Place your bets! Ontario opens online gambling market

As of April 4, 2022, online gaming, or iGaming, can be offered in Ontario by private gaming operators who have registered with the Alcohol and Gaming Commission of Ontario (“AGCO”) and entered into an Operating Agreement with iGaming Ontario (“iGO”), a newly launched subsidiary of the AGCO‎.

Ontario is the first province in Canada to permit private companies to operate in online gaming. The provinces of Alberta and Saskatchewan are also taking some steps to open up the market to private sector businesses, but it is expected that these changes will not be as liberal as those made in Ontario. We note that private operations of iGaming in provinces other than Ontario remains prohibited.

The launch of iGO represents a sea-change in the Canadian gaming landscape; one that mirrors changes taking place in the United States. As of today, only Ontario, Pennsylvania, Michigan, West Virginia, Delaware, New Jersey, and Connecticut permit online gaming wholesale with an additional 11 states permitting online sports betting. As such, Ontario is now the largest legal online gaming market in North America—presenting a significant opportunity for both gaming operators and related service providers.

For businesses looking to enter the online gaming market in Ontario, the regulatory process is complicated, as detailed below.

The iGaming regulatory landscape in Ontario

In Canada, gambling is a heavily regulated activity that is subject to both criminal and administrative ‎penalties. Criminal penalties in Canada are legislated by the federal government and enforced by a ‎combination of federal, provincial, and municipal agencies. The federal government has delegated the ‎power to regulate gambling to the provinces, so each province has the authority to regulate gambling ‎within its borders in accordance with the Criminal Code (the “Code”).

In Ontario, the AGCO is the provincial agency responsible for regulating gambling within the province. With the launch of iGO, there are now two Crown entities existing under the regulatory oversight of the AGCO that are charged with conducting and managing iGaming in Ontario:

• The Ontario Lottery and Gaming Corporation (“OLG”) is a Crown corporation and the incumbent in the ‎Ontario online gaming market. OLG also conducts and manages lottery schemes offered at land-based ‎gaming sites (including casinos, charity, horse racing, and lottery) and iGaming via olg.ca; and
• The newly-launched iGO, which is a subsidiary of the AGCO, conducts and manages iGaming when provided through private operators but does not conduct OLG iGaming, ‎and does not conduct and manage any land-based gaming sites.‎

The discretion granted to provincial governments is not unfettered.

The Code provides that it is lawful for provinces to conduct and manage “lottery schemes” in their own ‎provinces pursuant to Section 207(1)(a) of the Code, and also that it is lawful to issue licenses to operators to do so pursuant Section 207(1)(f). Importantly, the “lottery schemes” that are permitted to be conducted and managed by licensed private operators under Section 207(1)(f) are expressly narrowed by Section 207(4)(c) to exclude a game or proposal, scheme, plan, means, device, contrivance, etc. “that is operated on or through a ‎computer”. This is the legal reason that, until Ontario’s iGO launch, there were only private land-based operators such as casinos in the provinces, and the provinces (in Ontario, via OLG) enjoyed a ‎monopoly within their own borders over online gaming.‎

It is important to note that the launch of iGO to conduct and manage iGaming through private iGaming operators is not based on legislative change. Rather, the launch of iGO appears to be based on a novel interpretation of Section 207(1)(a) of the Code. This interpretation asserts that, through iGO, it will be the Province of Ontario that will be “conducting and managing” the online lottery schemes in Ontario, with the assistance of third-party operators (“Operators”) via an Operating Agreement. As a term of the Operating Agreement, for example, Operators will be required to deposit all Ontario-based revenue in iGO accounts, and iGO will then pay the Operator a share of the revenue generated from Ontario operations. This is the core regulatory structure of the Ontario iGaming landscape—private Operating Agreements that govern each private operator’s iGaming activities sufficiently for Ontario to claim that it (and not the operator) is “conducting and managing” iGaming services in the province.

The interpretation of Section 207(1)(a) of the Code—which underlies the iGO regime—has not yet been tested or confirmed by the courts. The pressing question therefore is whether the iGO regime will face legal challenge and, if so, whether this new model would be found to be compliant with the Code. This is a live question that poses potentially significant risk. If the regime is challenged (for example, by land-based operators or the federal government) and found unlawful, Operators and third party service providers may be found in breach of the Criminal Code.

How to operate in Ontario

In order to begin operations in Ontario, Operators must engage with both iGO and the AGCO in parallel. With respect to the AGCO, applicants must complete several compliance and control steps as well as payment of annual fees. The base annual fee for commercial gaming websites is $100,000 per site, and for suppliers of gaming equipment and services the base annual fee is $3,000 per year. In addition to annual fees, applicants may be required to pay the reasonable costs of any investigations and background checks ordered by AGCO as part of the application process.

In addition to maintaining registration with the AGCO, Operators must execute an Operating Agreement with iGO. This process also requires certain compliance and control steps, including completing anti-money laundering initiatives and ceasing all unregulated online gaming activity.

iGaming Ontario currently estimates that these processes will take 90 calendar days to complete.

Operators will also be required to successfully achieve and maintain responsible gambling accreditation through the Responsible Gambling Council’s RG Check Program.

Conclusion

iGaming Ontario currently estimates the online gaming market in Ontario to eclipse $1 billion in value in its first year.  By creating a streamlined and intentional regulatory process, Ontario is hoping to shift online gaming out of the grey market to better protect consumers as a means of capturing new sources of revenue for the province. While certain important legal risks remain, the gates to this lucrative new market are now open as of April 4, 2022, to the private sector in Ontario. If you would like to discuss the iGaming Ontario regime and the opportunities that it may present for your business, please contact the authors.

This article provides only general information about legal issues and developments, and is not intended to provide specific legal advice. Please see our disclaimer for more details.