The upcoming regulation of online sports betting and casino in Ontario brings into sharp relief the issue of grey market operators and the strange position of the First Nations as regulators and licensors of online gambling companies.
It’s one of the oldest topics that applies to the online gambling industry and when it comes to Canada it is even more pertinent; in many ways the country has become the poster child of grey markets in recent years.
Since the early 2000s operators of all hues have operated out of the online gambling jurisdictions of Kahnawake, Malta, Gibraltar or Curacao and taken bets from Canadian players across all the country’s provinces with little risk of regulatory crackdowns.
In 2022 the online sports betting leaders in the market are bet365, betway, bet99, bwin and Sports Interaction among others.
All have operated openly in Canada for many years, they freely advertise on mainstream media and regularly sponsor sports events and broadcasters with no pushback from the authorities.
However, two recent events have put the topic in the spotlight:
- Ontario is set to launch regulated online sports betting and casino on 4 April, and
- Entain, MGM’s joint venture partner in BetMGM, announced its acquisition of the Canada-focused online betting operator Sports Interaction (SIA) for CA$300m in early February.
The press release announcing the Entain takeover stated that “although Entain has made the decision to apply for licensure with iGaming Ontario for other brands under its umbrella, Mohawk Online and Sports Interaction will continue to be licensed under Kahnawake jurisdiction”.
Stuff of nightmares
This means Sports Interaction will continue taking bets from Ontario under its Kahnawake Gaming Commission license even after the province has opened up to regulation on April 4.
Such a scenario is the stuff of nightmares for regulators and operators that have taken the trouble to get licensed in newly-regulated jurisdictions such as Ontario.
As I wrote recently, the last thing Ontario’s Alcohol and Gaming Commission and the operators licensed there will want is “unlicensed operators openly targeting players in the newly-regulated market”. But that is what is likely to happen with SIA, unless there is a substantive change to the Mohawk Council of Kahnawake and online gaming regulator KGC’s positions.
Options are few and far between and positions very much set. The reasons for that are the cultural, political and historical rights that sovereign First Nations have in Canada.
One industry contact told Wagers that “operational issues intertwined with jurisdictional and cultural issues” have led to the current imbroglio.
From the perspective of the Mohawk Council of Kahnawake there is also the fact that as a sovereign nation it answers to Canada’s federal government, rather than provincial authorities. But beyond such legal points, the issue remains the same.
In any case, the MCK and other First Nations such as the Six Nations of the Grand River (SNGR) have shown no intention of relinquishing their rights to offer online gambling licensing services to operators wanting to target Canada (or any other countries).
The KGC has around 30 operators on its books, many of them are active in Canada and as both KGC and SNGR have made clear, they will continue to license any company that wants to be licensed.
For Entain, the situation is tricky because, understandably, it wants to respect First Nations’ rights. But, if a compromise isn’t reached, there is a real possibility that one of the biggest Canadian online sports betting brands might start operating in Ontario without a license after April 4.
From a purely financial point of view, there is also the issue that if KGC-licensed operators are not able to operate in Canada (or in any other markets for that matter) it places the whole raison d’etre of Kahnawake as a licensing jurisdiction and gaming regulator at risk.
Tangled web
Could the Alcohol and Gaming Commission of Ontario state outright that SIA is illegal and attempt to ban it outright from Ontario? “Anything is possible,” says Wagers’ industry contact, “but no one wants to see that.”
“It is very complicated,” they add, “the jurisdictional issues have been going on for decades and they won’t be solved overnight. The other reality is that the grey operators that currently target Canada on the whole don’t use KGC licenses. They operate out of Malta, Jersey (where SIA is also a license holder) and other jurisdictions.”
In other words, even if the AGCO-MCK-KGC-SIA-Entain web is eventually untangled, the prospect of numerous grey operators continuing to target Ontario is highly likely.
Ontario, MCK, KGC and Entain have a month from now to come up with a solution. All parties have been in discussions for many months already about this issue and others related to the passage of Bill C218 that is enabling the regulation of the sector in Ontario.
First Nations have made their opposition to C218 clear from the outset, but so far no consensus has been reached.
Neither AGCO or Entain responded to requests for comment from Wagers for this article.
Limited options
One option, which sounds somewhat suboptimal and could make many stakeholders unhappy, could see Ontario pay MCK a revenue share of the revenues generated by its licensed operators.
Another potential solution, which would be difficult for the MCK to accept, would be that as the new corporate owner of Sports Interaction, Entain applies for an Ontario license at the same time as it retains its KGC license.
That way it would operate as a fully regulated OSB brand in Ontario, while maintaining its Kahnawake presence. If that happens, better steer clear of anyone from MCK for a few weeks.
For Entain it also raises broader issues about what Sports Interaction will do should other provinces regulate OSB. Will it continue operating in Québec or British Columbia even after they have regulated their respective sectors?
For Ontario regulators meanwhile it also raises questions about regulatory enforcement and providing licensed operators with a level playing field in this hotly anticipated new market.
In the end and however unlikely, all the stakeholders may come to an agreement just in time for the Ontario market opening, but it’s hard to believe that such a situation has been allowed to develop to this point.
