November 13, 2023
Last month, we used the latest annual reports from Ontario Lottery and Gaming Corporation and iGaming Ontario as well as the more granular, recent quarterly reports from the latter, to approximate the overall Ontario sports betting "handle" and revenue within the 2022/23 fiscal year. We then also made an approximation for these figures for Ontario's second full year since single-event betting became legal.
With both the hard data from year one, and the approximation for revenue in year two, we finally have a true idea as to the size of the online market for legal Ontario sportsbooks, casino and poker, that we did not have previously. This is because iGaming Ontario's first year results were dampened by the 7-month long transition period that its operators were granted from the market-open on April 4, 2022, to the deadline for operating without a license on October 31, 2022. For iGO's second full year of operation, all its major brand operators will contribute revenues to the entire year - no money will be lost to the so-called "grey market". This is why the second full year results for iGO will see a significant jump in handle and revenue over the first year.
As a reminder, in that piece, we made the approximation that in its second full year of operation, Ontario's "conducting & managing" of private online gambling brands will yield an overall revenue in the region of $2.3 billion. Make no mistake, these are our approximations, but given the first year yielded revenue of $1.4 billion, a full complement of operators contributing revenues for all of year-two, will make a huge difference in finally knowing the true size of the iGaming Ontario market and the government's share of that, which is separate from its its OLG operations.
This brings us to the purpose of this piece: With what we know now, what does it mean for other Canadian provinces that could follow Ontario's lead in this way? Put another way, what are other Canadian provinces missing out on by not regulating online gambling? Before we can put a value to this, let's briefly summarize why iGaming Ontario has been such a success within the Canadian context and why other provinces could easily follow suit to gain the same benefits.
The iGaming Ontario market has been so successful because regulators allowed "grey market" operators the opportunity to migrate their previously acquired Ontario-based players into the new legal market, without penalty. Furthermore, Ontario did not mandate that these operators stop serving the rest of Canada from their "grey market" jurisdictions.
Leading brands based in offshore jurisdictions of Curaçao, Gibraltar, Kahnawake, Malta and elsewhere had been acquiring players that reside in Canada for over two decades. It was better for both the Province of Ontario and these operators to take this approach. Offshore operators that had an interest in being regulated locally in Ontario did not need to make a choice of which market to serve: The legal Ontario market, or, the "grey" rest of Canada market. These operators got to serve both.
As a result, from day-one of the new legal market, the Province had a huge number of players on the iGaming Ontario platform, contributing revenues, while operators got to keep their legacy players, sharing a very fair 20% of revenues with the Province. Beyond that, in just one year, Ontario had over 1.6 million gaming accounts that were held to a higher standard in terms of both fairness and Responsible Gaming regulations and tools, which makes for safer gaming.
Lastly, an AGCO report showed a very respectable channelization rate of 85.3%. Meaning that of the people gambling online in Ontario within the market's first year of operation, 85.3% are doing so with legal, licensed operators. For such a young market, given the size of the former "grey market" and the size of the now remaining "black market" for Ontario, this can certainly be viewed as a success. For comparative context, Sweden, which opened its online gambling market in 2019, with a similar number of operational brands and a similar tax rate, has an overall reported channelization rate of 77%.
In iGaming Ontario's first year, the overall revenue was $1.4 billion and the Province's share of that is 20%, or $280 million. iGO's second year, with its full complement of operators contributing to the entire period should yield gaming revenue of approximately $2.3 billion, based on iGO's second year H1 results and our H2 projections.
Thus, with over 70 operational brands contributing fully over the course of that year, Ontario's "private" conducted and managed online gambling market will add around $460 million dollars to provincial coffers. Previous to regulation, on an annual basis, all of this money (and more) was being lost to what are essentially the same operators, and their offshore online sportsbooks and casinos in the "grey market".
We already know that it would be far safer for all Canadians to have access to a more robust, regulated online gambling market. There will always be a "black market" of operators, and people will seek them out, but it is far better if the vast majority of interested consumers can find regulated operators that both share revenues with the government and wider society, while aiming to provide guardrails to minimize harm.
Only Ontario has taken the plunge on this so far. Supposedly, Alberta is looking into how they might expand their regulated offering of online gambling, but to date, there is nothing concrete of which to speak. In Quebec, a group of online operators has formed the "Coalition québécoise du jeu en ligne", which is working to lobby for an iGaming Ontario-styled market in La Belle Province. The noises in reply from the powers-that-be in that province have not been encouraging. No other provinces are even intimating of impending developments on the issue, which leads us to the important question as the focus of this piece: What are all the Canadian provinces missing out on by not joining or replicating iGaming Ontario?
