Ontario Court of Appeal Green Lights Access to International Pooled Liquidity for Online Gaming in Ontario

In Reference re iGaming Ontario, a majority of the Ontario Court of Appeal confirmed that online gaming and sports betting would be lawful under the federal Criminal Code if users could participate in games and betting involving individuals outside of Canada. The decision was split 4-1 and arose from a rare reference to the Court by the Ontario government.

The Background

The Criminal Code prohibits many kinds of gaming, gambling and related activities. However, section 207(1)(a) of the Criminal Code creates an exemption for a provincial government to “conduct and manage a lottery scheme” in its province.

Relying on that exemption, in 2021, Ontario introduced an internet gaming model now operated by iGaming Ontario (iGO). iGO is a provincial government agency that conducts and manages online gaming in Ontario by contracting with private gaming operators that offer internet games and sports betting on behalf of iGO (Operators). The contractual terms of these arrangements ensure that the conduct and management of the games or betting offered by Operators is implemented by iGO. This online gaming scheme is regulated by the Alcohol and Gaming Commission of Ontario.

Operators commonly offer games betting against “the house” (i.e., the private operator as iGO’s agent) (such as roulette) or “peer-to-peer” betting against other users (such as poker). The contractual relationships between iGO and the Operators require the operators to ensure that only individuals resident in Ontario may access their gaming sites or apps. One effect of this is that in “peer-to-peer” games in Ontario, all users involved are located in Ontario. This is often referred to as “closed liquidity” as all the capital involved is closed to Ontario.

The Proposed Model

The Ontario government proposed a model of online gaming that would see Ontario users participate in “peer-to-peer” games involving users outside of Canada. This would be a “pooled liquidity” model, which pools capital between Ontario and international users to increase liquidity.

Under this model, Ontario users would access the games through the iGO-managed sites and apps of Operators, while users outside Ontario would use sites or apps in their local jurisdictions. The operators of the foreign sites or apps would not operate as agents of iGO and would be subject to their local laws. It is expected that Ontario would choose which international operators (and therefore jurisdictions) would be allowed to participate in games with Ontario users. While the details of how exactly Ontario would do this have not been announced, Ontario could enter into agreements with international operators, international state gaming regulators or international governments (depending on the context).

Court of Appeal Decision

The Ontario Court of Appeal majority’s decision turned on the interpretation of the phrase “conduct and manage a lottery scheme in that province” in section 207(1)(a) of the Criminal Code.

A key issue was whether a prior Supreme Court of Canada decision interpreting “in that province” in section 207(1)(b) as not permitting international lotteries applied. The majority, which included the Chief Justice, concluded that, based on sufficient factual and legal differences, it did not.

The majority concluded that section 207(1)(a) of the Criminal Code permitted Ontario to operate a lottery scheme in which Ontario users could interact with international users, for three reasons:

1. Section 207(1)(a) ought to be read broadly as it is silent on international linkages to provincially-run lottery schemes and, therefore, does not expressly prohibit such linkages. It was not intended to keep provincial lottery schemes within geographical borders, only to ensure that the sovereignty of one province was not infringed by another without its consent.
2. Other provisions in the Criminal Code expressly prohibit linkages between provincial and international lottery schemes, such as on cruise ships, and section 207(1)(a) does not impose such a restriction.
3. International linkages are consistent with the purpose of section 207(1)(a), which was to remove federal prohibitions on lottery schemes and to leave to provinces how to best regulate such schemes involving their residents, including their access to otherwise unregulated foreign sites for “peer-to-peer” play.

A dissenting opinion concluded that Ontario’s proposed model would not fall into the exemption contained in section 207(1)(a) of the Criminal Code, and therefore would be prohibited, because (i) it is a lottery scheme involving elements that are not “conducted” or “managed” by Ontario, (ii) the exemption is geographically limited to lottery schemes within Ontario, and (iii) the scheme involves elements that are not authorized by Ontario law (being local laws of international jurisdictions).

Key Takeaways

Although an appeal to the Supreme Court of Canada is possible, this decision paves the way for Ontario to develop a scheme under which Ontario users could gamble with international users. If Ontario decides to implement a proposed model, iGO will then have to partner with foreign jurisdictions and gaming operators to provide this functionality. Operators with existing international operations should be prepared to integrate.

For more information, please contact the authors or any other member of our Gaming group.