Canada legalises single event sports betting, and Ontario is all in

[AUTHORS’ NOTE, 28 January 2022: The iGaming Ontario marketplace will launch April 4, despite some concerns from Ontario’s Auditor General.]

Global gaming revenue is expected to reach US$525 billion by 2023. Online gaming and betting activities (“iGaming”) represent a significant portion of this revenue at an estimated market size of $66.72 billion USD in 2020. Canadians have shown an incredible appetite for iGaming, despite the fact that regulatory roadblocks to private businesses looking to enter the iGaming industry in Canada leave Canadians with limited options: provincial government-run gambling, grey markets or off-shore sites. Together, these figures suggest enticing opportunities for iGaming in Canada.

The press has made much of Bill C-218, An Act to amend the Criminal Code (sports betting) (“C-218”), hailing the legalisation of single sports betting in Canada. And while C-218, which will come into force on August 27, 2021, does indeed signal a step towards liberalization of Canada’s legal gaming framework, its impact on private business operations may be quite limited until provinces and the federal government solidify and clarify their approach to iGaming. Notably, Ontario has taken a decidedly more liberal interpretation of their provincial regulatory authority than others, which may represent an opportunity for private iGaming operators in Ontario and the rest of Canada—assuming such liberal interpretations are validated.

The backstory: Regulation of iGaming in Canada ‎

To truly understand C-218, one must have some context for the regulation of gambling and betting in Canada generally. It surprises many to learn that the Criminal Code (the “Code”) is the core legal framework for regulating gaming activities in Canada. Through the Code, various provincial gaming regulators are allowed to operate under their own legislation, but it all starts from an outright criminal prohibition. In essence, the Code prohibits both the acts of offering gaming and betting itself (in their myriad forms) as well as any activities which serve to facilitate gaming or betting; for example marketing, financing, providing equipment, logistical support, or leasing space to be used for gaming or betting purposes.

Importantly, the Code permits some limited exemptions to this blanket prohibition. The main exemption permits the provinces, working either independently or in concert, to license and regulate certain forms of gaming and betting; subject to some important stipulations. For example, the Code permits provincial governments to operate lotteries, common casino games, slot machines, and limited forms of sports betting.  As a result, the provinces are essentially delegated the ability to offer gaming within their jurisdictions, as long as the Code does not prohibit it.‎¹‎ And this is where the devil is in the details: while the Code expressly allows a province to license any person to conduct and manage a land-based gaming or betting operation, it also expressly states that those provisions do not apply to any scheme operated via “computer, video device, slot machine, or dice game”.

In other words, by the specific language in the labyrinth of prohibitions and exemptions set out in the Code, third parties do not have the express permission to conduct or manage iGaming when licensed by provinces. However, provinces themselves do have the authority to conduct or manage iGaming operations. 

This means that, while we see many Canadian private operators that conduct and manage casinos and other land-based gaming and betting operations within any given province (because the Code very clearly permits the province to conduct and manage those schemes and a third party to do so if licensed by the province), it would take a trailblazing provincial government to take the position that they had the lawful authority to permit third parties to run iGaming operations under the Code.

Getting back to single event sports betting: The C-218 amendments

With that context, we now return to what C-218 does, and more importantly what it does not do. Before C-218, the provinces were prohibited from offering single event sports betting even by themselves:

bookmaking, pool selling or the making or recording of bets, including bets made through the agency of a pool or pari-mutuel system, on any race or fight, or on a single sport event or athletic contest;

This restriction is why all pre-C-218 legal sports betting in Canada consists of wagers ‎that ‎involve two or more bets combined into one. For example, before C-‎‎218’s change, it is unlawful for a province to allow its gaming customers to place a bet on ‎who will win between the ‎Vancouver Canucks and Toronto Maple Leafs; however, it is lawful to allow ‎customers to place a single ‎wager on the combined bets of who will win between the Canucks and Maple ‎Leafs and which player will ‎score the most goals in the game. C-218 eliminates this restriction and ‎permits the provinces to operate ‎single-game sports betting, by replacing the above language with the following:

bookmaking, pool selling or the making or recording of bets, including bets made through the agency of a pool or pari-mutuel system, on any horse-race; [Authors’ Note: We will leave for another article the complicated and byzantine way in which specific pari-mutuel systems ‎are permitted under the Code to allow for bets on horse races.‎]

So, thanks to C-218, gone are the restrictions limiting provinces from allowing others to place bets on races, fights, or single sports events or athletic contests. This does live up to the media narrative that it “legalises” single sports betting in Canada: assuming that provinces move quickly, consumers will be able to place such bets as of August 27, 2021.