We know for a fact that the "grey market" of online gambling still thrives across the country, outside Ontario. In iGO's first annual report, they indicated that 1.65 million player accounts were active in their market. While of course brand new accounts were created after the market launched, it is safe to say that Ontario migrated well over one million legacy player accounts from the former "grey market" to the legal one. Facilitating the same sort of migration from "grey" to "legal" in other provinces would be transformative, but to what degree? To get an idea, our analysis will identify the value of the average iGaming Ontario player account, then extrapolate out against the other potential provincial markets, with localized adjustments made to account for likely economic disparities.
First however, we need to identify a reasonable number of potential player accounts versus the population. Using Ontario as our baseline, we can divide the number of player accounts by the population. In Ontario, as of Q3 2023, the population was 15.3 million. In year-one, iGO reported 1.65m player accounts. Divide 1.65m accounts by 15.3m residents, and there are about 11 player accounts for every 100 people. While we believe there will be even more active accounts reported in iGO's second year, closer to 13 players for every 100 people, for our purposes here, we just want a conservative, reasonable "rule of thumb" rate for how many player accounts could likely exist per 100 people in each province.
We want to be mindful of potential variations from province to province in terms of how successful the incumbent lottery company "monopolies" of online gambling have been in terms of channelization. Thus, to be aptly conservative, we'll round our estimated year-two iGO accounts per population rate down from 13 accounts per 100 people (13%), to a flat 10 player accounts for every 100 in population (10%). Using this 10% rule of thumb and the latest 2023 provincial populations, in Table 1, we show a reasonable but conservative approximation of how many Potential Accounts we could expect were iGaming Ontario replicated in, or joined by, other Canadian provinces.
Potential gambling accounts by Canadian Province: One for every 10 persons |
| Prov. | 2023 Pop. | Potential Accounts |
| NL | 538,605 | 53,861 |
| PE | 173,787 | 17,379 |
| NS | 1,058,694 | 105,869 |
| NB | 834,691 | 83,469 |
| QC | 8,874,683 | 887,468 |
| MB | 1,454,902 | 145,490 |
| SK | 1,209,107 | 120,911 |
| AB | 4,695,290 | 469,529 |
| BC | 5,519,013 | 551,901 |
| Total ex-ON | 24,358,772 | 2,435,877 |
| Table 1 |
Put another way, the figures in the right-hand column of Table 1 give you a reasonable approximation of the number player accounts that could exist in other provinces from both legacy "grey market" operators that could migrate existing player accounts, and new "legal-only" brands like theScore Bet and FanDuel Sportsbook, that do not have existing offshore operations and customers. It's nearly 2.5 million accounts in total. Given how many legacy accounts migrated from the "grey market" to the "legal" one in Ontario, we can likely assume that there are in excess of two million player accounts already sitting in the "grey market", which belong to operators that are licensed in Ontario, and would be happy to serve these players within a framework like that of iGaming Ontario, should they be created in other provinces.
So that's over two million active "grey market" online gambling accounts across Canada that are not being held to a higher bar for player fairness and harm reduction. That's over two million active player accounts that are not contributing revenues back to Canadian society, but which belong to operators that were happy to sign up to Ontario's legal market framework and share 20%.
We know that "grey market" players exist across the country in their millions. We've shown a rough approximation of their potential numbers should provinces regulate their online gaming markets, but how much do those players actually spend, and how much of that money would flow back to the provinces if they were regulated and taxed in a manner similar to Ontario? To understand how much other provinces are missing out on, we want to first identify a number that represents the average revenue earned per player account. In other words, if we were looking at iGaming Ontario in year-one, we want to divide the overall gaming revenue, $1.4 billion by the 1.65 million reported player accounts, which equals $848.50 in revenue per player account.
However, we've already shown that iGO's first year revenues were dampened by the early market context, as operators were brought aboard slowly over the course of the year. Thus we'll use our more appropriate, approximated numbers for iGO's second year, which will see full contributions from all operators for the entire year. We approximated $2.3 billion in total revenue, and let's assume a modest increase in the number of active player accounts, to 1.95 million. The more appropriate figure is thus about $1,180 in gaming revenue per player account in Ontario.
(Note that if we used our "rule of thumb" rate of accounts per player at 10%, of even the first year iGO number of 1.65 million, our per player revenue value would be much higher. In other words, we are making an effort to be very conservative. One could argue that the numbers we are about to calculate could be significantly higher in reality.)
