October 26, 2023
Ontario is often viewed through a US lens by the igaming media in terms of how they evaluate it as a market for gaming and sports betting revenues. Most tend to equate Ontario as essentially any other US state, hence all the attempts at "apples-to-apples" comparison articles. Rather than take into account all the context that actually makes the Ontario market vastly different from US state markets, they often prefer to make market comparisons for casino or sports betting revenue or "handle" as if there are no fundamental differences.
American state markets have never had to deal with anything like that of the "grey market" of offshore operators for Canadian sports betting. Beyond the fact that Ontario now competes and deals with a much larger "black market" of unlicensed online betting and casino operators, a key aspect of analysis that is often overlooked by industry writers is the existence of the Ontario Lottery & Gaming Corporation (OLG) and their place within the digital, retail and bricks and mortar landscape of gaming and sports betting in the province.
Below, we highlight the respective 2022/23 fiscal year results for OLG and for iGaming Ontario so that we can see a more complete picture of the Ontario gaming market. While their fiscal years are not perfectly synchronized (ending at different times), a full year of data from each ensures that we don't have to worry about quarter-to-quarter swings that are a result of seasonality. We will then use the more granular data from the most recent quarterly iGO reports to approximate the likely sports betting "handle" within Ontario over this 2022/23 period.
Unfortunately, iGaming Ontario did not provide disaggregated results until Q1 of 2023/24. Thus, we did not get a breakdown of online casino, poker and sports betting wagers or revenue per gaming vertical in 2022/23. We'll delve into this a little later. We did get an aggregated full year "handle" of $35.5 billion in wagers, which yielded an iGO revenue figure of $1.4 billion.
OLG's 2022/23 total revenue figure of over $4.6 billion takes a little bit of parsing to untangle the results for the gaming verticals in which we are interested. This complication comes as retail "Proline" sports revenue is counted under "Lottery", given that players actually participate at lottery kiosks across the province. We don't want to include regular OLG lottery results in our analysis, but the Proline sports betting game is germane to our discussion here. Thanks to a good level of granularity within the OLG report, we can gather the line items that are relevant.
For 2022/23, the total Digital Revenue from iSports and iCasino was $451 million (page 84 of the report). Total Land-Based Gaming Revenue was $2.243 billion. Proline Revenue was $91 million (Proceeds minus prizes). Thus the total sports betting and casino revenues flowing through OLG, both online and offline, totaled approximately $2.785 billion. When we add OLG and iGO revenue figures together, the total Ontario online and offline casino, poker and sports betting revenue figure for 2022/23 is essentially $4.185 billion.
We need to do some work to approximate these figures within both OLG and iGaming Ontario. As mentioned, iGaming Ontario provided no granularity or breakdown of their revenue or wager figures for the 2022/23 period. However, their first quarterly reports of 2023/24 did include this level of granularity by vertical: casino, poker and sports betting. If we look at the proportionalities in these most recent quarters and apply them to 2022/23 overall figures, we can make reasonably good, rough approximation of the likely sports betting numbers as captured by iGO's first year of operation.
Over the first two quarters of iGO's 2023/24 fiscal year, there were $28.2 billion in overall wagers. Sports betting wagers for this period totaled $3.9 billion. Thus, sports betting accounted for about 13.8% of overall gaming "handle". If we apply this rate to the previous year's overall gaming wagers figure, we can assume that the iGaming Ontario sports betting ecosystem saw a "handle" in the region of $4.9 billion over the 2022/23 period (iGO total wagers figure across verticals in year-one was $35.5 billion).
Total joint OLG iCasino/iSports revenue, meaning OLG's Online Casino and Proline+ yielded a revenue line of $451 million. To approximate how this line item might split, we'll go back to the first two iGO reports of 2023/24 where H1 casino revenue was $799 million and sports revenue was $256 million. Sports thus made up about 24% of the revenue between the two verticals in Ontario. If we assign the same 24% split to Proline+, the approximation of revenue there would be $108 million of the $451 million total. If we divide $108 million in sports revenue by the approximate assumed odds margin, we should come up a good approximation of the Proline+ sports betting "handle" or the total wagers. Proline+ has gotten more competitive, using margins near 5% on key betting markets, but it uses higher margins on less popular sports and markets. So, let's assume an average margin or "sportsbook hold" of 6.8%. $108 million divided by 0.068 = approximately $1.6 billion in Proline+ "handle" or sports betting wagers for 2022/23.
For the retail Proline sports betting game, OLG outlines the "proceeds", which is essentially the "handle" of $293 million on page 33 of the report. (Associated Proline prizes totaled $202 million, which means of all monies wagered, Proline's "hold" was about 31%!)
In our table, we add up our approximated sports betting "handle" figures for each of the three legal Ontario sports betting platforms for 2022/23. It's $6.8 billion.
|iGaming Ontario||$4.9 billion|
|Proline+ (digital)||$1.6 billion|
|Proline (retail)||$293 million|
|Total Ontario Sports Handle||$6.8 billion|
It is important to note that iGaming Ontario's first year as a market is different than every US state's first year in a significant way. When it comes to online sports betting, most US state markets have launched with all the most important operators that will exist in that market. DraftKings for example generally does not wait four months to join FanDuel in a given state market. However, the nature of the Ontario market meant that many of the eventual legal operators did not go live until the second, third or fourth quarter of year-one.
This is demonstrated by the iGO operator count, which moved from 18 in Q1, to 24 in Q2, to 36 in Q3, to 44 in Q4. Thus, iGaming Ontario's second full year results-to-come, will more closely represent the performance of the true, legal Ontario online gaming market. In other words, even in the first year of operation, much of the actual revenue figures were lost to the "grey market" as brands made their transition into the legal market over the course of the year.
The number of iGO operators has plateaued, with few further significant brand additions expected. However, essentially all the current operators will make their contributions to the market for the entirety of year-two. Given this, it is likely that we will see overall iGaming Ontario revenue in the region of $2.3 billion, which is 64% higher than iGO's first year. With regard to sports betting, we expect to see iGO's second full year "handle" in the region of $9 billion, with revenue between $550 million and $580 million. Again, to approximate all the figures for Ontario, we'll need to add in a sports betting "handle" from OLG properties, which will likely be in the $2 billion region. Thus, the total legal Ontario sports betting "handle" will be in the region of $11 billion for 2023/24 in our estimation.
If you are tempted to take these figures and compare Ontario to various US state markets, again, remember that Ontarians still see constant advertisements and marketing placements for many prominent "black market", unlicensed operators that target Ontario players within Canadian TV and streaming properties, let alone the numerous non-iGO-compliant affiliate marketing websites. These unlicensed brands continue to accept the action of Ontario players. Even if the same brand placements leaked onto US-based screens by happenstance, the vast majority of these unlicensed operators do not accept US-based players.
While the channelization rate of 85.3% in Ontario is at an impressive level given the young age of the legal market, we would expect channelization rates in US states where online sports betting is legal, to be even higher. This is the case for three main reasons. 1) "Black market" brands are far less visible to the consumer in the US as compared to Ontario. 2) There are far fewer "illegal" options in legal US state markets as compared to Ontario. 3) Paying into "illegal" US sites is a far more onerous process compared to that process at "illegal" Ontario sites, which often support several of the same popular, instant and secure Canadian Dollar payment methods as those found at licensed operators.
In other words, if Ontario actually had a much smaller and less capable "black market" to deal with as competition, similar to US states where online sports betting is legal, Ontario's annual sports betting "handle" would probably be about $13 billion, or $2 billion higher than we actually expect for 2023/24.
Back to SNBET's Ontario sports betting news.