Online Gambling Firms Expect Ontario to Lift Key Operator Ban

Ontario’s online gaming industry is anticipating the provincial government will move ahead soon with regulatory changes to allow private operators into the market.

Canada’s most populous province unveils a new budget on Nov. 5 that is expected to be focused on the Covid-19 response. Operators say they hope online gambling will be at least referenced, and high on the priority list soon after.

An expansion of online gambling would generate new revenue for the government at a time when spending and deficits are soaring because of the pandemic. It would also fulfill a pledge Premier Doug Ford made in last year’s provincial budget to “establish a competitive market for online legal gambling.”

The province currently allows only online gambling run by government-owned Ontario Lottery & Gaming Corp. Last year, the province’s finance department estimated that most of the C$500 million ($375 million) Ontario residents spend on online gambling flows to gray market websites.

Read more: Ontario’s Record Borrowing Plan May Turn to Overseas Investors

“There’s a tremendous benefit to bringing this out of the shadows and into the forefront and take advantage of this regulatory change that will protect consumers and bring revenue to the government,” said Paul Burns, chief executive officer of the Canadian Gaming Association. “It will also be a very strong economic driver to the industry to get companies to locate and operate here.”

Finance officials declined to give specific timing for regulatory changes. “Over the coming months, the government will work to develop a new model for online legal gambling to help foster an exciting gambling experience,” said spokesman Scott Blodgett. “Financial details will be determined once further work has been undertaken.”

Revenue Boost

Legalized online gambling in Ontario would generate about C$547 million in annual revenue after five years, said James Kilsby, a Washington-based analyst at Vixio GamblingCompliance, a company that provides regulatory intelligence to the gambling industry.

How much that adds to Ontario’s coffers depends on the tax rate that’s applied. Most European countries tax online gambling at 15% to 25% of gross revenue, he said.

Ontario is expected to set a “reasonable” rate compared to global peers, according to Danielle Bush, a partner at Miller Thomson LLP in Toronto and the corporate secretary of the Canadian Gaming Association.

“About 18% to 20% is what’s floating around within the industry,” she said. That would work out to C$100 million to C$110 million in tax revenue for a province that’s projected to have a C$38 billion deficit this year.

Sports Betting

In the longer term, there’s also potential to cash in on single-event sports betting, currently prohibited under Canadian criminal law. If that type of gambling were legalized, revenue would swell to C$1.47 billion for Ontario, Kilsby said. Single-event sports betting would require legislative change by the federal government.

In the U.S., iGaming and online sports betting generated nearly $160 million in tax revenue in 2019, according to the American Gaming Association. New Jersey accounted for the lion’s share, with $114.1 million, following a 2018 U.S. Supreme Court decision that struck down a federal law that restricted sports betting in most states.

Kilsby expects about 30 to 40 U.S. states -- including Michigan, New York and most other states that border Canada -- will have full legal sports betting within five years. Ontario, which has a population larger than all but four U.S. states, “would be another landmark opportunity in North America” if Canada were to liberalize sports betting, he said.

Potential Players
FanDuel Inc.
GVC Holdings Plc.
DraftKings Inc.
Mohegan Sun Casino
Great Canadian Gaming Corp.
Hard Rock International

Social Cost?

The question is whether governments in Canada want to brave the criticism they may face for opening the door to more gambling. On one hand, the virus has sharply limited entertainment options, creating the potential for higher-than-normal demand. On the other, politicians may face heat for fueling a rise in gambling losses or addictions in the midst of a crisis.

There is already evidence that online gambling results in higher rates of problem gambling, said Nigel Turner, an independent scientist with the Institute for Mental Health Policy Research at Canada’s Centre for Addiction & Mental Health.

“Anytime you make gambling more easily available, you run the potential risk of having more people gambling money they can’t afford to lose,” Turner said.

Proponents say regulating the industry offers the best way of ensuring that people who need help for gambling problems can receive it.

“We’re excited by what we’re hearing both at the federal level and provincial level,” John Levy, founder and chief executive of Toronto-based Score Media & Gaming Inc., said in a telephone interview. “We hope we don’t have to wait too much longer for it to happen.” The firm has a sports betting app that’s available in New Jersey, Indiana and Colorado.

©2020 Bloomberg L.P.

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