2020 median after tax income & average player account value by province |
| Prov. | Median Income | Rel. to ON | APAV |
| NL | $59,300 | -18.2% | $965 |
| PE | $59,400 | -18.0% | $967 |
| NS | $57,500 | -21.9% | $921 |
| NB | $56,900 | -23.2% | $906 |
| QC | $59,700 | -17.4% | $974 |
| ON | $70,100 | N/A | $1,180 |
| MB | $63,000 | -11.3% | $1,047 |
| SK | $67,700 | -3.6% | $1,138 |
| AB | $77,700 | +9.8% | $1,295 |
| BC | $67,500 | -3.9% | $1,135 |
|
Rel. to ON = Median Income % difference relative to Ontario. APAV = Annual average player account value. |
| Table 2 |
We want to use this baseline $1,180 figure in provinces across the country for our extrapolation. However, the average Ontario player has a different value than one in another province. While there may be all sorts of reasons for increased or decreased player activity relative to our baseline activity in Ontario, to adjust for this in a simple but reasonable manner, we will use provincial after tax median income levels to factor in economic disparities and likely player value differences.
Here's how we'll do that. If the median after tax income in another province is 15% less than Ontario, we will commensurately assume that the per player account value in that province should be 15% less than Ontario. For example, the median after tax income in Ontario in 2020 was $70,100. In Quebec, this number is just $59,700, which is 17.4% less than Ontario. Thus, based on this, we will assume that the average revenue earned per Quebec player should be 17.4% less than the average Ontario player, or $974 per year, compared to $1,180 per year in Ontario.
Now that we have an average player account value for each province as found in Table 2, which has been adjusted by local median incomes, we can combine these with our assumed likely potential player account figures. Table 3 takes the annual average player account values (APAV), and multiplies them by the number of assumed player accounts, which yields an annual potential gaming revenue figure for each province. We then take these potential revenue figures and multiply them by 0.20, representing Ontario's 20% tax rate, to identify the associated respective potential provincial government revenues.
Table 3 speaks for itself, but we will highlight the three most populous provinces outside Ontario, in Quebec, British Columbia and Alberta. We'll also highlight the impact that igaming regulation could mean for a smaller market, such as Saskatchewan.
Potential annual regulated online gambling revenue & taxes per Canadian province |
| Prov. | APAV | Accounts | Rev. | 20% Tax |
| NL | $965 | 53,861 | $52.0 | $10.4 |
| PE | $967 | 17,379 | $16.8 | $3.4 |
| NS | $921 | 105,869 | $97.6 | $19.5 |
| NB | $906 | 83,469 | $75.6 | $15.1 |
| QC | $974 | 887,468 | $864.8 | $173.0 |
| ON | $1,180 | 1,950,000 | $2,301 | $460.0 |
| MB | $1,047 | 145,490 | $152.3 | $30.5 |
| SK | $1,138 | 120,911 | $137.6 | $27.5 |
| AB | $1,295 | 469,529 | $608.2 | $121.6 |
| BC | $1,135 | 551,901 | $626.2 | $125.2 |
|
APAV = Annual average player account value. Accounts = Number of player accounts. Rev. = Potential gaming revenue in millions of dollars. 20% Tax = 20% rev. share, in millions of dollars. |
| Table 3 |
Loto-Quebec's 2022/23 report shows online gaming revenue of $404 million, though the categories are difficult to understand, as this figure is further disaggregated into "Lottery", "Casinos & Gaming Halls" and "Gaming Establishments". Based on the explanation defining these terms, typical online gaming revenue (ex-lottery) for casino and betting, in which we have interest, was reported as about $270 million.
Our conservative analysis shows that with a system like that of iGaming Ontario, Quebec betting sites and online casinos would see nearly 887,000 player accounts, with an average annual revenue value of $974. This would yield in the region of $865 million in annual gaming revenue. If Quebec's share of that revenue was equal to the competitive tax rate of iGaming Ontario, at 20%, this would mean approximately $173 million for Quebec coffers. As noted in the case of Ontario, given the existence of the "grey market", there are likely well over 600,000 offshore online gambling accounts currently held by Quebecers. None of the proceeds there are taxed for the betterment of Quebec, and Quebecers that participate at offshore sites are often offered little in the way of harm reduction tools or guardrails.
According to BCLC: "More than 284,000 people currently enjoy gaming on PlayNow.com. With lottery, sports betting, bingo, keno, online slots or online casino games." For the 2022/23 year, BCLC reported "eGaming Net Income" of $293 million. Unfortunately, the lottery vertical included here likely makes up a huge part of this figure, and we have no way to remove it for certain, for a more apt comparison to typical online gaming revenues of interest here. However, OLG in Ontario does breakout "iLottery" revenues vs "iCasino / iSports". iLottery in Ontario makes up about 33% of those revenues in its 2022/23 year. In other words, iLottery for BCLC probably accounts for $90 to 100 million in revenue, leaving around $200 million or so from online sports betting and casino revenues.
Our relatively conservative analysis indicates that if British Columbia were to join or replicate iGaming Ontario, BC betting sites and online casinos would have over 550,000 player accounts with an average annual player value in the region of $1,135. Annually, this would yield incremental gaming revenues of over $625 million. At a 20% tax rate in line with iGO, this would bring over $125 million to British Columbia coffers.
