New Quebec Online Gambling Blacklist Will Be Both Stick And Carrot For Amaya
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Quebec’s Online Gambling Blacklist Provides A Problem And An Opportunity For PokerStars And Amaya

Quebec online gambling blacklist
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Quebec’s government-owned online gambling monopoly, Loto-Quebec, has said that it is in the process of creating a blacklist of unlicensed operators.

The list will be sent to the regulator “Régie des Courses et des Jeux du Québec” (RACJ), following which internet service providers (ISP) will be legally required to block access to the listed sites.

The new blacklist arises from a budget measure approved last year.

As Law 74, “An Act respecting mainly the implementation of certain provisions of the Budget Speech of March 26, 2015,” the new provisions came into force on May 18.

The relevant paragraphs of the law state:

260.35. The Société des loteries du Québec shall oversee the accessibility of online gambling.

It shall draw up a list of unauthorized online gambling sites and provide the list to the Régie des alcools, des courses et des jeux, which shall send it to Internet service providers by registered mail. The receipt notice or, as the case may be, the delivery notice serves as proof of notification.

260.36. An Internet service provider that receives the list of unauthorized online gambling sites in accordance with section 260.35 shall, within 30 days after receiving the list, block access to those sites.

Cash grab presented as consumer protection

The initial motivation for the law was financial, to protect Loto-Quebec’s revenues, but the political justification was made on the basis that the new law was a consumer protection measure.

Four years after launching, Loto-Quebec has around a 10 percent market share of online gambling in the province. Competition from offshore operators accounts for the rest, costing Loto-Quebec over $220 million a year, according to Loto-Quebec’s own estimates.

Quebec only permits online poker through the Loto-Quebec site, Espacejeux, which uses a GTECH poker platform.

Regulatory concerns have already seen major poker sites exit the market

Over the last couple of years, a number of online poker rooms have left the market. Ladbrokes shut down its Canadian operations on October 1, 2014, and several other rooms on the iPoker network followed suit.

One operator which determined to stay in the market was PokerStars.

There was concern that it too would leave the market after being bought by Amaya, which has its corporate headquarters in Montreal, Quebec’s capital.

Impact on Amaya could go two ways

Amaya’s PokerStars and Full Tilt brands will inevitably be put on the blacklist. This will result in a difficult corporate decision about whether to stay in the market.

However, backroom negotiations may mean that Amaya has an opportunity to do a deal with Loto-Quebec.

The new law offers a stick and a carrot. The stick is the prospect of substantial fines for any operators that continue to do business in Quebec after being blacklisted.

The carrot comes as Loto-Quebec is being allowed to add to its product line-up by negotiating agreements with at least three offshore providers.

Loto-Quebec Director of Communications and Press Relations, Patrice Lavoie explained:

“It [the new law] blocks operators then we give ourselves six months to negotiate agreements with those who want to comply. The fact is that it is more simple and effective to reach agreements once sites are blocked.”

Amaya is on the inside track

Not only is Amaya based in Quebec, but it already provides gaming software to the Société du jeu virtuel du Québec (SJVQ), a subsidiary of Loto-Québec. It has been discussing an expanded relationship (paywall) with Loto-Quebec for over two years.

Talks accelerated after the publication of the report of the Working Group on Online Gambling. The report called for a licensing system to be established for private operators, together with a “fair and reasonable” taxation system.

Recognizing that such a federal law change would take many years to achieve, the report recommended that individual provinces could set up a single online portal, owned and controlled by the provincial government, through which private operators could offer their own branded gambling services.

The option created political support for an agreement between Amaya and Loto-Quebec, but it appears that the budget proposals resulting in Law 74 have delayed any agreement.

Amaya supported Law 74

It is noteworthy that Amaya welcomed the blacklist proposals when they were first mooted.

Amaya’s Eric Hollreiser, head of corporate communications, declared at the time that:

“As the global leader in online gaming, Amaya would happily expand its existing partnership with Loto-Quebec to go through the necessary process to become an online solutions supplier accredited by Loto-Quebec and to help define the future online gaming guidelines.”

