Ontario Has Provided Alberta With Playbook On Tackling Gambling Grey Market

Written By Dave Briggs on October 18, 2024
A playbook indicating Alberta should follow iGaming Ontario's favourable cost to entry model that has led more than 85% of formerly-illegal gambling sites over to the regulated market.

How Ontario was able to attract offshore online gambling operators to move from the “grey market” to the regulated sector is one lesson Alberta would be smart to follow.

An open, regulated Alberta online casino, sports betting and poker market is being constructed as we speak. Recent reports suggest it will likely launch in the latter half of 2025.

Recently, PlayCanada gave six suggestions for how Alberta could build a successful, responsible regulated online gambling sector. One of our key recommendations was establishing a favourable cost to entry to attract as many operators over from the illegal “grey market” to a sector where there are consumer protections.

Grey market gambling sites explained

Grey market gambling sites are those that are unlicensed, unregulated and, essentially, illegal in Canada. They are considered to be in a grey market, as opposed to a black market, in terms of legality. This is because authorities have done little to nothing to shut them down or stop Canadians from gambling with them.

For the better part of 20 years, Canadians have been gambling online in the grey market without any guarantee they will be paid if they win.

Thankfully, iGaming Ontario provided a textbook example of how Alberta can attract grey market operators over to the legal market.

iGaming Ontario has been wildly successful at reducing grey market

For starters, you need to know that Ontario, which launched an open market in April 2022, is home to more that 80 legal gambling sites — more than anywhere else in North America. A large percentage of those used to operate in the grey market taking bets from Ontarians.

iGaming Ontario (iGO), which oversees the province’s online gambling sector as a subsidiary of the Alcohol and Gaming Commission of Ontario (AGCO), has reported that 85% of former grey-market sites accessed by Canadians are now licensed and regulated in Ontario.

Prior to launch the AGCO estimated some 70% of online gambling by Ontarians was taking place on illegal sites. Even better? An IPSOS study found that in 2024 over 86% of gamblers in Ontario were now betting on regulated sites.

How did iGO accomplish this when there is really nothing stopping operators from continuing to take bets from Ontario in the grey market?

iGO created a favourable cost of entry to the legal market that made the business case more attractive.

Five keys to a favourable cost to entry

The foundation of iGO’s strategy is the following:

  1. A relatively low tax rate of 20% on top of a relatively low annual licensing fee of $100,000 per gambling site.
  2. No cap on the total number of operators that can enter the market.
  3. Allow online casinos, sports betting, poker, bingo and more to move as many sites over to the legal sector.
  4. Allow grey market operators to take their existing customer lists with them into the regulated market.
  5. Don’t punish operators for previously taking bets in the grey market.

The first three points are fairly obvious — a fair, inclusive market is the most attractive to business.

This is especially true about offering legal Ontario online casinos. Almost all of the 80 sites offer at least some casino games. Why? The margins on online casinos are vastly larger than those in the sports betting world where customers win more often. Also, the cost to operate online casinos is much lower than it is to run a sportsbook. That means, in Ontario, a small operator is more likely to be able to eke out an existence with just a tiny sliver of market share.

But while the first three points earned almost universal approval, points #4 and #5 have been far more controversial.

Where iGO’s plan was more controversial

Allowing former grey market sites to enter Ontario’s legal sector without punishment and also keep their existing customer lists intact certainly helped achieve a main goal of moving operators over. But it came with considerable controversy.

Operators new to the Ontario market as of launch day — those that did not previously take bets from Ontarians in the grey market — were at a decided disadvantage on Day 1 compared to those that had been taking bets from Canadians for as long as two decades.

Still, Ontario was focusing on the bigger goal here: protect the greatest number of Ontarians by having more of them gambling on regulated sites. It’s hard to argue with iGO’s success in that area.

Sure, the other main goal was to drive tax revenue, which has been nearly $880 million in the 27 months since the market opened (through June of 2024). But the government likely could have earned a lot more if the tax rate had been higher.

That shows iGO’s main goal was regulating the market. Moving as many grey market operators into the white market was essential to that mission.

PlayCanada’s recommendation for Alberta

Alberta has said it is keen on following Ontario’s lead on setting up an open market. Clearly, not everything Ontario has done will work well in Alberta.

But it would be hard to find a better example of how to shrink the impact of the grey market.

As we said previously:

PlayCanada’s recommendation: To entice the greatest number of grey-market operators to become licensed and legal, Alberta should have no cap on the number of operators. It should offer online casinos, sports betting and poker. Also, the tax should be no more than 20%. The annual licensing fee should be even less than Ontario’s (say $75,000 per operator) due to Alberta having a population (4.9 million) that is one-third the size of Ontario’s (16 million). Due to its smaller market, Alberta needs to do even more to make it attractive to operators. Finally, Alberta should follow iGO’s lead and ensure the sites that are regulated carry a clear logo indicating they are approved by the Alberta government. That will help consumer play only on regulated sites.

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Dave Briggs

Dave Briggs is a managing editor and writer for Catena Media. His expertise is covering the gambling industry in Canada with emphasis on the casino, sports betting and horse racing sectors. He is currently reporting on the gaming industries in Canada, California and Texas.

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