Why Ontarians are Going Online Overseas for Gambling

July 2, 2014 11:07 am

Written by John Sorensen

In recent years, the Ontario Lottery and Gaming Commission (OLG) has been going online to try to attract new patrons from across the province by offering online casino games, poker tournaments and even Lotto 6/49, Lotto Max and ENCORE tickets over the internet.  There can be no doubt that online gambling is a growth industry in the province, bringing in over $1.3 billion in 2013 and projected to generate in excess of $4.5 billion from 2013-2018.  Indeed, one of the provincial government’s main arguments for promoting online gaming, despite the inevitable controversy this would cause with anti-gambling lobbyists, was all of the potential tax dollars which were being lost.

However there are many industry experts who believe that the move to legalize online gambling in Ontario is coming far too late and with too many restrictions on both players and providers, pointing to financial analysis showing that in 2013, Ontarian gamblers spent over $400 million with offshore gaming sites, primarily based within the European Union.  Despite the recent expansion of domestic online gambling websites, why does there continue to be such an exodus of Ontarian players to overseas markets?  Unfortunately, the main causes for so many Ontarian players spending their money abroad seems to be largely self-inflicted, resulting from a combination of misguided policies that have at once stifled domestic competition in order to protect the provincial monopoly and also failed to prevent foreign operators from targeting Canadians with a superior product.

Europe Cashes In

In the European Union, liberal licensing policies have been specifically designed and implemented to promote online gambling to a global market.  The Member States, such as the United Kingdom and Italy, which have worked to develop their own comprehensive gambling licensing and regulation systems, have seen online gaming flourish into multi-billion dollar cash cows. This services the demand for betting, not just in the EU, but in countries such as Canada, which delayed acting for far too long.  Online casinos, bingo parlours, sports betting bookmakers, horse racing, poker tournaments and the most famous European lotteries are all made available on demand to Ontarian gamblers by established European gaming juggernauts. With over a decade to establish themselves as trust worthy brands, they have worked on creating water tight customer service and player protection systems and, perhaps most importantly, dealing with the fierce competition which weeded out all but the very best of the best contenders.  In contrast, the previous Canadian ban on internet gambling, and now the provincial monopoly, has resulted in a product which has not benefited from the many years of fine tuning and fails to appeal to many players who can find slicker websites with better offers with just a few clicks of their mouse.

United States Holds

In the United States, policy and law makers took the opposite approach to Europe.  After developing the most lucrative online gambling market in the world, new legislation brought in under the Bush administration to prevent money laundering and terrorism after 9-11 (and not coincidentally also at the behest of traditional casino owners) lead to an effective ban on online gaming after 2011.  Although no legal action has ever been taken against US players for illegally gambling abroad, federal and state governments have been quick to bring lawsuits against all offshore websites found to be targeting American players.  This is very different from the situation in Canada, where regulations banned local entrepreneurs from developing online gambling websites but simultaneously allowed foreign companies to target our players.  Unlike the American system, which has ruthlessly and litigiously prosecuted overseas operators under US law and even extradited owners under criminal treaties, Canada has thrown the doors open to foreign websites while punishing their domestic counterparts.

After a major turnabout in judicial opinion over the legality of online gambling in the US, certain states are now beginning to permit limited online gambling, particularly since the economic crash has left so many levels of government looking for new ways to increase their revenue.  US companies now face the same disadvantage from failing to keep pace with Europe in terms of development as Canadian enterprises.  They are also faced with the dilemma of trying to convince the millions of American gamblers also play abroad illegally to switch back to American providers.  However, US gambling companies will have a better opportunity to catch up to the European powerhouses under a system which is still staunchly protectionist and actively works to prevent foreign incursions.

Mohawk Model

In actual fact, there is an online gambling hub which has proven to be extremely successful much closer to home.  Kahnawake Mohawk Reserve, located just 20 miles outside of Montreal, was one of the first jurisdictions in the world to actively promote online gaming and benefit from its enormous potential.  With tax exempt status as a Reserve and next to no competition in North America at the time, Kahnawake has managed to establish itself as major world player.  Unfortunately this money isn’t taxed, and while the Kahnawake Reserve is doing very well, the monopoly isn’t helping the majority of Canadians who play on their sites.  However, the Kahnawake model is demonstrative of how an effective regulated gambling can be implemented and may provide some direction to the approach taken in Ontario.

Future Bets

Whether or not you agree with the ethics of online gambling, two things are clear–it can be a major money maker for the province and prohibition doesn’t work, it simply drives domestic players to foreign markets.  Although we are now a lap behind the Europeans and don’t have the ability to protect our markets from foreign operations as effectively as the United States, we may be able to begin catching up by combing a liberal licensing system with better insight into our own players.

Rather than stagnating our growth with provincial monopolies or even worse, developing a restrictive licensing system which awards land-based casinos and other lobby groups with special contracts, online gambling should be opened up to Ontarian entrepreneurs  to develop a competitive market.  As history has shown time and again, the best way to produce the best product is through free competition, not through state or provincial monopolies.  By rewarding the companies which provide the most innovative products, which also meet a strict set of licensing requirements and regulations, including player protection and anti-money laundering filtering, Ontario may eventually be able to get back in the game.

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