Asked for a comment on the current situation now that the law has been passed, Hollreiser told OPR:

“History shows that time and time again that prohibition does not work. We’re happy to see the provincial government seeking ways to work with the private sector to contribute to Loto-Quebec’s growth in online gaming, for the benefit of taxpayers and the protection of consumers.”

The evidence taken together strongly suggests that Amaya has a high level of confidence that it can pull off a deal with Loto-Quebec that will avoid it having to take PokerStars out of one of its important markets.

Failure to do a deal would put Amaya in a difficult position

The insider trading charges filed against former Amaya CEO David Baazov by the Quebec Autorité des marchés financiers (AMF) could represent another risk to the Loto-Quebec deal.

Baazov has entered a not guilty plea on all counts, and in the absence of a guilty verdict must be treated as an innocent man.

Nonetheless, it must be embarrassing to deal with the Quebec regulators under these circumstances, even though the issue should not have a material impact on Loto-Quebec’s decisions now that Baazov has stepped down.

Regulators in other parts of the world have policies that would impact Amaya’s decision to stay or withdraw from the Quebec market if a deal isn’t completed.

Quebec could be a black market as defined by the New Jersey DGE

In April this year, the New Jersey DGE published its guidance notes on the difference between black markets and gray markets.

If Quebec enforces Law 74, ISPs block access to PokerStars and Amaya is fined, then the DGE definition of a black market would apply.

Operating in a black market deems an operator to be unsuitable for a New Jersey license.

The UK is more flexible

A similar situation applies in the UK.

The UK Gambling Commission (UKGC) demands that its licensed operators provide a legal justification for operating in national markets that produce more than three percent of revenues.

However, the UKGC recognizes that the gaming laws in some jurisdictions may not themselves be legal. The position is most clear in the European Union, where the gambling laws in several countries are considered to be illegal because they breach EU treaties.

As national laws are subordinate to the EU law, the UKGC does not consider operators to be unsuitable if they offer online gambling in a market where there is a legal justification that the national laws are illegal.

The UKGC may be open to the legal argument that this is the case in Quebec.

Law 74 is vulnerable to legal challenge

In Canada, the federal government has jurisdiction over telecommunications and the internet. Provinces and territories have regional governments with powers to regulate gambling within their borders.

The Quebec government did not take legal advice before proposing Law 74. This omission looks a lot like an attempt to avoid hearing bad news.

The federal 1993 Telecommunications Act states:

“Except where the Commission (the CRTC) approves otherwise, a Canadian carrier shall not control the content or influence the meaning or purpose of telecommunications carried by it for the public.”

The CRTC has not been approached to approve Quebec’s plans to block access to online poker sites. It can and will be argued that the Quebec government has exceeded its powers in introducing the ISP blocking measure.

“It is censorship. It’s blocking access to otherwise legally available sites in the interests of enhancing one’s gambling monopoly,” said Timothy Denton, chairman of the Canadian chapter of the Internet Society. “A lot of countries try to do it, but we don’t call them liberal democracies.”

The Quebec government disagrees.

“We have jurisdiction to regulate gambling activities and that’s what we’re doing with this project,” said Nathalie Roberge, a spokeswoman for Finance Minister Carlos Leitao, who introduced the bill.

Amaya may have to show some finesse, but a negative outcome is unlikely

There are good reasons to believe that a deal between Amaya and Loto-Quebec is more likely than not.

  • The close links that Amaya has forged with Quebec’s local and provincial governments will stand it in good stead as negotiations develop.
  • The long-standing business relationship that Amaya has with Loto-Quebec means that it has already established a track record of performance and reliability.
  • If Loto-Quebec can offer online poker from PokerStars it will, at a stroke, attract a large proportion of its target customers into the regulated sector of the market.
  • Quebec will not want to take actions that might result in it losing the headquarters of one of the world’s strongest gaming brands.

For reasons of good business, realpolitik and actually achieving the consumer protection aims of Law 74, Loto-Quebec and Amaya need each other.

The chances of the two not coming to terms must be considered to be very small indeed.

Image credit: njene / Shutterstock.com

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Joss Wood
- A former editor of Poker Industry Pro, Joss Wood is a graduate in English from the University of Birmingham. Joss also holds a master’s degree in Organisational Development from the University of Manchester. His career path has taken him from the British Army, through business and finance to seven years as a successful professional poker player.