Online gambling regulations in Ontario will give previous operators the ability to return to Canada
The Ontario government finally released its plan for a competitive, open online gambling structure that will not restrict legal gambling to only Ontario based companies or partners. Under the plan, any company can apply for a license to legally operate in Ontario, and if they meet the requirements and are approved for the license, they will get a logo to place on their websites indicating that the site is approved by the Ontario government as a licensed and regulated operation. The application fee is $30,000 Canadian dollars (non-refundable) and the annual licensing fee is $100,000.The license would be valid for any products they offer, including sports, casino, poker and bingo. And, unlike the United States, there is no requirement for websites to partner with an existing land-based gambling establishment or a need to have an office in Ontario.
In many ways, Ontario's plan is similar to the 2005 UK Gambling Commission's (UKGC) original plan, whereby they offered a whitelist to any jurisdiction that met their regulations and allowed companies in those jurisdictions to offer the product to the UK market and advertise there in exchange for a licensing fee. The UKGC dropped that endeavor in 2014. Instead they opted for a system whereby any company located anywhere could cater to the UK market, if they met all UKGC regulations, which included separating out any betting from UK customers and paying a 15% tax on gross profits (expanded to 21% in 2019) to the UK government on that betting. The requirements for a UKGC license include companies proving they are legitimate with no criminal background, have the funds to play players, including separating post up funds for operating funds, protect vulnerable people, have age verification software in place, and have anti-money laundering initiatives in place.
Looking at the Alcohol and Gaming Commission of Ontario (AGCO) framework, located at Registrar’s Standards for Internet Gaming | Alcohol and Gaming Commission of Ontario, it appears that many of those same requirements are required for a license in Ontario as in the UK. The two most focused on requirements involve identity, which the AGCO called Entity Level requirements as well as responsible gambling.
In the area of entity level requirements, the AGCO requires companies to prove proficiency in the areas of:
- Sound control environment
- Organizational and staff capabilities
- Oversight (i.e., ensuring there is no cheating or illegal gambling)
- Customer service
- Third party responsibility (i.e., making sure all suppliers are on the up and up)
In the area of responsible gambling, are various requirements including:
- Clearly outlying the risks of gambling on the website and in advertising
- Stopping underage gambling and ensuring no advertising targets minors
- Identifying and assisting problem there gamblers and ensuring no advertising targets them
- Relevant self-exclusion policies
- Ensuring all games are based on luck and that nothing affects the randomness of payouts for casino games
- The ability for players to set loss limits and deposit limits
As well, there are requirements relating to ensuring management integrity and player awareness, public safety and protection of assets, including segregating post up funds from operating funds, and minimizing unlawful activity related to gambling. This includes anti-money laundering provisions and guaranteeing the company is only operating in legal markets, which could exclude some viable businesses that currently operate in gray markets.
Perhaps the biggest difference between the UK model and the Ontario model is that businesses are not required to pay any taxes to the Ontario government. The only requirement is the annual licensing fee, which is significant, but shouldn’t be a burden to most companies.
One of the questions that crossed my mind is why any company like Bet365, William Hill or even Pinnacle Sports would want an Ontario license when they are offering their products to Ontario residents already and there is really nothing in the law that prevents them from doing so. I posed that same question to a Canadian industry analyst who said in his view it was all about the future.
"Ontario is a large market and Ontarians love to gamble. With a population of over 15 million people, it is estimated that Ontario residents gamble close to $2 billion offshore and around $8 billion legally in non-Covid years. Despite those figures, many Ontarians will not bet with an offshore company because they believe it’s either illegal or unethical. However, seeing a company is licensed by the AGCO should convince many of those residents that it is safe and legal to do so. And more importantly it will convince other jurisdictions too.
If you’re a company like Bet365 you want to make sure that you can get as much of the market as possible and also get a foothold in Canada to expand your offering when other provinces follow Ontario’s lead. Besides that, it's just a matter of time before all North America becomes one big online betting market where most intrastate and intraprovince restrictions are lifted and at that point it’s almost certain that the Canadian and American governments will demand proof that a company isn't a bad actor.
