Ontario Auditor General Finds Lingering Flaws with Online Sports Betting Market

The auditor general’s report suggests Ontario’s system is not perfect and could still come undone, although a total collapse may be a longshot.

Dec 6, 2023 • 15:53 ET • 7 min read
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Canada’s most populous province is plowing ahead with its preferred system for online sports betting and internet casino gambling over the lingering concerns and suggestions of a legislative officer.

According to a follow-up report released Wednesday, Ontario has made little or no progress on most of the recommendations made by the province’s auditor general in 2021 regarding internet gambling, including a few proposed tweaks that won’t be made at all.

The 2021 report by the auditor general warned there was “legal risk” regarding Ontario’s plans to launch a competitive market for online sports betting, slots, table games, and poker. This was because court challenges were launched in the past in Canada over provinces “illegally” delegating their role in gambling to private-sector firms. 

Under federal law, Canadian provinces can “conduct and manage” gambling, which is typically done via government-owned entities.

However, in Ontario, the government proposed and then implemented a system permitting private-sector operators to offer online sports betting and internet casino games via contracts with a new agency, iGaming Ontario (iGO). 

“The concept of whether a province had illegally delegated the ‘conduct and manage’ function to a private entity had been the subject of past legal challenges in Canada,” stated the follow-up tabled by Acting Auditor General Nick Stavropoulos on Wednesday at Queen's Park, which was part of the watchdog’s annual report. “Based on our review of publicly released literature available at the time of our original report, we noted Ontario’s model for Internet gaming passed on a significant amount of business risk and strategic decision-making power to private gaming operators.”

The auditor recommended in 2021 that the Ontario government “take appropriate steps” to ensure its planned iGaming market would comply with the federal Criminal Code before launch.

That suggestion is “no longer applicable,” the AG's report noted on Wednesday, because Ontario launched its market in April 2022, allowing BetMGM, DraftKings, and FanDuel, among others, to open online sportsbooks in the province. The provincial government also told Covers in 2021 that it "carefully designed" the iGaming market to comply with federal law.

That said, the legal risk the auditor warned about may have emerged in the form of a lawsuit launched by the Quebec-based Mohawk Council of Kahnawà:ke in November 2022 that aims to quash Ontario’s iGaming market. The legal action challenges the legality and constitutionality of Ontario’s framework and alleges private-sector operators, not the province, are conducting and managing online gambling.

The court challenge is expected to be heard in February 2024, but the auditor general noted Wednesday that they have inserted warnings about legal risk in iGO’s recent financial statements.

“In our Independent Auditor’s Report for these financial statements, we included an ‘Emphasis of Matter’ paragraph to draw users’ attention to this significant legal matter,” the auditor’s follow-up report stated.

Those are not the only concerns raised by the auditor general’s latest report, but they depict a potentially existential threat to the competitive iGaming market in Ontario, which remains the only one of its kind in Canada. 

While most provinces have stuck to granting government-owned lottery and gaming corporations legal monopolies over online gambling, Ontario has both its lottery and a swarm of private-sector operators running mobile sportsbooks and casinos within its borders. 

This has resulted in billions of dollars in wagering since Ontario opened its competitive iGaming market in 2022, as well as tens of millions of dollars in fresh revenue for the province. Ontario's recent fall economic statement suggested the province could reap more than $200 million in revenue from the new iGaming market in less than two years of operation.

But the auditor general’s report suggests Ontario’s system is not perfect and could still come undone, although a total collapse may be a longshot.

Pobody's nerfect?

The alleged imperfections extend beyond constitutional responsibilities. Some of the other concerns of the auditor general involve the way Ontario has structured its market but are less about high-minded legal arguments and more about the effectiveness and fairness of iGaming oversight.

For instance, the auditor general recommended in 2021 that the Ministry of the Attorney General remove the governance and operating responsibilities for iGO from the Alcohol and Gaming Commission of Ontario (AGCO) and transfer the agency’s reporting relationship to the Ministry of Finance. 

iGO is technically a subsidiary of the AGCO, and the auditor general warned in 2021 that this governance structure could create “the potential for conflicts of interest and could compromise the AGCO’s independence as a regulator."

This is because the AGCO is supposed to regulate iGaming in the province and make sure operators measure up to its standards. iGO, meanwhile, is helping to generate revenue for the province via its contracts with private operators, and the AGCO is technically overseeing iGO. 

Didn't you get the memo?

Yet the provincial government plans to continue with the current governance structure. The Ministry of the Attorney General “asserted that sufficient conflict-of-interest policies have been developed to address conflict-of-interest situations that may arise between the regulatory responsibilities of the AGCO and the profit-generating mandate of iGaming Ontario,” Wednesday’s report said. 

The ministry, AGCO, and iGO all entered into a memorandum of understanding detailing their respective duties and doubled down on the governance structure. With that and the above policies, the provincial government sees the benefits of keeping the status quo in place as outweighing the risks that could arise with a new reporting structure, the AG wrote in Wednesday’s report.

That doesn’t mean the auditor general’s office is OK with it, though.

“Our Office continues to hold the view that, as a regulator, the AGCO should not, in fact or in appearance, be in any way involved in the conduct and management of Internet gaming in Ontario,” the 2023 follow-up states. “Instead, a structurally independent government organization (i.e., not a legal subsidiary of the AGCO) should manage the operational and revenue-generating responsibilities for Internet gaming provided through private gaming operators, and be separate and independent of its regulator.”

Proactive vs. reactive

The third set of recommendations made by the auditor general in 2021 included that the Ministry of the Attorney General should "clearly" show how the province would conduct the then-proposed iGaming market “without directly verifying the fairness and integrity of games” offered by private operators. Another suggestion was that the ministry provide this information to the legislature before the market launched.

This, the AG said, was because the 2021 report found “key responsibilities” for ensuring the market’s integrity and fairness were being outsourced to the private sector.

“It appeared that iGaming Ontario would not be involved in critical aspects of gaming operations such as designing games and gaming systems, determining payouts and odds-setting,” Wednesday’s follow-up report said. “At the time of issuance of our 2021 report, there was limited public information as to how specifically iGaming Ontario would protect Ontario gaming consumers by ensuring the integrity of games offered by private gaming operators.”

When the auditor general’s office revisited the matter, it found that iGO “does not proactively monitor operators in terms of ensuring compliance with gaming standards, including standards relating to the fairness and integrity of games.”

Even so, the ministry pointed to the fact that the AGCO established standards for iGaming operators to follow, including some specific to game integrity. It also noted that the gaming commission requires independent testing of games and that the regulator created an iGaming-specific compliance unit to help police the market.

Furthermore, iGO created a “Customer Care and Dispute Resolution Policy” to give players a way to get help when they are mistreated by an operator.

Still, the auditor general’s office claimed “the majority” of actions connected to game integrity were taken by the AGCO.

The auditor general’s office wants the ministry to require iGO to be more proactive, not reactive, in ensuring players get a fair shake. The suggestion comes as several iGaming operators have been fined in Ontario for various missteps since the competitive market opened, including a few instances recently of players who lost huge sums in short amounts of time.

“iGaming Ontario, in its capacity as the conductor and manager of Internet gaming, should be acting as the first line of defence in protecting Ontario consumers through ensuring the integrity of games offered by its operators,” the 2023 follow-up report states. “While the AGCO is tasked with enforcing compliance with these standards, iGaming Ontario should take an active role in ensuring integrity (i.e., randomness of game outcomes, fair disclosure of game odds, and payouts made as described) of Internet games across its operator network.”

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