Place your bets
If all goes according to plan, single-event sports betting will become legal. But what will the betting market look like in Canada?
There’s a lot at stake, but odds are the federal government will finally legalize single-event sports wagering, as the Safe and Regulated Sports Betting Act (Bill C-218) waits to clear the Senate. If it does, it will be up to the provinces to figure out the shape betting in Canada will take, and choose whether to implement a competitive gaming regime or retain their monopolistic hold on gambling.
Introduced by Conservative MP Kevin Waugh, the federal bill has all-party support and the backing of the sports industry and police, both of which opposed legislation in the Senate in 2015.
What has changed? Top of mind is a 2018 U.S. Supreme Court decision that struck down a federal law prohibiting single-event sports betting outside of Nevada and, in the process, upended the North American gaming landscape. Now all the other states have the power to decide whether to allow it within their borders. Thirty and counting have either legalized sports betting or passed legislation. The pressure has been growing on Ottawa to follow suit.
"Once it becomes regulated in the U.S., then you ask, what is fundamentally different about that form of entertainment in Canada from the U.S," says Don Bourgeois, the former General Counsel for the Alcohol and Gaming Commission of Ontario (AGCO).
The pandemic has also played a part. Federal and provincial governments are looking for new sources of revenue to make up for higher government spending. Single-event sports betting is big business. According to the Canadian Gaming Association, Canadians spend $10 billion annually on single-event betting through illegal bookies, $4 billion through offshore online sports wagering sites. That's compared to a paltry $500 million in legal provincial sports lottery products. PricewaterhouseCoopers estimates that legalizing single-event sports betting could deflect $2.4 billion in gross gaming revenue from the grey market within two years.
Changing social attitudes have also paved the way for governments to embrace and shift policies to favour "sin taxes" and government regulation over outright prohibition, says Michael Lipton, QC, of Dickinson Wright, not unlike when the federal government legalized the recreational use of cannabis in 2018. It's possible, he says, to protect the public through smart regulation and "in a manner that will add revenue to the government coffers, which in turn will benefit the public," says Lipton.
The proposed legislation would decriminalize single-event sport betting, currently prohibited under the Criminal Code, unless it involves placing a bet on the outcome of more than one match.
But just as decisively, it would open the door to a competitive gaming regime in Canada, as provinces and territories decide how to regulate and license the practice. It likely spells the end of the government monopoly regimes we are all used to, making way for private operators who could then bring competitive sports betting products to market, online or in casinos. "The time of the government sector monopoly in gambling probably had a value but no longer in the 2020s," says Bourgeois, now counsel with Fogler, Rubinoff LLP. "There has been a dramatic change in the regulatory environment. Operators are now very sophisticated, mature, highly-regulated companies that provide a consumer product," all the while "emphasizing social responsibility, responsible gambling, anti-money laundering and privacy."
All eyes are now on Ontario which has plans to launch a regulated online marketplace for online gaming. The province proposes to create a subsidiary of the AGCO that would be granted authority to "conduct and manage" online gaming operated by private parties.
Still, Canada's unique legal framework for gaming can make things complicated. Under the Criminal Code lottery schemes are to be "conducted and managed" by provincial governments. The case law would suggest that the "conduct and manage obligation" will be interpreted as the "operating mind" of the lottery scheme, says Ron Segev, a gaming lawyer and a founding partner of Segev LLP. "So it's possible, at least theoretically, that they're off-side." The proposed iGaming Ontario model contemplates an arrangement where operators run their affairs while the province provides a registration framework and some regulatory oversight.
According to Bourgeois, the Ontario model is fully compliant with the Criminal Code. Even so, the province's discussion paper on internet gaming acknowledges the need for a rigorous and complex framework for regulating gambling -- more so than what operators are used to in other jurisdictions.
There are also questions around licencing, taxation, revenue sharing and responsible gaming initiatives. Measures will be needed to address anti-money laundering, anti-fraud and data protection. And will the provinces be able to expand offerings beyond single-event sports betting to event wagering such as the Oscars or election outcomes?
