August 27, 2021
Like Canada, the USA has also recently decriminalised sports betting at the federal level. The US story has garnered a lot of media attention as their individual states look to rollout (or not rollout) online sports betting frameworks. However, Canada and the USA are fundamentally different in how they treated online sports betting operators over the past 20+ years. This difference is a crucial factor which should inform how Canada can best move ahead now.
If Canada looks to follow the recent regulatory path of the US (which is done at the state level) with a provincial level approach to iGaming regulation, most of the existing online sports bettors in Canada will stay in the 'grey market', without more robust Responsible Gaming measures and all of their associated online gaming revenue, about $4 billion annually, will continue to go untaxed. Below, we outline why this is the case with a brief history of online sports betting in Canada, how these two countries sought to oversee their past respective periods of 'prohibition' and how the result of these contrasting 'prohibition' periods must be used to inform how Canada shapes its 'post-prohibition' period in order to dismantle the Canadian 'grey market'.
Up until the passing of Bill C-218 in June of 2021, single-event betting in Canada has been illegal. Provincial lottery corporations were only able to offer sports betting games that required parlay betting, or bets that required several event outcomes be made in combination with one another. Even with this limitation, some provincial lottery corporations moved to offer online versions of this parlay-only offering, like PlayNow.com in BC and Manitoba or Mise-o-jeu in Quebec.
In this concurrent period from the late 1990s to the present, Canada did not look to legally prevent 'offshore' online betting providers or their gaming jurisdictions from serving Canadians. Thus, in this period of over 20 years, highly reputable online betting providers, many of which traded on European stock exchanges, looked to serve Canadians. They even marketed to them on Canadian soil through various legal loopholes. To this day, 'grey market' offshore betting brands can establish 'free-to-play' web domains that use their main brand in the domain, but end with dot-net or dot-co extensions. They advertise their 'free play' web sites on television, radio, billboards and even through professional team and league sponsorships, but gain brand recognition and traffic for their real money dot-com gambling sites.
The 'grey market' brands that used this strategy early on are the dominant 'grey' providers in Canada today. The lack of convenience, single-event betting and competitive odds pricing associated with provincial lottery sports betting offerings, combined with the high visibility of several 'grey' brands in the market resulted in hundreds of thousands, if not millions of Canadians taking their gaming dollars to these offshore betting sites which possessed superior technology, single-event betting & far better odds values.
At the dawn of the post Bill C-218 era, the reality is that even though the ‘grey’ providers have not been 'legal', Canada has been well-served by reputable online sports betting providers for a long time and it is now a very mature market. Most interested online players already have a home with at least one of these dominant 'grey market' brands. It is worth noting again that $4 billion annually is already being wagered online from Canada, and most of this is done through the dominant ‘grey’ brands. Unlike the USA, Canada's period of ‘prohibition’ for online sports betting, did not actually prohibit anything.
In the US, with the exception of Nevada, sports betting was illegal up until 2018. Prior to 2018, the US government took very strong legal action to dissuade & prohibit international iGaming operators from trying to serve their citizens as 'grey' online sports betting providers. Beyond this, to help counter those companies that might still try to serve US players anyway, credit card companies were mandated to prevent transactions at any 'grey' providers for US cardholders.
Thus only a relatively small group of 'grey' betting providers in Central America & the Caribbean looked to serve the US. If a US resident wanted to bet online prior to 2018, for the most part, they had to send funds via old fashioned money orders. However, once the federal prohibition ended and various states began to allow online & mobile betting, the movement of money became very easy – so any existing American ‘grey market’ players were incentivised to switch to the ‘legal market’ simply because they could now deposit or withdraw funds in a far more convenient fashion via methods such as PayPal, credit cards, or online banking.
The US prohibition of online sports betting actually had teeth, unlike Canada. As a result, top international iGaming brands like bet365, Betsafe (Betsson AB), Betway, Unibet (Kindred Group), 888sport and William Hill among others stayed away from the US online iGaming market. When the US prohibition ended in 2018 and various state markets began to legally open up, these leading iGaming brands started to enter various US state markets, but they did so from a baseline of zero American players. When they enter available state markets, they have nothing to lose in terms of their overall addressable market or their existing databases of customers.
