Place Your Bets, Canada

Gaming in Canada: An Overview

 

 

The gaming industry in Canada has grown by leaps and bounds over the past number of years.  It was not that long ago that the Crystal in Winnipeg, Manitoba represented Canada’s entire casino industry and the first video lottery terminals (“VLTs”) in Canada were being introduced in New Brunswick. 

 

The gaming industry certainly looks different today.  In the past two decades, gaming in Canada has done an about face of close to 180 degrees.  Gambling is ubiquitous in Canada:  there are now over 80 permanent casinos, with an additional 12 to be added in the very near future; 39,929 slot machines; nearly 40,000 video lottery terminals, and over 70 horseracing tracks in Canada.[1]  Over the same period, a national debate has emerged over the appropriate level of gambling in our communities. 

 

In legalizing and expanding gambling, provincial and territorial governments across Canada have gained access to an alluring source of non-taxable revenue that currently generates as much money as tobacco and alcohol taxes combined, and will soon surpass the revenues from gasoline taxes.  In 2000, provincial and territorial governments’ net income from gambling was over $5.5 billion.[2]  A decade earlier these gambling profits were one-fifth that size, while just two decades earlier they had been virtually nil!  Indeed, until 1969, all forms of gambling were classed as criminal offences in Canada.  Gambling has since been redefined as leisure and renamed “gaming.”[3]

 

The laws in relation to gaming are dealt with under the Canadian Criminal Code (the “Code”), which is federal legislation.  However, Canada’s federal political structure provides that, unlike in many international counterparts, gambling is regulated by provincial and territorial governments.  This position was recently confirmed by the Supreme Court of Canada in a decision rendered January 30, 2003, wherein the Court rejected a contention that a Manitoba law governing the location of VLTs in the province was ultra vires (beyond the powers of) the provincial government.[4]  The Court affirmed that the regulation of gaming has a “clear provincial aspect” under the Canadian Constitution.[5] 

 

Separate agencies regulate gaming in each province, while lottery play is conducted and managed by provincial agencies.  For example, the Western Canada Lottery Corporation administers lottery services in Alberta, Saskatchewan, Manitoba, Yukon and the Northwest Territories, while the Atlantic Lottery Corporation manages the lottery operations in New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland.  Ontario and Quebec have their own separate lottery corporations, that is the Ontario Lottery and Gaming Corporation (“OLGC”) and Lotto Quebec. 

 

The gaming legislation of each province is quite sophisticated and requires applicants to make true, full, plain and timely disclosure.  Gaming registration in Canada is a privilege, requiring applicants to meet a high level of integrity and probity.  The gaming authorities and lottery corporations throughout Canada follow the high standards evident in gaming legislation of the United States, particularly in the states of Nevada and New Jersey. 

 

Charities have contributed to the expansion of gaming in Canada.  Charitable organizations may apply for licences to sponsor gaming activities, and retain a portion of the net proceeds.  Overall, charitable gaming represents literally tens of thousands of licences issued by the provinces, with hundreds of thousands of individual events operating under those licences.  Of the over $5.5 billion in net gambling profit (after expenses) generated each year in Canada, charities will share between 15-20% of the revenue.  The remaining percentage of revenue is retained by the provinces to fund programs and special projects, and to pay off debts.  Although exact figures are unknown, charitable gaming revenues, as a portion of total revenues derived from gambling, have decreased steadily over the last ten years.  Across Canada, it is the provinces, rather than the charities, which have been the primary beneficiaries of the increase of gaming. 

 

Horseracing in Canada is regulated and supervised by the federal Canadian Pari-Mutuel Agency.  Approximately two-thirds of all horseracing is centred at racetracks in Ontario.  Although the provincial governments receive money from racing in the form of taxes, no “cut” of the winnings is returned to the provinces for either charitable causes or general revenues.  Instead, the proceeds go to the industry for breeding programs and purse supplements.  In that sense, horseracing is relatively self-contained. 

 

In 1998, race purses were dramatically increased when slots-at-racetracks were introduced through the establishment of racinos, a term used to describe the gaming floor at a horseracing track.  Currently there are 22 racinos in Canada: 15 in Ontario, with an additional 3 to be trotted out in the very near future; 3 in Alberta; 3 in Quebec; and 1 in Manitoba.  Conduct and management of all slots or VLTs, whether located at racinos or casinos, are under the auspices of the provincial government or an agency of the government such as the OLGC, in accordance with the provisions of the Code.  Under the Code, only the government of a province, either alone or in conjunction with the government of another province, is entitled to conduct and manage lottery schemes, including gaming at casinos and racinos.[6] 

 

The 80 year-round, permanent casinos bring in massive amounts of money in selected parts of Canada.  Quebec was the first off the mark with casinos in Montreal and Charlevoix.  Today, permanent casinos are now located in all provinces in Canada except New Brunswick, Prince Edward Island and Newfoundland. 