The catch? It still only applies to the provinces themselves, and those specific organizations that the Code lets them license, who are legally permitted to operate gaming and betting businesses in Canada. As we set out above, the province does not have any clear authority to permit another person to conduct or manage iGaming operations. Thus, while a province may contract with a private entity to conduct and manage land-based gaming and betting operations on its behalf under a license scheme, it does not clearly have the authority to do so under the Code for online betting, even with the changes from C-218.

As such, a better way of saying what C-218 does is that it legalises the offering of single event sports betting for provincial operators.  While, at the time of writing, no province has permitted a private business to operate its iGaming operations (including these newly-permitted single event sports bets) in any sort of similar agency/subcontractor relationship that it would use for land-based operations,‎²‎ at least one province is striking out where none have previously.

Enter the private operators: Ontario’s new iGaming Ontario regulator

In July 2021, Ontario established iGaming Ontario, a subsidiary of its provincial gaming regulator, the Alcohol and Gaming Commission of Ontario (the “AGCO”).The legislation that permits the creation of iGaming Ontario states that the purpose of iGaming Ontario is to “conduct and manage” iGaming in Ontario. However on its website, iGaming Ontario states that it intends to “enter into commercial agreements with operators who meet rigorous standards of game and operator integrity, fairness, player protections and social responsibility” to offer online gaming experiences to Ontarians “in accordance with the Code and provincial law”. In other words, while the legislation makes it clear that iGaming Ontario is to conduct and manage iGaming, iGaming Ontario proposes instead to enter into commercial agreements with private operators to do so.

How will it do so legally? Under the legislation that established iGaming Ontario, both iGaming Ontario and the AGCO are expressly acknowledged to be “agents of the Crown in right of Ontario”. This is key to the interpretation proposed to be taken by Ontario here: by expressly creating such agency relationships, iGaming Ontario will require, as part of the commercial agreements with private operators, that such private operators conduct their iGaming activities as an agent for iGaming Ontario, which itself is an agent of the Crown. To bolster the case, a preliminary discussion paper released by the Government of Ontario acknowledges that the Code requires iGaming Ontario, not the private operator, to conduct and manage the online operations, so it intends to require registered operators to set up a joint, dedicated bank account with iGaming Ontario to manage revenues. Interestingly, Ontario seems to have expressly separated iGaming Ontario’s online offerings from the AGCO’s online offerings, perhaps hedging their bet that iGaming Ontario has the lawful authority to conduct and manage iGaming through third party agents. Ontario may not want iGaming Ontario’s operations (should they turn out to be illegal under the Code) to unsettle the AGCO’s more established gaming operations.‎³‎ However, the stated purpose of the subsidiary-parent relationship is to ensure a segregation for conflict of interest purposes from the AGCO and iGaming Ontario and its operators, which become apparent because AGCO will indirectly oversee iGaming operators via its regulation-making powers while running its own offerings.

Under its current roadmap, iGaming Ontario is currently collecting feedback from stakeholders, with a view to making a draft commercial agreement “available to interested operators” in the Summer / Fall of 2021.  This will be followed with requiring interested operators to register with the AGCO in the all of 2021, as well as executing a commercial agreement with iGaming Ontario. By the Fall of 2021, Ontario says that it will have IT systems that support the new iGaming framework in place, with a view to launching the offering of iGaming products in Ontario’s newly regulated market by December 2021.

Does this all work?  It remains to be seen, as the regulatory framework has yet to be finalized, and certainly there has been no federal indication of further changes to the Code. While the Code does clearly allow provinces to operate and manage iGaming operations, it still prohibits third parties from doing so. Online operators that take up the opportunity represented by iGaming Ontario will have some risk if Ontario’s interpretation of the Code is incorrect. But based on the general reluctance of the Federal authorities to step in on well-regulated activities, online iGaming operators are cautiously optimistic that, as iGaming Ontario and the government of Ontario roll out their proposed regulatory scheme, they will not only be able to offer legal single sports betting online in Ontario, but other regulated iGaming activities as well.