Contrast this with the situation in Canada, where there was no such strong legal action taken to prohibit 'grey' providers from serving its citizens for over two decades. Players in Canada were and are able to transact with ‘grey’ betting sites via popular payment methods including credit cards, Interac e-transfers, numerous bank debit solutions, e-wallet platforms and prepaid solutions like paysafecard or Neosurf. As such, all these major internationally recognised iGaming brands named above and many others have been acquiring Canadian players from as far back as the late nineties through to the present day and have huge databases of existing customers in every province across the country.
If these companies want to officially serve the newly regulated market of Ontario, they will likely be forced to forego serving all their existing players in other provinces. (Update Sept 28, 2021: Ontario will not mandate that their licensed operators stop serving other provinces from the 'grey market'.) Some provinces have yet to determine their course of action on iGaming regulation, but given all we know about provincial politics, we can be sure that they will not all be on the same page as Ontario, which will have an uncapped licensing system.
Ontario is a big market on its own, especially relative to other US state markets, so it will of course attract US operators like DraftKings, FanDuel, PointsBet, BetMGM and BetRivers that have a zero customer baseline in Canada. However, why would any of the dominant incumbent 'grey market' operators look to trade their current situation to ‘officially’ serve a market of 15 million in Ontario? They would have to remit gaming taxes, pay license fees and pay to implement mandated RG systems. Plus they would have to stop serving the wealthy market of 23 million outside of Ontario, where they have already accumulated a significant customer base.
Clearly, it is only rational that the incumbent 'grey' providers for Canada will opt to continue to freely serve the wider national market of 38 million and their existing databases of customers, all while avoiding taxes, license fees & RG mandates. Unless the federal government finally looks to legally compel these providers to stop serving players in Canada with a true prohibition, this will remain the crux of the matter and it is why a provincial approach to regulation of iGaming will keep the bulk of these incumbent 'grey market' brands in the 'grey' along with the vast majority of their existing Canadian players and gaming revenue.
Not only will these ‘grey’ providers want to keep their Canadian customers, the feeling will be mutual for their customers. These companies have brand heritage and leading edge iGaming platforms that will have created a sense of loyalty for their customers across Canada. While some online betting newcomer customers will no doubt register with the new legal ontario betting sites given the marketing push that will happen in that province, the vast majority of existing ‘grey’ Ontario players will stay with their existing providers. These are world-leading brands in the industry, they know how to retain players.
In markets like BC, Alberta, Saskatchewan, Manitoba, Quebec and beyond, where provinces may decide to establish iGaming monopolies under their provincial lottery corporations, or perhaps open their own smaller licensing environments, we can be certain that all the existing ‘grey market’ providers will be able to lean on their superior technology, odds values and brand heritage to retain the vast majority of their clientele in these jurisdictions, where new ‘legal’ options will be limited at best.
The proof will be in the pudding very soon, but given the crux of the matter above, just how many of these brands will be announced as applicants to serve the Ontario market in an official capacity come the end of 2021? If we see that zero, or nearly zero of these incumbent 'grey' brands have applied for Ontario licenses and the federal government continues in their 'hands-off' approach on the prohibition of 'grey' providers - you can be sure that they are waiting to be able to apply to serve the entire country of Canada through a national regime, even if it is a de facto one.
The vast majority of Canada's current 'grey market' online sports betting providers want to be regulated in Canada so that they can legally serve the entire Canadian market, pay license fees, remit taxes on gaming revenue and install any government mandated Responsible Gaming protocols on their Canada-facing betting sites. We know this because all the top Canadian ‘grey market’ brands have some combination of licenses in other important national jurisdictions like the United Kingdom, Spain, France, Italy, Belgium, Denmark, Sweden & Australia among others.
Only if the federal government looks to close up the 'grey market' in the manner that the US did many years ago, might these brands have to look to give up serving Canada from the 'grey market' and apply for provincial licenses where available, but there is no sign of a change toward a tough approach in this regard.
In order to dismantle the 'grey market' that its 'hands-off' approach helped to create, the Government of Canada must now ensure that iGaming is overseen by a national regime, or at the very least, mandate that Canadian provinces come together to become a single, unified market, even if the regulation itself must stay at the provincial level. There is precedent for this in Australia, which is closely comparable to Canada in measures of wealth, population, land mass, interest in betting, as well as the fact that their states and territories also regulated gaming.
