It is self-evident that the games and wagering activities that take place online today do mirror the games and activities that take place in land-based casinos, such as sports betting shops, bingo halls and distributed lotteries; however, the business model of gambling online is fundamentally different than gambling in a land-based facility primarily due to the borderless capacity of the Internet. This fact has proven to have real consequences that affect the ability of countries and/or jurisdictions to enforce any exclusion of operators who are based outside of the enforcing jurisdiction. The innovation and the reach of the operators has proven to be elusive to authorities who are intent on keeping foreign-based operators out of their jurisdictions. The most salient example is the U.S.A.’s failed attempts to disallow Internet gambling, which is explicitly obvious when watching major American networks who carry programs illustrating the existence and acceptance of Internet gambling within America. The most popular televised ESPN event is the World Series of Poker (“WSOP”), which is frequently aired on U.S. and Canadian national television over many months, in addition to the fact that the “WSOP” brand (www.wsop.com) is itself a successful online gaming site that accepts Canadian facing online poker business, amongst many other online poker brands that operate in Canada.
Although the political rhetoric and the bureaucratic stance in Canada may denounce foreign operators who accept online customers from Canada as conducting “illegal activities” and/or “unregulated activities” - a position which lacks solid legal foundation and is somewhat unclear at best - most operators are regulated by a governing body that asserts jurisdiction to regulate such activities, such as the Kahnawá:ke Gaming Commission (“KGC”) or the Gambling Commission of the United Kingdom. They each have an equally persuasive legal argument to justify the conduct of their online gaming activities. It is, therefore, highly unlikely that the introduction of a Government-backed brand with the exclusive ability to conduct, host and/or facilitate gambling activities on the Internet will stop independent regulators and foreign operators from continuing to take business from Canadian residents. Consequently, government operators of online gaming will find themselves in an unfamiliar position that will require them to compete for market share with the established online gaming operators.
It is our considered opinion that the extension of the current “land-based methodology” will be ineffective in disallowing foreign operators from competing in the provincial markets. More importantly, the monopolistic model will have the net effect of forfeiting any oversight or regulatory power over such operators by not having a regulatory licensing regime in place, thereby negating any arguments to the effect that the purpose behind the governmental decision to allow a crown corporation to operate in the online market is to protect the public. Certainly, there are sufficient numbers in each of the provinces to allow for both initiatives to survive in parallel markets, should there be a regulatory scheme in place.
The “land based methodology”, as it is presently envisaged, will actually have the effect of granting a highly valuable competitive advantage to the foreign operators who continue to allow Canadian residents to wager on their sites. The six provinces of Canada are currently prohibited from taking business from outside the jurisdiction of their province, such that any person who is outside of the boundaries of that province cannot play on the site of the said province. This kind of environment has the effect of discriminating against the provincial operators in favor of the private foreign operators. The foreign operators will continue to attract play from all corners of the world and, as a result, will have a much bigger player pool to draw on than the provincial operators, which will ultimately translate into a higher degree of liquidity. By analogy, it is the equivalent of owning and operating a casino in Las Vegas under restrictions that only allow that casino to accept clients who are residents of Nevada, while your competitors can accept business from both Nevada residents and the tourists who visit the state. By comparison, if select Nevada casinos were unable to allow persons from outside the State to play in their casinos, this would be a laughable, inefficient business model and a recipe for disaster. Certainly, the six “Consortium Provinces” are aware of this limitation and have tried to address it by entering into a consortium and a memorandum of understanding that would allow those provinces to share liquidity between themselves; however, they will not be in a position to share liquidity and a player base with the rest of the world, whereas their competitors can.
Much of the promotional material, literature and press releases related to the Government offerings and its prescribed strengths rely heavily on the assumption that the public in general will prefer the Government-backed site to those of the competitors because the Government can be trusted and will offer a secure, safe and responsible environment. Although there is some truth to this assumption, its value is most likely very highly overstated. Credible operators and regulators exist and have managed to gain the public’s trust; consequently, it is more likely that players will ultimately prefer sites that have established loyalty programs, favorable perks, bonuses, life changing jackpots, and a solid brand identity, as opposed to disclosing all of their personal information and financial resources to a Government-backed agency. The government should not underestimate the credibility of existing operators as the last decade has seen this industry mature into an industry dominated by very large, successful private operators, who are highly accountable, regulated and relatively transparent. These operators are managed by highly sophisticated, educated and motivated individuals, who have often been operative in the space of the online gaming industry since its inception in the mid 90's, many of whom were Canadian raised and educated.
The advent of the online gaming industry in Canada has created, most probably, the most successful data centre in the world, which is situated within the “Mohawk Territory of Kahnawá:ke” and operates under the name and style of “Mohawk Internet Technologies”. It is reputed today to be the largest data centre in the world that hosts online gaming.
The provinces would be well advised to work with a pool of these talented Canadians, who have been involved in driving the growth of the online gaming industry since inception, some of whom have had to move offshore, costing Canada both jobs and income taxes that would have otherwise been generated.
The “Consortium Provinces” would also be wise to work with experienced online gaming regulators, such as the KGC, which is in their own backyard and who have a proven track record, as well as online gaming regulators from other recognized, matured jurisdictions such as the U.K., Malta, Alderney, Gibraltar and Antigua. in regulating the most successful online gaming providers worldwide.
The present fear expressed by the current offshore online successful gaming operators is that the Provincial consortium, which has been launched to offer online gaming to their residents, will not be successful and as a consequence, the “Consortium Provinces” will lay the blame for their failure upon the successful offshore operators who currently dominate the online gaming market on a worldwide basis.
It is the perception of the authors at the time of the writing of this article, that the province of Ontario is in the process of re-thinking its position as to whether it should join the “Consortium Provinces” and instead, is leaning towards adopting a “Licensing and Regulatory Model” with respect to the activities of online gaming taking place within its Provincial jurisdiction.
It is our conclusion and primary recommendation that at some point in time, the “Consortium Provinces” will decide to backtrack from being operators and take on the responsibility of both licensing and regulating the industry, which would be the optimal solution from a regulatory, financial and an industry perspective. All one has to do to arrive at the same conclusion is to simply recognize the business models and technologies that have stood the test of time and have proved to be successful in the “United Kingdom,'' and within the jurisdiction known as the “Mohawk Territory of Kahnawá:ke” and, as well, the current business models adopted by the evolving regulated e-gaming European countries of France, Italy and Spain and the licensing and regulatory models to be adopted eventually, on a state-by-state basis, in the United States.