The provinces and territories must also ask themselves whether to stick with the monopoly model or follow Ontario's lead and adopt a licencing regime. "Ontario is moving away from the monopoly model but unless other jurisdictions do the same thing, you're still going to have a problem with offshore operators competing with monopolies in Canada for Canadians to place bets," says Lipton. The tack taken by the Quebec government will not fly, he says. It passed a law in 2018 requiring internet service providers to "block access" to a list of "unauthorized" gambling sites drawn up by Loto-Québec. The Quebec Court of Appeal struck down the law's provisions as it infringed on areas of exclusive federal jurisdiction.
And then there's the matter of enforcing rules that vary from one province to the next. It appears offshore operators – many of them multinational outfits, many of whom are public companies – are drawn to the Canadian marketplace. "A number of these companies now are trading issuers on European or North American exchanges, and that dynamic means there are lawyers and accountants and compliance committees who don't want to put at risk the brand," says Bourgeois. "They are willing to get into a regulated market and to compete in that regulated market."
Regulators should work together and withhold licenses from private operators who refuse to abide by the rules, advises gaming lawyer Jack Tadman. "As jurisdictions move towards regulation as opposed to prohibition, one way to enforce would be to make it clear that a company's actions in one jurisdiction could affect their ability to get a license in another," says Tadman.
Another thorny issue turns around the involvement of First Nations. Ontario's plans to hold discussions with the Ontario First Nations Limited Partnership, which represents the gaming interests of 132 First Nations in the province, over how to design and share revenue from the iGaming market.
Meanwhile, the Mohawk Nation of Kahnawake, south of Montreal, has already earned a reputation as a pioneer of online gaming. The Indigenous community has established a world-class location facility and internationally known online gaming authority that licenses well over 50 online gaming operators from around the world, representing over 100 online gaming websites. Morden Lazarus, a well-known gaming lawyer, says that Ottawa's efforts to implement single-event sports betting will have no impact on them. They already have the aboriginal right to carry out gaming under section 35 of the Constitution, which protects traditional native rights, he says.
Lazarus has proposed the Quebec or federal government give legal sanction to internet gaming operations currently operating in the territory. An agreement would provide "genuine reassurance" to actual or potential gaming entities involved in public offerings of their securities on recognized stock exchanges. But his efforts have so far led nowhere.
That can be a problem, says Lipton. While the Kahnawake Gaming Commission "does a good job in respect to regulation," they have a competitive advantage in the absence of an agreement with either the provincial or federal government. "Those operators in Kahnawake are not subject to, or at least they don't adhere to, Canadian taxation requirements," says Lipton. "It's perhaps more advantageous for an operator to be based in Kahnawake and to take Canadian bets than it is for an operator to be licenced in Ontario under the new system..."
However, none of these questions have stopped M&A deal activity in anticipation of the new regime, say gaming lawyers. Score Media and Gaming Inc. (theScore) closed a bought deal offering in December 2020 for gross proceeds of $40 million, while electronic payment processing company Nuvei Corp. made history in September 2020 by raising $700 million in the biggest initial public offering of a technology company in the history of the TSX. Expect more financing activity if Bill C-218 is enacted and Ontario's licensing model becomes a reality, says Segev, whose firm is now working on three IPOs for gaming companies. "With respect to the Canadian market specifically, we're going to see consolidation on the sports media and entertainment side, and we're going to start to see some non-endemic partnerships too but that'll only happen if there's absolute clarity and certainty around the legality," says Segev.
But don't bet on the gray market disappearing, whatever happens. If decriminalization of recreational marijuana is any guide, "it's going to be harder for the provinces to convince people who have these longstanding relationships with their poker dealers to switch," says Segev. "What's the value proposition, especially if there are limitations on what an operator can do in terms of VIP management, marketing and the rest of it?" And offshore operators tend to offer better pricing, better odds, and a wider variety of events that a bettor can place a wager on.