Over 20 years ago, the Australian government realised that iGaming and online betting was different than land-based gambling and it changed its governance structure in order to move with the times and protect its citizens, while keeping more online gaming revenue at home. Australia’s states and territories would continue to regulate gaming, but Australia as a whole became a single, unified market for online sports betting, and there is now almost no 'grey market' Down Under.
If Canada is to 'take back' the vast majority of the 'grey market' for online betting as was a stated goal when the Government passed Bill C-218 to decriminalise single-event sports betting, three things must happen, all of which are fairly straightforward. First, they must create a national iGaming regime (or allow for a framework which can create a de facto one, as in Australia) with a fair and competitive tax rate and licensing structure to allow for significant industry competition – there are many national examples to follow.
Second, they need seek out and follow the best practices regarding Responsible Gaming systems, support and advertising standards from the examples found in regimes in Australia, Spain, Sweden, Denmark, the UK and Italy - so that all of Canada has access to one cohesive ecosystem for RG. A patchwork approach, rather than a unified one will be more harmful for player safety.
Lastly, whether mandated by the federal government or otherwise, to bring the provinces onside, gaming taxes should be shared in a fair manner so that the vast majority of tax generated by a given player will be allowed to flow back to that player's province of residence. For example, if it was determined that the Ontario iGaming market was to do the 'heavy lifting' on the actual regulation of the betting companies, but the betting sites under their jurisdiction were allowed to serve players in Alberta, the vast majority of the taxes collected on these players' associated gaming revenue should be returned to the Government of Alberta. Tracking, reporting and remitting tax funds in this fashion would be simple for these betting providers, as they already have the capability and infrastucture to carry this out.
Once these measures have been established, the incumbent world leading iGaming providers will take care of the rest and voluntarily apply to move from the 'grey market', into the 'legal' market. If this were to occur, like flipping a switch, it would almost instantly turn the majority of Canada's existing 'grey market' players into those that are participating in the 'legal' market. All their associated annual gaming revenue would become taxable, provinces would keep their share of gaming taxes at a rate that is proportional to what they generate and all vulnerable Canadians would get better RG support and tools.
Canada’s ‘grey market’ providers will certainly trade a 38 million-person addressable ‘grey market’ for a ‘legal’ market of the same size that resembles the one described above. They will not however trade their existing player databases and the 38 million-person ‘grey market’ of Canada for the ‘legal’ 15 million-person addressable market of Ontario - not without the threat of a true prohibition.
Of their own accord, the provinces will not give back the power they have over gaming, nor do they seem willing to all work together to form a single, unified market - despite the amazing opportunity that would come as a result. Thus the responsibility for wresting control of this situation will be squarely on the shoulders of the federal government after September’s election. Given the race against time that we witnessed in passing Bill C-218 before the Senate’s summer recess and the inevitable call for a federal election that could have scuttled the bill, Canada is lucky that this first important piece of legislation got through to receive Royal Assent and become law. There was no time for anything else with regard to sports betting legislation.
However, there is a ray of hope which indicates that progress could arrive after the federal election, as at least some in the government have an understanding of this issue. Kevin Waugh of Saskatchewan was the Conservative Member of Parliament that introduced Bill C-218 as a private Member’s bill. On August 20, 2021 MP Waugh appeared on a podcast where he mentioned that if he is re-elected, there is a possibility of introducing new legislation as another private Member's bill to make this a federal issue. MP Waugh said “…there is a responsibility here for the federal government…I know that and you guys know that. I’m not sure those in the House of Commons know that.”
As we’ve outlined here, the situation is complicated, full of nuance and one that few people know about or understand – including many in government, but the solution to the problem is neither complicated nor unprecedented. We hope this piece has gone some way to shed light on why the only reasonable way forward for iGaming and sports betting regulation in Canada is through a single, unified market approach, whether through a true federal regime, or through a de facto one as found in Australia.
Canada and the US have been so different in their approaches up until now. So as each US state announces news of their plans for sports betting and is successfully able to move their bettors from the 'grey market' to the legal one, we in Canada should not watch and think that it is only natural to follow suit in the same manner with our provinces.
Unless Canada intends to properly prohibit the ‘grey’ providers from serving Canadians as the US did for its citizens, the only way to dismantle the ‘grey market’ now is to actually invite them to ‘legally’ serve Canada as a whole, bringing all of their existing players with them. There are billions of dollars and lives at risk. The good news is there is still time for Canada to get this right.