Opinion: Will Ontario Sports Betting Gamble Pay Off?

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Ontario sports betting

Ontario will launch a privatized iGaming and competitive market for sports betting on April 4.

There has been a great deal of hype around the launch. By most accounts, the regulatory work of the Alcohol and Gaming Commission of Ontario (AGCO) is showing itself to be among the most competent in at least North America, if not the world.

Yet questions remain about whether the ON sports betting plan will be good for the province.

Is Ford plan a Ferrari?

Doug Ford, Ontario’s football-loving Premier, has been rolling out all sorts of shiny election year gifts to voters after the province’s COVID-19 response saw his popularity plummet from mediocre levels to 37 percent.

The planning for a privatized sports betting market has origins well before Ford began rolling out plans to eliminate license plate stickers and annual renewal fees.

Still, the questions from the province’s own Auditor General about the sports betting rollout’s compliance with the Criminal Code give the feeling that this plan is being rushed out the door on a hope and prayer that no one pushes back.

Will ambitious Ontario sports betting goals pay off?

Ontario’s goal to roll out these privatized markets to recapture the gray market that goes untaxed and, in some cases is entirely unregulated, appears admirable. This was one of the initial motives for legalization in the United States (well, at least some states and Adam Silver said it was.)

But virtually all pretense that legal sports betting is about anything other than revenue maximization has been abandoned by states.

It will be a stunning achievement if Ontario can truly pull off a market that pulls in gray-market sports betting operators and keeps bettors in the regulated market. We have only seen the province’s carrot, essentially an open hand, being offered to former gray-market operators to enter the newly minted market where seemingly all past behavior is being forgiven.

No US market precedent

This step has never been tried in the United States. That is likely because, unlike sports betting in Canada where many companies operated in a murky unregulated universe, the Wire Act makes clear that running a business accepting bets from Americans offshore violates federal law.

We have seen a handful of gray-market operators jump at the opportunity to enter the regulated market. However, time will tell how many join them.

The regulated market will not eliminate the unregulated market. There are too many advantages in unregulated markets to recapture all of the money circulating out there.

The carrot or the stick?

The province will need to do something to show there is a stick for those operators who do not want the carrot, or else there will be seemingly little incentive to give up 20% percent of revenue for some standalone brands.

In some of the latest releases, the AGCO notes that if any company operates in Ontario without registration, all affiliated brands could be subject to sanction.

But it is not clear what deterrent mechanisms the province has planned for those unaffiliated operators who are not interested in registration.

Cutting off its nose to spite its face?

As industry insiders, it is easy to cheer for a competitive market in a jurisdiction with more than 10 million people. But there are genuine questions about whether this plan will cost the province money.

The questions about whether the private market will be worse for provincial stakeholders are already beginning to mount. A report from the Great Canadian Gaming Corporation (who as a casino operator appears to have a horse in this race) asserts that the new market could cannibalize 2,600 casino jobs and cost the province $2.8 billion in tax revenue over five years.

Cannibalization fears real or imagined?

Municipalities with casinos are worried about local impacts, with some projecting a 30% drop in revenue. But the more significant loss might come from the fact that casinos currently send 55% of revenue to the province and municipalities. The online market will be taxed at the significantly lower rate of 20%.

It remains to be seen just how accurate those projections are. Still, Ontario is running a significant budget deficit, though there have been projections of a faster decline than expected.

It seems to be intent on continuing to cut revenue-generating, provincially run enterprises. At some point, the bill is going to come due. It is not clear that the current model can replace the current model’s revenue.

How competitive will Ontario sports betting market be?

The other big question is whether the Ontario market will be as competitive as hoped.

The US market certainly is not competitive beyond a handful of brands. In fact, if there are lessons to be learned from the US, one can expect the most prominent brands to steamroll just about everyone else to the point where the best many companies can hope for is a takeover bid.

The Ontario market will not have suffocating licensing fees, obscene tax rates, or ridiculous official league data fees (at least not by provincial mandate.) But companies will still need to acquire customers. At $300-$400 a head, that is an expensive proposition that few can afford.

Stop patronizing the Canadian market

If things do go off the rails in Ontario for any big American (or international) brands, it might be because of what has occasionally become a condescending attitude toward the Canadian market.

Canadians of a certain age will undoubtedly remember the Molson Canadian “I am Canadian” rant featuring Joe. American gaming operators who have been placing massive bets on “Canadian sports” like curling might be wise to familiarize themselves with the themes of the ad.

Canadians will gravitate to brands that have good product. They are not going to blindly gravitate to Canadian brands simply because they are Canadian. It might be telling that with all the options for partners out there, both the NHL and NFL have gravitated to a partnership with Proline+.

The takeaway on Ontario sports betting

Despite a lot of potential obstacles surrounding legal questions, all indications are that Ontario will launch its private market for sports betting and online gaming on April 4, 2022.

Whether the market really brings back a significant amount of gray-market money remains an open question. It is probably not a great sign for that dream that the federal government sat on its hands instead of doing anything to stop offshore operators from evading Canadian taxation.

Even if the AGCO wants to be tough, its jurisdiction seems to lack teeth for anyone not hoping to eventually be licensed in Ontario or owned by a multi-brand parent. Time will tell whether this is Ontario’s 21st Century 407 debacle.

Perhaps the most considerable saving grace is that sports betting in Ontario will never be worth $30 billion. Despite the government’s risky gamble on the private market generating enough revenue to cover the lower tax rates, Canadian consumers might be the ultimate beneficiaries of the private market.

Still, even that depends on operators providing adequate and desirable products to the market. Playing to Canadian stereotypes, and signing partnerships with recreation facilities and second- or third-tier leagues are not likely to see a significant return on investment.