A court hearing regarding the legality of the competitive market for online sports betting in Canada’s most populous province began with the party bringing the challenge pushing back against claims made by the Ontario government.
For example, counsel for the Quebec-based Mohawk Council of Kahnawà:ke (MCK) did not exactly agree with an Ontario government agency comparing the competitive market for online gambling to the province's model for running brick-and-mortar casinos.
That model, a recent factum for iGaming Ontario (iGO) stated, involves the provincially owned Ontario Lottery and Gaming Corp. (OLG) contracting with private-sector entities (such as Caesars Entertainment Inc.) to run physical casinos. This, iGO claimed, is similar to what it does with online gambling operators, who sign a contract with the agency before they can offer their products in the competitive market.
But no court has really dug into how OLG "conducts and manages" casinos, and there is no analogy to online gambling, according to legal representation for the MCK, an Indigenous government organization with longstanding ties to the internet gaming industry.
While federal lawmakers may have envisioned provinces working with service providers on payment processing, property management, or other gambling-related items, the MCK's lawyers disagree the law allows for "wholesale" outsourcing.
“There is a distinction between running a casino and conducting and managing a game that happens in that casino,” said Nick Kennedy, an associate at Olthuis Kleer Townshend LLP and lawyer for the MCK, at one point during the hearing on Tuesday.
ICYMI: Here's a preview of a rather important court hearing scheduled for next week regarding online sports betting and iGaming in Ontario https://t.co/5cwewldZ9x
— Geoff Zochodne (@GeoffZochodne) February 15, 2024
The comments came on the first of three days scheduled for arguments on the application by the MCK challenging the constitutionality and legality of Ontario’s competitive iGaming market.
Ontario Superior Court Justice Lisa Brownstone is overseeing the proceedings in Toronto. The hearing began on Tuesday with arguments and counterarguments from the MCK, who announced the challenge in November 2022.
In short, the MCK and their counsel contend private-sector operators (and not the province) are “conducting and managing” iGaming in the competitive market. If true, that could mean the province is running afoul of the provisions of the federal Criminal Code, which outlines what kind of wagering is legal in Canada.
What “conduct and manage” means (or meant), who is conducting and managing, and what exactly that entails could all factor into the judge’s determination.
“The central issue in this application is the interpretation of ‘conduct and manage’ in [section] 207(1)(a) of the Criminal Code,” iGaming Ontario’s factum states. “If Ontario is conducting and managing the igaming regime, it is legal; if Ontario is not exercising those functions, it is not.”
There is, however, limited case law on the actual meaning of conduct and management and no definition in the Criminal Code. The MCK’s factum to the court states that “[n]o case has considered what is required for the conduct and management of a gambling website.”
Even so, Ontario sees iGO as doing the conducting and managing via its various duties, while the MCK believes it is the operators.
Kennedy said the debate in 1969 around reforming gambling laws, which helped create the "conduct and manage" exemption for provincial gaming, centered on “state lotteries,” not, say, competitive markets for casinos. He also called it “very telling” that federal lawmakers only permitted a few ways for provinces to license gambling operations, such as for charity. They did not do the same for private operators.
There is "a limit to that theory" that the federal government is leaving everything gambling-related up to the provinces, Kennedy said at one point.
“The divisions of power exist, you can’t just interpret them away,” he told the court at another.
A declaration of interdependence
The MCK is asking the court for a formal declaration that private-sector operators are the ones running ¨D or conducting and managing ¨D the games offered within the framework launched by Ontario in April 2022. The council also wants the court to invalidate the legislation and regulations underpinning the iGaming market, as they would help enable a gambling framework that allegedly puts operators in the driver’s seat, clashing with the federal Criminal Code.
"The Supreme Court of Canada and other courts have explained that federal paramountcy governs in situations such as these," the MCK factum states. "Ontario’s legislation enabling the iGaming Scheme is therefore inoperative to the extent it permits operators to conduct and manage gaming on their websites."
Depending on its outcome, the case could affect online sports betting and online casino gambling in Ontario, which has become a major business.
Billions of dollars are wagered each month in the province’s competitive market with dozens of private-sector entities such as bet365, DraftKings, and FanDuel. That is in addition to the online gambling offered by OLG. No other province in Canada does anything similar at the moment.
Lawyers for the province are on track to address Justice Brownstone on Wednesday, although they have already submitted written filings in support of iGO conducting and managing the iGaming market.
On Tuesday, though, Kennedy and the MCK tried to rebut what’s been said in those court documents, including iGO’s claim a province is conducting and managing a gaming regime even when it is only providing enough oversight to control the risks involved.
“What matters — and what has always mattered to Parliament — is that provinces have sufficient control to mitigate the perceived harms that can result from gaming,” iGO’s factum said.
Funds and feds (or lack thereof)
However, the MCK does not accept that conduct and management merely mean this kind of control or that federal lawmakers intended to give provinces complete freedom for gambling within their borders.
And, while iGO sees itself as an entity conducting and managing iGaming by contracting with private-sector operators, the MCK sees iGO as more of a regulator, which the province already has. It is private operators, the council claims, that own the websites, run the games, collect money from players, and keep most of the profit.
Kennedy also said there is no evidence that there is more or less problem gambling, money laundering, or other risks in Ontario with the iGaming market. He cited the 2021 report of the province's auditor general, which said “key responsibilities” for game integrity were being delegated to the private sector and warned of possible legal threats.
Furthermore, Kennedy pointed to the advertising concerns that have popped up. In response, the Alcohol and Gaming Commission of Ontario is now about a week away from enforcing a ban on using athletes and certain celebrities in iGaming-related advertising.
“The little we have on this the record shows it’s the regulator who had to step in to mitigate harms,” Kennedy said.
Money is another factor in the case, and the MCK has claimed Ontario's framework is economically harming its community, located about 20 minutes from Montreal. The council established the Kahnawà:ke Gaming Commission (KGC) in 1996, and the entity has been licensing and regulating online and land-based gaming within and from Mohawk land ever since. The betting brand Sports Interaction is also operated outside of Ontario by Mohawk Online Ltd., a company wholly owned by the MCK.
Meanwhile, iGO and the province have highlighted the control and ownership Ontario has over revenue generated from the iGaming scheme as an argument for their conducting and managing.
Kennedy, however, said that “in a certain sense, it doesn’t amount to much,” as operators are contractually entitled to approximately 80% of the gross gaming revenue no matter what.
Lastly, the MCK’s counsel argued it is “dangerous” to infer anything from the federal government’s apparent silence on Ontario’s iGaming market, even as the council has written to the Attorney General of Canada asking them to challenge the scheme in court.
“They also opted not to show up to say it’s constitutional,” Kennedy said. “It cuts both ways.”
