Raising the Stakes: Proposed Changes to Canada’s Gambling IndustryWednesday, December 9, 2020
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Parliament and Queen’s Park have seemingly dealt the Canadian gambling industry a winning hand. Each of the Canadian Federal and Ontario Provincial Governments has taken steps to revolutionize the Canadian lottery, gaming and sports industries by proposing to decriminalize single-event sports betting and to establish a private internet gaming (“iGaming”) marketplace, respectively.
The Proposed Federal Change
On November 26, 2020, the Federal Government put forth proposed legislation that, if passed, would decriminalize all types of single-event sports betting.1 Currently, it is a criminal offence in Canada to gamble on the outcome of a single sporting event. Instead, Canadians may only (legally) wager on the outcome of a sporting event by parlay betting, meaning placing a bet on the outcome of multiple sporting events at once. In Canada, parlay betting and other gaming schemes fall within provincial regulatory jurisdiction with commissions, such as the Alcohol and Gaming Commission of Ontario (the “AGCO”), regulating provincial lottery and gaming corporations, like the Ontario Lottery and Gaming Corporation, which administer local gambling and lottery schemes.
The push to decriminalize single-event sports betting in Canada has been ongoing for at least a decade, with stakeholders from provincial governments to professional sports leagues, casinos and entrepreneurs calling for reform, without success. However, the rapid legalization of sports wagering in the United States in recent years has placed increased pressure on the Canadian Federal Government to decriminalize the practice, seemingly forcing the Government’s hand. Since the United States Supreme Court’s decision to overturn a federal law prohibiting sports wagering, many U.S. states have implemented legislative regimes to regulate it. Canadian casinos, especially those in Southern Ontario, have expressed concerns that without the ability to carry sportsbooks, patrons would instead head across the border and take their gambling money with them. The prospect of augmented revenues for Canadian provinces in a time of increased government spending likely helped tip the scales, as well. If passed, the proposed federal legislation would expand the provinces’ jurisdiction to include the regulation of single-event sports betting in addition to parlay betting.
The Proposed Provincial Change
The proposed federal legislation goes hand in hand with Ontario announcing on November 5, 2020 that it will introduce proposed legislation to create a regulated private marketplace for iGaming. The Ontario Government is proposing to create a subsidiary of the AGCO that would be responsible for managing and regulating iGaming sites operated by private third parties. As it stands, Ontario’s iGaming market is dominated by unregulated iGaming websites like PokerStars or Bet365 that, while licensed and hosted in other jurisdictions, operate in Canada on an unlicensed basis, largely ignored by the federal and provincial authorities. While the proposed Ontario legislation has yet to be introduced, if this change comes to pass it will represent a major step towards addressing this iGaming “gray market”.
Capital Markets Impact
The legalization of sports betting in the United States and its proposed decriminalization in Canada has been welcomed by capital markets on both sides of the border. In the United States, amid much fanfare, DraftKings Inc. (NASDAQ: DKNG), a pure-play sports betting and online gaming company, listed on the NASDAQ on April 24, 2020 by way of a reverse merger with a special purpose acquisition company and has seen its valuation steadily increase since its first day of trading. In Canada, Score Media and Gaming Inc. (TSX: SCR), a leader in sports media and gaming, celebrated the plan to decriminalize single-event sports betting, describing it as a move that would allow “the legal sports betting market to flourish”. SCR promptly followed its statement by launching a $40 million bought deal at the end of November 2020. There are numerous other examples of the excitement of the investing public around this space.
The proposed federal and provincial legislative changes come at an interesting time. On the one hand, they are occurring during a historically unprecedented time for traditional sports, where fans are attending events virtually and consuming sports content over the Internet more than ever before. On the other hand, these changes are happening in a volatile market with a burgeoning interest for the rapidly growing (e)sports industry. As an example of what may be to come at the intersection of (e)sports and lottery and gaming, regulators in states like Nevada, New Jersey and West Virginia have already approved (e)sports betting in limited capacities. Indeed, it appears that the odds may no longer be against single-event sports betting and privately operated iGaming in Canada and Ontario, as both Governments roll the dice on increased liberalization of the gaming industry.
If you have any questions with respect to the matters discussed above, please contact Michael Rennie at firstname.lastname@example.org, Brendan Wu at email@example.com or any other member of our Entertainment, Media, (e)Sports and Gaming practice group.
This update is intended as a summary only and should not be regarded or relied upon as advice to any specific client or regarding any specific situation.
If you would like further information regarding the issues discussed in this update or if you wish to discuss any aspect of this commentary, please feel free to contact us.
1The legislation maintains the current system for wagering on horse races, which is regulated under the jurisdiction of Agriculture and Agri-Food Canada.