By showing the company has adhered to all requirements of the regulators in each state and province, including providing proof of a license, that should expedite them to the front of the line to offer their products elsewhere. Of course, being licensed also allows companies far more opportunities to advertise in sports stadiums and partner with teams, along with the ability to advertise on television, radio and billboards and social media. Ontario law currently limits how much and where they can advertise, but if they are fully licensed, it's expected those restrictions would be loosened substantially. Bet365 once sponsored teams in the CFL. With their capital they could not only sponsor every team, they could likely buy the league."
Betfair for Canadians
I was also curious if this could bring some old sites back into play, especially Betfair, who left the Canadian market in 2015. A Canadian account manager at the time for Betfair told me that the Canadian market was substantial, and that Canadians loved to bet on the Betfair exchange, so he was stunned and disappointed when the company decided to simply leave Canada.
The reason Betfair decided to stop allowing Canadians to play was twofold. First, the company decided to merge with Paddy Power, but Paddy Power was handling sports betting for the British Columbia lottery and the new company called Paddy Power-Betfair didn’t want to be seen as offering services in any other parts of Canada which could jeopardize the B.C. lottery agreement. Second, Betfair had purchased TVG horse racing network in the U.S. to get a foothold in the American market and they had plans to partner with Golden Nugget to offer online gambling in New Jersey. Consequently, the company investigated their tea leaves and believed the U.S. market was more important than Canada, so they decided to leave the Canadian market, which was seen as a gray area, for fear they could be seen as skirting the law, thus jeopardize U.S. opportunities.
But things have changed. Paddy Power no longer operates the sports betting at the B.C. lottery, as that has been taken over by Scientific Games, and with the new Ontario licensing scheme there is no concern about them returning to a gray market, since it would all be legal. It’s also notable that while Betfair halted the betting exchange in New Jersey last year due to lack of interest, in Canada, the Betfair exchange was always popular. So, this could be a great opportunity for Betfair to relaunch their exchange in Canada with hopes that perhaps they can use the Ontario market to perfect a North American model that they could then launch in all parts of the U.S. and Canada, if the other markets aside from New Jersey open to them. I emailed Betfair P.R. and Flutter Entertainment, which owns the company, for some comments and any possible indication if they are planning to apply for an Ontario license, but neither wanted to show their cards at this time.
No Horse Racing
One drawback to the Ontario online gambling license that could put off some companies is the requirement that licensees not offer horse racing. The AGCO makes it clear that only horse racing organizations can offer gambling on horse racing, and it is all regulated by the Canadian Pari-Mutuel Agency. It’s uncertain how much money online websites make from Canadian horse racing, although it’s clearly not as much as they make from UK racing, which for some companies is their biggest revenue generator. However, it is more than likely that the companies would be willing to give up that revenue in exchange for a legal license in Ontario. It’s notable that Bet365 stopped offering wagering from Woodbine and other racetracks a couple of years back probably because they anticipated something like the current situation occurring. That said, it’s unlikely the AGCO and the Pari-Mutuel Agency would agree to allow the gambling companies to offer any horse racing, even if the sites agreed to stop offering Canadian racetracks.
So, expect most offshore companies to start applying for a gambling license. The current olg.ca website, which offers lottery and casino games will continue, but it is operated by Ontario Lottery and Gaming and will have no impact on the new licensees.
Speculation and BIG questions
The big question is what companies that are not currently catering to Ontario will want in and which companies that want a license will be shut out? Will Betfair and Ladbrokes that left Canada want back in? Will Skybet and BWin, which never catered to the Canadian market, have any interest?
And what about gambling sites hosted on servers in Kahnawake? Currently those sites avoid Canadian customers, but no doubt they would love to have the Ontario market as customers given the size of the province although the Kahnawake Gaming Commission charges a hosting fee itself, so it could be a conflict of interest. And what about a site like Bodog, given the company was founded and owned by Calvin Ayre, who has had issues with the Canadian government in the past?
And will sites like 5Dimes have any interest in the Ontario market, given it gave up the U.S. market and settled with the American DOJ to get a clean bill of health to operate anywhere?
Time will tell who gets a license and how successful it is, but the open and unrestricted market is something we haven't really seen anywhere in North America, and it could entice a lot of companies that avoided Canada until now to get in the game now that it’s going to be 100% licensed, regulated and legal.
One thing is certain, Ontario gamblers can look forward to a lot of choices.
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