Analysis: What New Ontario Auditor General Report Means For Canada Sports Betting

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Canada sports betting

Canadian residents who like sports betting have reason to be excited.

Single-game sports betting appears inevitable following the introduction of legislation by the Liberal government that would repeal a prohibition in Canada’s criminal code that currently only allows for parlay bets.

Additionally, Ontario residents saw the province’s Conservative government re-up their interest in moving forward with iGaming that could open the door for online casino, and potentially a competitive online Canadian sports betting market down the road.

Last month, the Ontario Office of the Auditor General released an audit of various provincial bodies. Its review of the Alcohol and Gaming Commission of Ontario (AGCO) likely raises some questions moving forward.

While the audit does not appear to impact any previously announced plans, it does identify some deficiencies that likely should be addressed before gaming expansion takes place.

What is the Alcohol and Gaming Commission of Ontario?

The AGCO is Ontario’s provincial regulator who is tasked with overseeing “the alcohol, gaming, horseracing and private cannabis retail sectors in Ontario and oversees about 78,500 licensees across the four sectors.”

The areas regulated by the AGCO generate significant revenues for the province.

The Auditor General’s report identified a number of areas of concern related to the gaming and horse racing industries.

Compliance and inspections

The Auditor General identified a number of concerns regarding the industries under the AGCO’s regulatory purview.

First among the Auditor’s findings was that the AGCO is not clear in documenting why or to what degree establishments are selected for inspection. This followed a general theme that the agency should increase its transparency moving forward.

The report noted that the same inspectors inspected the same facilities repeatedly. The report also expressed concern over this in regards to horse racing noting:

The risk of not rotating compliance officials and horse-racing judges is that their independence and judgment may be compromised by long-term relationships with licensees.

Money-laundering concerns

Casino-related money laundering concerns were another area of concern identified by the Auditor General. It appears that while there has been an increase in the number of reported suspicious transactions, very few of these reports led to criminal charges being laid.

Relatedly, it was reported that numerous patrons were allowed to wager significant sums of money without justifying a source of the funds that they were wagering. It was reported that even where individuals were identified for using funds suspiciously (e.g. patron who listed his occupation as a restaurant cook and wagered $1.3 million over three years) investigations typically involved only a criminal background check and not a more detailed check.

Unregulated online gambling

The Report documented that in 2015 the AGCO reported that there were more than 2,200 unregulated gaming websites accessible to Ontarians. These websites were operated by more than 700 different companies.

The agency reported considering a few actions to curb the unregulated industry including targeting suppliers who supplied both the regulated and unregulated industries, blocking payments, and creating a public awareness campaign, but appeared to not actually take any of the identified paths to curbing access to the unregulated industry.

The Auditor General’s Report noted that the agency spoke with New Jersey regulators about best practices for combatting the unregulated market. New Jersey’s regulators efforts to work with credit card providers to block transactions to unregulated sites and the use of multimedia advertising to educate consumers were viewed favorably.

A conflict of interest?

Perhaps most topical in the Auditor General’s report was commentary on the AGCO and iGaming regulation. The Auditor General expressed concern that a subsidiary of the AGCO would be responsible for overseeing the iGaming industry.

 [T]he government approved a plan to establish a subsidiary corporation of the AGCO to be responsible for the new role of conducting and managing internet gaming. Although there are examples in other provinces of regulators also operating gaming activity, this does create a potential conflict of interest.

The Report articulated that presently, these functions are separated. The AGCO serves as the regulator and the Ontario Lottery and Gaming Commission (OLGC) serves as the manager and operator.

The Auditor General then specified that, “It would be prudent for these functions for online gaming to be done by different entities, not a subsidiary of the regulator.”

AGCO response

The Auditor General’s report notes that the AGCO has responded favorably to the report and many of the recommendations identified by the auditor and that it is moving forward with plans to incorporate the suggestions.

The AGCO highlighted that anti-money laundering (AML) and weeding out illegal activity at casinos remains a priority.

In regards to fighting money laundering, the AGCO noted that it will look to enhance their existing relationships with law enforcement and work towards eliminating gaps and reporting blind spots that allow for suspicious transactions to slide through the cracks.

What does this mean for Canada sports betting and online gaming?

It is not immediately clear what impact this report will have. It is unlikely to have any impact on the changes being debated to allow for single-game betting in Canada.

However, the report highlights some regulatory deficiencies that seemingly may need to be rectified before full-scale competitive online market launches in Ontario.

It is clear that the Auditor General’s recommendations are aimed at building an online market that protects consumers. The audit seems to recommend the AGCO take more aggressive steps to deter Ontarians from choosing unregulated gambling sites.

It would seem logical that a step in the right direction would be providing a comprehensive regulated alternative. However, the Auditor General’s report stops short of such an endorsement.