A new report prepared for and sponsored by Great Canadian Gaming Corporation has warned that Ontario Premier Doug Ford’s government could lose out on hundreds of millions of dollars in annual revenue as a result of its bet on opening up online gambling.
According to CBC News, the report from industry consulting firm HLT Advisory Inc. warns that a big shift in spending from land-based casinos to internet gaming could have a significant financial effect on the provincial government.
It recommends that officials rethink their approach and suggests that allowing numerous iGaming applicants to receive licenses could result in a robust online gaming market at the expense of land-based properties.
“If an open-license iGaming model is implemented … iGaming would capture a significant share of the total casino market,” the report states.
The report urges that several measures be taken, including:
- No change to existing land-based tax rates and market structure.
- A 24-month exclusivity period for land-based operators to offer iGaming, which it says would allow for the growth of legal iGaming jobs through an omnichannel experience without cannibalization.
- Controlling the number of online sports betting licensees after that initial exclusivity to provide market structure.
- Offering retail single-event sports wagering exclusively through land-based casinos, which the report says would allow land-based operators to supervise the activity to prevent minors from betting and address concerns related to problem gambling and money laundering.
- Taxing iGaming revenue at a comparable rate to land-based gaming revenue.
- Requiring operators to delete existing databases that were not legally gathered before launching legal operations.
- Preventing digital-only players, with low-cost structures and few employees, from operating with a physical presence and market or brand buildings or lounges.
- Tailoring advertising and data rules to ensure players can enjoy a coordinated online and in-person experience.
- Allowing land-based casinos to integrate their customer experience by offering omnichannel services and convenience including single signup, shared loyalty, shared wallet, live gaming, and progressive experiences combining land-based and digital in order to provide best-in-class entertainment, unique experiences and socially responsible service.
Ontario is expected to impose a lower tax rate on online gambling sites than on casinos. Land-based casinos must currently pay 55 per cent of net gambling proceeds to the province; the report bases its findings on the assumption that regulated online gambling will be subject to a 20 per cent tax rate.
The report concludes that the province could lose out on $550 million in annual revenue, amounting to $2.8 billion over the next five years.
That five-year figure is higher than the pre-pandemic annual provincial revenues from lottery and gambling, which totalled up to $2.5 billion. It adds the government’s proposed “open licence” model for iGaming will result in online sites more than tripling their share of Ontario’s overall gambling market, estimated at around $7 billion a year. Ontario municipalities that host casinos would also lose out on $35 to $40 million in annual revenue, according to the report.
Industry figures estimate that Ontarians spend some $500 million a year on internet gambling, nearly all on grey-market or outside-province companies. The provincial government puts the figure at $1 billion.
Natasha Krstajic, press secretary and parliamentary advisor for Ontario Attorney General Doug Downey, told Covers that Ontario’s new iGaming market “will complement existing land-based gaming activity by providing a new opportunity for Ontario’s land-based operators to expand into iGaming to diversify revenue sources and cross-promote between online and land-based sites.” She added that the government, the AGCO, and iGaming Ontario are working with prospective operators to ensure Ontario is ready for the market launch.
Companies question the conclusions
Major industry players queried the key assumptions underpinning the report, not least that existing casino customers will spend much less money in casinos and more on iGaming websites.
“When the regulated market opens in Ontario, nothing is going to change in respect to players’ entertainment habits,” Jeffrey Haas, SVP of DraftKings Inc., told CBC. “People who are playing in online casinos and online sportsbooks and online poker rooms will continue to do so, except they’re going to go from playing offshore to onshore. And anybody who continues to walk into real casinos in order to play games there will continue to do so.”
Tony Rodio, CEO of Great Canadian Gaming, which is the largest operator of land-based casinos in Ontario, told CBC that the report “includes critical learnings from other jurisdictions that introduced iGaming and cannibalized land-based operators in the process. In the U.S., states that have rolled out a legalized iGaming framework have not yet seen casino revenues recover to pre-COVID levels. While we support iGaming in principle, the Ontario government needs to take the time to get this right.”
However, Paul Burns, President and CEO of the Canadian Gaming Association, added that drawing such comparisons may not provide an accurate picture of what will happen when Ontario starts regulating online gaming.
“Online gaming is [in Ontario], it’s just not regulated, it’s not controlled,” Burns told CBC. “It’s not put to the same regulatory standards the casinos are held to… [Casino operators] are anxious to be able to participate and compete and create an opportunity for their own customers who may be gambling on other people’s sites, to try and bring them back into their business.”