With a launch date of April 4 for private internet gaming and sports betting in Ontario, expect the scrutiny on the proposal to increase in the coming weeks.
Opposition to the privatization plan has been somewhat limited. Still, there have been several consistent voices dating back to efforts to amend the Criminal Code of Canada to allow sports wagering. Amongst the most prominent are the Mississaugas of Scugog Island First Nation (MSIFN).
According to Chief Kelly LaRocca, as reported by Online Poker Report, the MSIFN intends to challenge the privatization of the gaming market before launch.
An ongoing battle over the gaming market
In a September 2021 ruling, the Ontario Court of Appeals found the Ontario Lottery and Gaming Corporation (OLG) in violation of a revenue-sharing agreement with Ontario’s 132 First Nations. The Ontario Court of Appeals ruling found that the OLG had failed to deliver 1.7% of various gaming and non-gaming revenues to First Nations further to a 2008 agreement.
Following a decision in 2013 that would see private enterprises operate the province’s casinos, the OLG ceased payments of non-gaming revenues to the First Nations. It’s a decision that may have cost the First Nations as much as $100 million.
OLG had argued that the private operation of the casinos would result in a greater share of gaming revenues flowing to the groups even if payments on non-gaming revenues ceased.
The defeat by the OLG at the Court of Appeals was coupled with a costs award of $200,000.
During the Parliamentary hearings on whether to amend the sports betting provisions of the Criminal Code, the MSIFN filed a brief noting that the government has an obligation to engage in “meaningful consultation to Indigenous governments prior to enacting legislation to legalize sports bookmaking.”
The brief noted the historical exclusion of Canada’s First Nations from having a meaningful say in regulating gambling in Canada.
Indeed, as the Online Poker Report story notes, there are constitutional protections for the cultural, political and social practices of the First Nations groups.
Who is ‘conducting and managing’ the online gambling market?
Until 1985, virtually all gambling was illegal in Canada. In 1985, there was an overhauling of the system, eventually leading to casinos being commonplace in numerous provinces. In addition, sports betting was offered across much of the country (though still confined to parlay wagering until last year).
The Criminal Code, which was amended in 1985, liberalizing gaming regulations requires, however, that the provinces conduct and manage the gambling operations across the country.
Several people who follow Canadian gaming regulation think there might be a problem with the new igaming model. Namely, it might be illegal.
Section 207(1)(a) of the Criminal Code of Canada
The language of 207 (1)(a) states:
“Notwithstanding any of the provisions of this Part relating to gaming and betting, it is lawful
(a) for the government of a province, either alone or in conjunction with the government of another province, to conduct and manage a lottery scheme in that province, or in that and the other province, in accordance with any law enacted by the legislature of that province;”
According to Canadian gaming lawyer Ron Segev, that section of the Criminal Code does not simply allow the government to issue an operator license and walk away. Mr. Segev says: “The Province must be the operating mind of the iGaming activity.”
The Auditor-General Report
In December 2021, the Auditor General of Ontario released a report on “Internet Gaming in Ontario.” On page 1, in the summary, the report highlights the requirement that gaming be conducted and managed by a province.
The Report differentiates the OLG product Proline Plus, which will continue to operate and OLG will continue to run, and the iGaming Ontario offerings, where “iGaming Ontario will be responsible for the conduct and management of all other Internet gaming through private gaming operators.”
Section 3.1 of the Auditor General’s Report is titled: “Legality of Ontario’s Proposed Internet Gaming Model Under the Criminal Code.”
The Report states that:
“To fulfill the “conduct and manage” requirement, a provincial government needs to be actively involved in the delivery of gaming activity. An arrangement where the government only issues gaming licences to private operators and oversees their activities through a provincial regulator would be in contravention of the Criminal Code.
However, far more damming to the potential launch on April 4 is the statement:
“The province asserts that iGaming Ontario will maintain core “conduct and manage” functions with respect to Internet gaming, including: revenue reconciliation; financial forecasting; data insights; market and technology facilitation; promoting public awareness of benefits of the legal market; and anti-money laundering programs. The majority of these functions may well influence the operations and decisions of private operators. However, these functions do not, in substance, appear to conduct or manage the operations and decisions of private operators.”
What does this all mean?
The key takeaway is that legal speedbumps are likely ahead before privatized sports betting or igaming launch in Ontario.
There has been a great deal of effort and enthusiasm around the market launch. But it appears that there is still a very significant shadow being cast by whether this market structure is legal.