As we have discussed, the vast majority of these potential 550,000 player accounts already exist in the "grey market" of online gambling brands that currently serve BC from offshore sites. Our conservative estimate of the number of potential "legal" player accounts dwarfs the number of accounts held at BCLC's PlayNow.com. Perhaps as impactful as the potential boost in tax revenue, if BC could join or replicate iGaming Ontario, they could make their industry-leading player health advisory service available to the vast majority of BC residents that currently gamble online.
At the time of writing, the AGLC had not released it 2022/23 report. We only get a little insight from their 21/22 report to gain an understanding of the context about the current legal online gambling market in Alberta. Hopefully, when the next report arrives, it will provide more transparency into their online gambling revenues, as the 21/22 report only outlined net sales or wagers placed. This wagers figure for Alberta online casino and sports betting verticals was just $120 million, which is very low and somewhat concerning for a province with nearly 5 million people. Perhaps it's indicative of just how few Albertans use the PlayAlberta website, given that the actual income derived from this "handle" was likely in the low double-digit millions of dollars at best. The AGLC did not report the number of Albertans that use its PlayAlberta website.
If the western-most Prairie Province could replicate, or plug into the iGaming Ontario platform for its residents, we conservatively estimate that Alberta betting sites and online casinos would have in the region of 470,000 player accounts. We are confident that the vast majority of this figure already exist as "grey market" gaming accounts that are currently in use in Alberta. These could be easily migrated to the "legal" operations of iGaming Ontario, as most of the key "grey market" brands are also licensed there.
With the highest median after tax income per person of any Canadian province, based on results in Ontario, we conservatively estimate an even higher per player revenue value in Alberta, in the region of $1,295 per account. This would yield annual total gaming revenue in excess of $600 million. Assuming a 20% tax rate, in line with Ontario, Alberta would see over $120 million a year in taxes earned. This figure, even at just a 20% share of gaming revenues, likely dwarfs the revenues currently derived from the PlayAlberta online offering, given its very low reported wagering figures.
In November of 2022, the Saskatchewan Indian Gaming Authority (SIGA), which oversees gaming in that province, announced that their online partnership with BCLC's PlayNow.com had yielded eight million dollars in revenue, and had 17,000 active player accounts. Revenues were trending toward $16 million in 2023.
Our tables indicate that if SIGA could plug into the iGaming Ontario platform of operators for their residents, as they have done with BCLC and PlayNow.com, we conservatively estimate their associated annual online gaming revenues would be in the region of $138 million, yielded through about 120,000 potential player accounts. A 20% revenue share rate would yield nearly $28 million annually in taxes for SIGA. Again, given the existence of "grey market" brands that serve Saskatchewan from offshore jurisdictions, but that also exist within iGaming Ontario, the vast majority of these existing player accounts could easily be migrated to the "legal" market, bringing all of this tax revenue home in relatively quick fashion.
If a market as small as Saskatchewan, can overcome cross-provincial border liquidity issues to work with BCLC for a relatively small but important payoff, doesn't it make sense to work a little bit harder for a much larger, more important payoff? SIGA has made a great first step with PlayNow.com, but the second step that we outline here means so much more. If they can succeed, who's to say that other smaller provincial markets wouldn't follow their lead?
If we can assume that the iGaming Ontario market could be joined by all other provinces, or those provinces could replicate it fully within their own jurisdictions, at the 20% tax rate, our conservative analysis shows that there would be total annual tax revenues in excess of $500 million. If you include Ontario, the total annual tax revenue from regulated "private" online gambling across all Canadian provinces would be just under one billion dollars.
Ontario has done the hard bit. They brought all but one, major "grey market" legacy online gambling brand into their legal market. They will add nearly half a billion in tax revenue over their 2023/24 fiscal year. As important, Ontario players now have proper tools and guardrails for themselves and for operators. We've already seen several penalties for operators that have been deemed to step beyond those guardrails and policies continue to evolve in order to protect minors and the vulnerable.
When the nine other Canadian provinces continue their inaction on this matter, refusing to address the "grey market" of online gambling with the tools that are now available to them, the conservatively estimated, annual half a billion dollars or so in tax revenue that we've illustrated is there for the taking, will continue to fly away, offshore to Gibraltar, Malta, Kahnawake, Curaçao and Antigua & Barbuda, and thousands of Canadians continue to be at far greater risk of harm.
How many billions of dollars need to be lost, never to return? How many Canadians need to suffer preventable harms from online gambling before politicians and regulators across the country wake up and see the shining example before them in Ontario, and take the appropriate action in their own jurisdictions? ♦
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