Stakes Are High: Ontario Seeks Input on How to Open I-Gaming Market

A clearer image is emerging of the future of internet gaming (iGaming) in Ontario.

On March 3, 2021, the province released a discussion paper outlining its “preliminary thinking” on how Ontario’s new iGaming market could be structured. This follows the government’s 2020 budget, where the province announced it would seek public input on how to establish and regulate an open iGaming market. The discussion paper addresses several of the unanswered questions identified in our December 2020 Blakes Bulletin: Internet Gaming Changes Coming to Canada.

Any iGaming offerings would be limited to residents of Ontario and not available to Canadians generally.

HIGHLIGHTS OF THE DISCUSSION PAPER

No Cap on Registrants

Notably, the discussion paper sets out that there is no anticipated cap on the number of registered iGaming operators.

Operators would not be required to partner with land-based gaming providers, although such partnerships would be allowed. The discussion paper also states that no preference will be given to land-based providers.

Legal Framework and The AGCO Subsidiary

Though it does not specifically address iGaming, the Criminal Code (Code) sets out the requirements for legal gaming in Canada. Among these, it requires gambling and gambling-related activities to be provincially conducted and managed. As such, so long as iGaming activities meet the legal requirements, provinces are free to conduct and manage, and regulate online gaming offerings.

The government has proposed establishing a new subsidiary of the Alcohol and Gaming Commission of Ontario (AGCO) to regulate the iGaming market. The AGCO’s role as Ontario’s gaming regulator will remain unaltered and “entirely separate” from the commercial role of its new subsidiary. While the discussion paper does not offer specific details on the governance structure, it states that it will be “designed to avoid potential real or perceived conflicts of interest.”

The provincial legislature has already passed Bill 229, which will come into force when determined by the provincial cabinet and proclaimed by the Lieutenant Governor, and enable the AGCO to establish its iGaming subsidiary.

Revenue Sharing

Instead of collecting revenue by specifically taxing iGaming operations, the province is considering having the AGCO subsidiary enter into commercial agreements with private operators. These agreements would enable the private operators to offer their games directly to consumers in exchange for a share of their revenue.

The exact method and rates of revenue sharing have not been set. The province is seeking feedback on whether a single rate should be applied across all gaming products, or whether different products should be subject to varying rates dependent on “profit margins, elasticity of demand, and future market potential.”

In order to fulfill the Code’s provincial conduct and management requirement, the province is considering having private operators set up joint bank accounts between themselves and the AGCO subsidiary to hold gaming revenues. A share of the revenue would then be paid back to the private operator on a regular basis in accordance with the commercial agreement.

The Commercial Agreement

The commercial agreement between the AGCO subsidiary and private operators would include provisions to ensure the AGCO subsidiary has sufficient operational control to meet the Code’s conduct and manage requirements.

In addition to revenue sharing and financial terms, the government has suggested provisions relating to the following areas:

• Player registration and game performance data, such as verifying the identity, age and location of players, and requirements surrounding the capture, use and retention of player data, including data sharing with the AGCO subsidiary

• Consumer protection and financial integrity, including anti-money laundering and anti-fraud requirements that align with existing industry best practices and statutory requirements

• Responsible gambling measures, including strong identity and age verification measures to prevent minors and self-excluding individuals from participating, and restrictions on marketing and game design so games do not appeal to minors

• Compliance with accessibility standards, requiring operators to adhere to the standards outlined under the Accessibility for Ontarians with Disabilities Act, 2005

Types of Games to be Included

The discussion paper states that “well-established casino and table games” such as slots, blackjack and roulette would be permitted. Additionally, the discussion paper indicates that OLG will continue to be the only entity authorized to conduct and manage lottery offerings in Ontario. As such, it is unlikely that lotteries would be permitted under the iGaming framework.

Additionally, the following product categories are being considered by the province:

• Sports wagering, including single-event sports wagering, should single-event sports betting be legalized in Canada

• Novelty event wagering, such as betting on the outcome of the Oscars or elections

• Peer-to-peer games and offerings, such as poker. While these offerings would initially be limited to occurring solely within Ontario, the province says it will work with the federal government to potentially broaden the rules for allowing players across different jurisdictions to play together. The province will also explore working with the other provinces to allow players from those provinces to play together with Ontario residents.

Products offered by private operators would need to be certified for compliance by a gaming laboratory recognized by the AGCO. The province noted that such testing would align with the standards of other jurisdictions.

Province Seeking Feedback

The provincial government is seeking written responses to the discussion paper by April 16, 2021, and will be setting up virtual discussions with stakeholders later this month.

The AGCO will be seeking additional input on operational issues and regulatory standards at a later date.
 
For further information, please contact:

Bryson Stokes           416-863-2179
John Tuzyk                 416-863-2918
Mike Maodus            416-863-4193

or any other member of our Gaming group.