Missed opportunities: Kahnawake Gaming Commission

The Mohawks of Kahnawà:ke (the “Kahnawake”) have held games of chance and wagering on sporting events as integral parts of Kahnawake culture since time immemorial, with gaming having been central to Kahnawake’s relationships with other groups. In 1996, the Kahnawake Gaming Law was enacted by the Mohawk Council of Kahnawake as an assertion of the right to self-determination as recognized by section 35(1) of Canada’s Constitution Act, 1982 (the “Constitution Act”). This law established the Kahnawake Gaming Commission (the “Kahnawake Commission”).

The Kahnawake Commission operates within a grey area of the legal frameworks regulating gaming in Canada, as its activities have never been challenged under the laws of any jurisdiction, yet it technically operates outside the scope of permitted activities in ss. 197-213 of the Code while arguably operating within the ambit of section 35(1) of the Constitution Act.

The Kahnawake Commission operates traditional land-based gaming, an online sports betting service, and grants iGaming licenses to third parties. With respect to iGaming specifically, the Kahnawake Commission grants Client Provider Authorizations that permit third parties to provide iGaming services from a Kahnawake Commission licensed hosting facility that is located on Kahnawake territory. The Kahnawake also offer sports betting services through Sports Interaction which is operated by Mohawk Online Limited which in turn, is wholly owned by the Mohawk Council of Kahnawake.

Throughout C-218’s progress through the House of Commons and Senate, the Kahnawake advocated for amendments that would recognize the legitimate jurisdiction of Indigenous Nations in relation to the regulation and management of iGaming activities. Concerns were raised in relation to the anticipated effects of legalising single-game sports betting and the impacts legalisation would have on the Kahnawake Commission’s provision and regulation of sports betting services—services, the Kahnawake argue, are critical to their economic well-being.

In spite of these objections, C-218 received Royal Assent on June 29, 2021, without the requested amendments. This seems to signal the Federal government’s unwillingness to engage the issue of whether the Kahnawake have the legal right to regulate gaming in their territory or more broadly, online. Whether or not the Kahnawake have the de jure authority to do so, they continue to operate as a de facto regulator of both land-based and online gaming.

Conclusion: A meaningful, but murky, opportunity

C-218 signals a welcome step forward in the liberalization of Canada’s gaming laws. Until the amendments, Canadians placing single event bets were doing so through grey market operators or offshore providers entirely unregulated in Canada and without the protection that effective regulation affords. Furthermore, that means the revenues do not go to the places that the provinces intend for gaming operations. Once C-218 comes into force on August 27, provincial governments should be able to redirect substantial revenues into government coffers and offer these important protections to consumers while further combatting the pressing issue of money laundering.

However, unless and until further amendments are made to the legal framework laid out in the Code, private business operating on their own behalf will not be permitted to offer single-game betting.  But the Province of Ontario has taken an approach that, if implemented, will offer an opportunity for iGaming operators to enter the lucrative gaming market via some hybrid regime under which iGaming Ontario conducts and manages iGaming with the assistance of the operator, even if it has yet to be legally tested or enunciated.

Other provinces have not yet followed Ontario’s lead, and any amendments to the Code that would have made this all clearly legal have not been introduced. Yet we have seen, with the Kahnawake Commission, an unwillingness of the Federal government to prevent those who operate with the authority of a territory’s regulators, whether derived from the Constitution Act or the Code, to conduct and manage lawful lottery schemes—even iGaming—within their own territory. And in many ways, the interpretation taken by Ontario of its lawful powers under the Code is not that different than that taken by other provinces when they permit slot machines and other electronic gaming devices to be placed at private land-based casino facilities as agents for the provincial operator in conducting and managing the gaming activity.

As such, while much remains to be seen as each province’s online gaming and betting operations are revamped in light of C-218, there is an opportunity for Canada’s online gaming market to continue to liberalize. Ontario has a lot of work to do not only to establish the legality of their iGaming Ontario regime, but also to ensure a model that actually creates a level playing field for the entities the Province proposes to regulate (including its land-based operators) and the reality that a large grey market has been serving Canadians for years—and we note that much-needed details about revenue sharing models and controls have yet to be released.

With the start of the NFL season right around the corner, single event sports betting could not have come at a better time for Canada’s hungry online betting market.

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.