontario in the coming months.[1]

 

 

[1] Thank you to Taylor West, articling student, for his assistance.

 

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