By Damian Martinez, journalist at G&M News.
Based on your 18+ years of experience in the sector, what advice would you give to executive readers, and what fulfillments you could mention about the iGaming sector in Canada?
It’s been about 18 years on the online gaming front, but almost 30 years working in and around gambling, public policy and politics. In that time, I would say that there are a couple of takeaways. Whatever you’re trying to do, it always takes longer than you predict. In part, that’s because governments don’t embrace change, particularly when they’re dealing with controversial issues like gaming. Governments, for better or worse, are structured to maintain the status quo. The most important lesson is sticking with it, because, eventually, even the most resistant governments will acquiesce to sound public policy. Look at the example of the online gaming lobby in Canada: when I started back in 2006, I was a virtual pariah. Nobody wanted to talk about it. It took a long time, but, eventually, we got there. In terms of milestones: definitely, the launch of the online gaming regulatory regime in Ontario. I hope that is the first of many, because I like to say this: one province down, nine more to go.
Ontario recently celebrated the two-year anniversary of its legal iGaming market. Do you think there is still room for improvement regarding the gambling regulation in the province?
Let me break that into two components. We have all seen the results of these two years in Ontario. They speak for themselves: 50 operators in the regulated market, CAD 63 billion wagered last year, and CAD 2.4 billion in gross gaming revenue, which roughly translates to almost a half a billion dollars in new tax revenue for the province. That is a really impressive success story in only two years, and I should mention also the fact that they channeled almost 90% of the play from the gray market into the regulated market. By any metric, it’s a huge success. The reason Ontario was so successful is that they took a practical approach. They introduced sensible standards and a reasonable tax rate. They did not limit the number of registrants, and they did not require tethering to a land-based casino, so the regime is both commercially attractive and addresses all the serious public policy questions: sound consumer protection, responsible gaming features, and anti-money laundering. An excellent regime. Are there some things that operators would like to see adjusted with the model? Sure. In terms of specific improvements, we’re working on some of those now. One of them is that Ontario currently doesn’t allow for shared liquidity with other jurisdictions. Expanding that liquidity pool would really help the business verticals like bingo, poker and daily fantasy sports. There are a couple of other issues that both Alcohol and Gaming Commission of Ontario (AGCO) and iGaming Ontario are working through now. Some of them are related to labor intensive manual processes with their anti-money laundering requirements that is in the process of being automated. Another thing I would say is that we need to get to a centralized self-exclusion system that helps problem gamblers. There are some things in different areas that can be improved. It isn’t perfect, but it’s the first of its kind in Canada and it’s a quantum leap forward for the industry.
According to an IPSOS study, 90% of players in Ontario are now participating on regulated sites. What measures and actions can the AGCO take to keep improving these numbers?
Achieving almost 90% channelization in the first two years is outstanding. That’s competitive with leading gambling jurisdictions who’ve been involved in the marketplace for over a decade. So it’s a really good job by the provincial government. I don’t think other provincial governments could discount that. That high channelization rate means citizens are being protected, they’ve got consumer protections, a well-regulated marketplace, and responsible gambling. How can AGCO and the province of Ontario continue to improve that? I would say: do the things that made you successful to begin with to remain competitive in this environment. They should continue to work with the industry and keep consulting them. Three years of detailed consultations took to launch the Ontario regulatory regime. That led to a very commercially sensible and reasonable system. Also, focus on the consumer. There are some other provinces that are focused on all kinds of distractions like debating the legality and trying to police advertising standards. They should work on satisfying the consumer demand and putting a reasonable regulatory framework around that. Moreover, they should manage the overall cost of compliance. If we keep the marketplace viable for a broad range of operators, that means many companies will continue to come to the jurisdiction and keep offering their products in Ontario. The more operators you have that leads to better series of consumer choice. Finally, the last thing for the government of Ontario to consider is that it’s time to start exploring options to take against truly illegal sites. Those sites that have not even demonstrated an interest in coming into the regulatory framework in Ontario continue to advertise the product in the jurisdiction. That is the next step and the next evolution: taking some concrete actions to eliminate their ability to advertise and eliminate their ability to fund accounts in the province.
How about other provinces in Canada? Are those jurisdictions looking to regulate their iGaming markets as well?
The short answer is yes. There are several other provincial governments that have begun looking at Ontario as a case study. I hope we will see at least one or two of these jurisdictions adopt a similar regulatory regime in the very near future. More specifically, the province of Alberta has signaled their intent to introduce a similar regime perhaps as early as this year. They’ve introduced legislation and passed it this Spring and they’re continuing to meet a number of milestones with the objective to launch a similar model as soon as possible.
How would you explain the situation of those provinces that still resist the regulation? What are their arguments to oppose?
We can’t say that the resistance is coming from the provincial governments or from elected officials in those provincial governments. The resistance is really being driven by the incumbent operators and, by that, I mean the provincial lottery corporations. Their position against a regulatory regime really falls into three broad categories. The first is channelization. Their position is that each provincial lottery has already captured a significant portion of the market. The second one is cannibalization. They say that if a government chooses to regulate, those incoming operators will capture too much of the market share and impact the lottery corporation’s dividend to the provincial treasury. The third is legality. They claim that big American operators are acting illegally in their marketplace.
Can you develop each of those categories?
Yes, of course. On channelization, the lottery corporation’s position is really spinning a false narrative about their own market capture. They generally claim that they’ve got 40, 50 or 60% of their market, but, in reality, those sites have a limited appeal to the consumer and generally a good portion of their sales numbers are primarily related to lottery profits. Actually, we found that most of the lotteries hover around 20% market capture or channelization across all business verticals. Regarding cannibalization, the suggestion is that, somehow if a government regulates the existing players that are present right now, lottery corporations will lose market share. I’m not sure how they make that math work, but the truth is there has been a healthy gray market for iGaming operators in Canada for 25 years. It’s not clear to me how regulating the activity that is currently taking place will magically impact the lottery corporation’s business. There is 2 years’ worth of evidence now: the regulated market in Ontario. At the same time the province launched their regulatory regime, the Ontario Lottery Corporation’s revenue share for online gaming increased 31%, and the average monthly player count went up by 22%. So much for the cannibalization argument there. The lottery is doing better now than they’ve ever done before. Finally, what a lot of these organizations claim is that the iGaming operators are acting illegally within their marketplace. There will always be established and entrenched interests who will oppose any kind of change that they see as a threat to their interests or their business. These actors have behaved irresponsibly and their position on this has been deliberately misleading. Let’s be very clear. Ontario is the only legal regulatory regime in the country, so, by definition, all these other operators are unregulated. But calling them all “illegal” is inaccurate and self-serving. Those operators have been meeting with those governments across Canada for 20 years asking to be regulated. The organizations doing everything they can to prevent the development of those regulatory regimes have been the lottery corporations themselves, so they claim they’re illegal while they prevent the creation of regulatory regimes. Also, there is a lot of confusion about the variety of operators in Canada. There are three distinct categories. First, there are clearly legal operators: provincial lottery corporations and all the registered operators in Ontario. Second, there are unregulated operators, which are licensed and regulated in the province, Europe or in different jurisdictions of the United States. Then there’s a third category: those are clearly illegal operators. Not regulated anywhere by anyone. They do not comply with responsible gambling standards, player protections or any kind of regulatory oversight anywhere. However, the lottery corporations and their agents trying to frame the discussion as simply legal versus illegal don’t allow for any kind of rational policy discussion or examination of the important public policy issues. It does nothing to resolve all these outstanding concerns with respect to the marketplace.