The Auditor General recommends that iGaming Ontario take on a larger decision-making role and report to the Ministry of Finance

Auditor General Warns That Ontario Privatized iGaming Could Face Legal Challenge

Ontarians expected to see private online gambling operators join the province’s iGaming market this month. Unfortunately, they will have to wait a little longer. Competition for the Ontario Lottery and Gaming Corporation (OLG) is now expected to occur in Q1 2022.

The delays seem to be merely procedural, but a larger problem may loom. A new report from the Office of the Auditor General of Ontario (OAG) alleges the upcoming marketplace may violate federal law.

Provincial officials received the Internet Gaming in Ontario report on Dec. 1 as part of the OAG’s 2021 Annual Report. The report asserts that the plan for the marketplace needs some rethinking. However, within the same report are responses from the Ministry of the Attorney General (MAG) that contend the system will function well as is.

To understand what the OAG alleges in its report about the status quo possibly violating federal law, it’ll help to have a bit of background on the proposed addition of private online gambling operators to the existing Ontario online casino offerings.

Ontario iGaming market regulation

On Aug. 18, the Alcohol and Gaming Commission of Ontario (AGCO) released a guide for interested iGaming operators about how to register and apply for an operator agreement. A few weeks after releasing the Internet Gaming Operator Application Guide, AGCO began accepting applications on Sept. 13 from private operators, including those who had previously been serving the market in unregulated fashion.

Ontarians spend $500 million a year with these operators, says Paul Burns, president and CEO of the Canadian Gaming Association (CGA). He was moderating a session on Dec. 1 at the SBC Summit North America.

The OAG report considers this an underestimate, stating that Ontarians spend more like $1 billion total on online gambling, 70% of that at the thousands of unregulated gaming websites.

Ontario is working to bring those gray market operators into a regulated marketplace in order to capture that revenue. In the process, it will protect citizens, who currently have no legal recourse when dealing with offshore gambling companies.

AGCO said prospective operator applicants also needed to “enter into a commercial agreement” with the province’s “Conduct and Manage entity,” iGaming Ontario. That’s a subsidiary of AGCO. AGCO, in turn, is a provincial regulatory agency reporting to MAG.

Gov. agency to “conduct and manage” iGaming

Lindsay Rennie, brand and communications manager for iGaming Ontario, recently told Online Poker Report that AGCO is registering operators and regulating them. Her agency will conduct and manage the marketplace after online casino operators enter into operating agreements with iGaming Ontario.

That entire oversight framework is set up in the Discussion Paper: A Model For Internet Gaming In Ontario. That’s a document that the Ontario Ministry of Finance (OMF) released in February. It’s intent is to guide the creation of the expanded iGaming marketplace.

The discussion paper’s preliminary outline for “a model for Internet gaming in Ontario” says:

“The Criminal Code expressly prohibits the provision of gambling in Canada, with some limited exceptions. One of those exceptions, in section 207(1)(a), is for lottery schemes that are ‘conducted and managed’ by provincial governments.”

The OLG is such a lottery scheme. Until the expanded marketplace launches, it has a monopoly on the province’s online casino games.

OAG’s allegations and recommendations

OAG claims that under the current framework, adding private online gambling operators may violate Canada’s criminal code. OAG contends that as a regulatory agency, AGCO shouldn’t be responsible for overseeing its own subsidiary and the latter’s commercial partners.

Rennie referred OPR‘s questions about the report to MAG, whose spokesperson Brian Gray responded:

The Ministry of the Attorney General welcomes the Auditor General’s report and recommendations.Ontario is committed to creating a regulated and competitive online gaming market to help protect consumers. Ontario has carefully designed the online gaming model so as to achieve that objective in compliance with the requirements of the Criminal Code that apply to Ontario.The government continues to work internally and with prospective operators to ensure the government (including iGO) and the operators are ready for launch.

Beyond that, MAG referred OPR to its commentary in the report. The 15-page OAG report states:

“There is inherent conflict established in legislation between iGaming Ontario’s goal of generating profit-based revenue for the province and the AGCO’s goal of effectively administering regulatory oversight of the gaming sector.”

Attorney General’s response

The report recommends that if iGaming Ontario does indeed meet the requirements of the Criminal Code, then it should report to OMF rather than AGCO.

The Attorney General disagrees, however. Within the report, MAG responds:

“Any risks associated with a conflict of interest between the functions of the AGCO and iGaming Ontario have been addressed through the structure and requirement for supplementary policies. The benefits of maintaining the status quo outweigh the operational risks and fiscal impacts of establishing a new reporting structure for iGaming Ontario.”

The OAG report also raises concerns that the private iGaming operators may end up with less oversight than necessary. As a result, they retain “a significant amount of business risk and strategic decision-making power.”

Overall, the report claims:

“Our office has concerns surrounding the legal risks of the new Internet gaming model under the criminal code, the governance risks of iGaming Ontario’s structure, and the province’s diminished role in ensuring the fairness and integrity of Internet gaming.”

According to Robyn McNeil, managing editor of PlayCanada, despite the OAG misgivings, the agency doesn’t have the power to affect the launch.

“The issues the OAG have raised are worth consideration by AGCO and Ontario’s government,” said McNeil via email. “That said, it has no power to compel either to heed the warnings. Whether or not the market will face legal challenge remains to be seen. But there have been similar previous challenges under Canadian law.”

(PlayCanada is part of the same larger network as Online Poker Report.)

Operators have concerns about Ontario

Ontario online casinos include major US online casino operators. Several US operators recently positioned themselves to be able to move into Ontario’s iGaming market quickly. That jockeying seemed to intensify after Aug. 27, when single-event sports betting launched throughout Canada.

The main frustration operators are expressing is uncertainty about an expanded marketplace launch date.

During that session Burns moderated, panelist Chantal Cipriano said while she’s excited about the marketplace, it’s been difficult to navigate Ontario’s continually changing legal requirements. The vice president of “legal, compliance and people” for PointsBet Canada said deciding on when to hire personnel or launch marketing campaigns remains up in the air.

“Overall, my hope is that the process becomes a bit more fluid; perhaps even a bit more relaxed as the government gains a bit more comfort with operators and their processes,” Cipriano said during Tracking Ontario’s Boom: Where Will The Chips Fall For Canada?

OLG’s retail partners face special challenges

Speaker Richard Roberts – president of digital gaming for Mohegan Gaming and Entertainment (MGE) – talked about the difference between online and retail casino regulation. MGE develops and operates casinos for the Mohegan Tribe, with two retail casinos in Ontario.

MGE is the OLG’s service provider for Fallsview Casino Resort and Casino Niagara in Niagara Falls.

Burns opined that it’s been a fairly seamless application process for prospective online operators.

That’s not so much the case for MGE, Roberts responds.

“As a land-based operator, we’ve got a lot of hurdles different than online,” Roberts says. “So we’re challenged by the ease of getting licensed, based upon what we’ve had to go through from a retail perspective. So there’s got to be a level of uniformity, from that perspective. Particularly around protecting the players, protecting the operators that have been working for decades within the province.”

- Heather Fletcher is the lead writer with OnlinePokerReport. She's a career journalist, with bylines in The New York Times, Adweek and other publications. Reach her at [email protected]
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