 

One of the fastest growing areas of gaming in Canada is Internet gaming.  There are no reliable statistics available as to the extent of Canadians currently online, however, publicized estimates are varied and show that in North America, anywhere from 20 ¯ 47 million people have access to online resources.  Worldwide, the numbers are between 90 million and 117.5 million.[7]  In addition, no reliable statistics are available as to the extent of participation of Internet gambling by Canadians.  A 1999 Canada West Foundation survey found that less than 0.5% of Canadians who gamble had gambled through the Internet, suggesting that in 1999 few Canadians gambled online.[8]  A more recent study, conducted in 2001, shows that 85% of Canadians who gamble have gambled online[9].  These extremely divergent numbers illustrate either the unreliability of the statistics, or the gargantuan growth of the industry!

 

Under the Code, only the provincial governments can operate a lottery scheme on or through a computer.  One case that reinforced this principle involved Starnet Communications International Inc. (“Starnet”), which was found guilty for operating an online gambling casino in Canada.  In August, 2001, Starnet pled guilty to keeping a computer device for gambling or betting which enabled persons to engage in gambling or betting when accessed through the Internet contrary to subsection 202(1)(b) of the Code.  It was fined $115,000.00 and forfeited US$3.9 million under the federal proceeds of crime legislation. 

 

Players and operators believed that they could circumvent Canadian gambling laws by setting up offshore accounts ¯ which would be as simple as typing in credit card information while online.  However, a decision by the Supreme Court Appeal Division of the province of Prince Edward Island (“P.E.I.”), judgment rendered April 24, 2002, Reference Re: Earth Future Lottery [2002] P.E.I.J. No. 34 (QL) (“Earth Lottery Reference”) held that in order for a lottery to be lawful it must be conducted and managed in the province. 

 

The Earth Lottery Reference concerned the lawfulness of an Internet lottery scheme established by a charitable organization in P.E.I.  A key aspect of the lottery was its proposed use of the internet as a means of accessing the global market and having persons physically located outside P.E.I. participate in the lottery using its interactive website through their home computers.  The Supreme Court of P.E.I. said that section 207 of the Code, which does permit some extra-provincial activities relating to gaming, such as the making, printing and transporting of anything to be used in a place where it would be legal, does not authorize extra-provincial marketing and, in effect, the lottery would illegally invade the gambling turf of other provinces. 

 

Gambling has both positive and negative consequences for communities throughout Canada. Gambling developments can bring in tourism and entertainment dollars, increase employment (more than 47,500 persons are employed either as regulators or operators of gambling for government, or within gaming management companies), fund charities and municipalities.  At the same time, gambling expansion can harm existing businesses, increase crime, and increase problem gambling.  Problem and pathological gambling have significant social and financial costs to individual gamblers, their families and society at large. 

 

Calculating the financial and social costs of problem gambling is difficult.  Combined, the provinces spent over $28 million on problem gambling treatment programs in 1999/2000, or about $1.20 for every adult Canadian.[10]  No province (except PEI) spent more than 1% of their gambling revenue on problem gambling treatment, education or prevention programs.  These numbers are likely to increase in the near future as on May 6, 2002, a Quebec court authorized Canada’s first class-action lawsuit over problem gambling, and a flood of similar lawsuits is likely.  Justice Roger Banford of the Quebec Superior Court ruled that a case against Loto-Quebec, the provincial gaming corporation, may proceed to trial as a class action.[11]  The case is spearheaded by Jean Brochu, who claims he lost tens of thousands of dollars playing video lottery games and stole $50,000 to cover his debts.  The suit alleges that up to 119,000 Quebecers are pathological gamblers, although only about 240 have joined the class action so far.  The plaintiffs demand as much as $625 million in damages to cover counselling and legal fees, alleging Loto-Quebec knew or should have known that its video lottery terminals created dangerous addictions.  It is expected that this suit will prompt similar cases in other provinces. 

 

Within the past few years, problem gambling has received significantly more attention than ever before in Canada.  Treatment and prevention programs are firmly in place in many provinces, and other jurisdictions are considering similar strategies. 

 

            Ontario, Manitoba, Saskatchewan, Quebec and Nova Scotia offer problem gamblers voluntary “self exclusion policies.”  These policies enable gamblers to execute contracts with casinos which prevent them from gambling for specific periods of time.  However, practical difficulties are starting to surface as a result of these policies.  Difficulties include: how long should the ban last; under what circumstances, if any, should players be able to revoke their self-exclusion; what are the obligations of the casino to enforce the ban; and what should be the role of treatment professionals in relation to self-exclusion.  It should be noted that the self-exclusion forms clearly state that the gaming facility assumes no liability.[12]  Casinos should not have the collective responsibility of facilitating the self-exclusion of customers from all casinos.  Responsibility for excessive gambling is that of the gambler alone.  At the same time, no one should ever be required or encouraged to advise a self-excluded gambler that it is now safe for him or her to gamble. 

 

 

February 2003

Michael D. Lipton, Q.C. is senior partner with Elkind, Lipton & Jacobs LLP, a Toronto, Canada law firm.  His areas of specialty are litigation, gaming and tourism and travel law.  He is a member of the International Association of Gaming Attorneys and the International Masters of Gaming Law.  He can be reached at (416) 367-0871 or by e-mail at mdliptonqc@aol.com

Laura A. Ward is an associate at Elkind, Lipton & Jacobs LLP.