The rise and downfall of different licenses
Governments around the world are taking back the reins of online gambling. For years, the explosive growth of online casinos and sports betting providers has leaned on a handful of gambling licenses. Malta, the United Kingdom, Curacao and the Mohawk Territory of Kahnawake supplied the licenses that enabled online casinos to offer their services worldwide, often in a legal grey area. In most countries, running an online casino is illegal, but players are free to sign up with international operators.
For a long time, the United Kingdom’s was the only license aimed at regulating online gaming solely on British soil. This license taxed casinos and put restrictions in place that curtailed casinos for the protection of players. Only with this license could casinos reach players in the United Kingdom.
Players from all over Europe piggybacked on the benefits of the British and Maltese licenses, in spite of local restrictions on online gambling.
In effect, this meant most countries were watching valuable tax euros dissolve. On top of that, countries had limited control over placing restrictions on casinos. Now, all this is changing.
The Netherlands, one of Europe’s premier gambling markets, officially closed its borders to outside casinos on October 1. From then on, only those casinos with a Dutch license could offer their casino games to Dutch players. The peculiarities of the Dutch gambling license made this one of the strictest examples around.
Many American states, Canadian provinces, and European countries are working on local licenses: Pennsylvania offers an online gambling license for residents of Pennsylvania, and New Jersey, Michigan, Indiana, are among the 21 states that offer similar services.
A little further up north, Ontario is preparing its own remote gambling license. Right now, this most populated Canadian province is responsible for 43% of the country's online gambling revenue. For years, online casinos have been operating in a Canadian grey area that has also been seen in Europe, the United States, and many other places worldwide. The introduction of a local gambling license often puts an end to this grey area: casinos are now either licensed or illegal.
From the regulator’s perspective, a succesful license hinges on two key components: how well it keeps players inside its regulatory borders, and how well it keeps out unlicensed casinos. In other words, the success of a casino license is determined by how well it channels players towards legal providers and away from unlicensed casinos. In the Netherlands we noticed, for example, that these unlicensed casinos have a better casino bonus offering, which is negatively influencing the channelization. However, most of the latter examples aren’t unlicensed at all - they are simply licensed elsewhere. What, then, happens to these other licenses?
In this article, we will explore the rise of local gambling licenses. We will evaluate their success in terms of channelization, and take note of what works best. On the other hand, we will explore the effects these local regulations have on formerly popular casino licenses. What happens to the Kahnawake license when its neighbor Ontario bans all outside casinos and sets up its own license?
To answer these questions, we will dive into the differences between licenses, examine the results of local licenses, and give predictions based on an in-depth risk/reward analysis on behalf of casinos.
The rise of local licenses - Ontario (CA)
Canada is one of the biggest single markets for online casinos and has grown in tandem with the rise of online casinos worldwide. Canada has experienced the same legal grey area that the rest of the world has come to know: there are not any legal Canadian casinos (for there has not been a license), but players could join off-shore casinos.
Comparable to American states, Canadian provinces have the potential to have radically different regulations on gambling. While this is already evident in the case of land-based casinos, online gambling has up to now looked very similar across all of Canada.
This is about to change. On September 13, 2021, Ontario opened up registration for its Ontario License. This license is projected to channelize the online casino offering starting in Q1 of 2022. Government agency iGamingOntario is overseeing the transition from the so-called regulated off-shore parties to regulated on-shore casinos.
The Ontario license introduces another key license to a major gambling market. Ontario is the largest gambling province in Canada. The entire Canadian gambling industry (including lotteries, bingo, horse races, and online gambling) amounted to C$17.3 billion in 2017 - and Ontario alone was responsible for nearly C$7.5 billion. Another important indicator of Ontario’s strong presence in the gambling world is its participation rate of 83%. In comparison, neighbouring Québec has a rate of 66%.
With its new license, Ontario could see a total gross revenue of C$989 million in its first year (2022). The 70 online casinos lining up for this license underline the potential for Ontario.
Like many other countries and governments, Canadian provinces have typically opted to regulate online betting by offering a monopoly. Ontario, through the Alcohol and Gaming Commission of Ontario (AGCO) offered an online platform where players could play a (small) selection of games.
Its (federally) restricted games offering paled in comparison to the regulated off-shore casinos, where many players flocked. In all of Canada, less than 33% of all online gambling revenue was generated in these onshore monopoly venues.
In 2019, Ontario decided to change from the old monopoly-based model to a licensing model. This would give players more options and allow the province of Ontario more control over the casinos where players were playing anyway. Additionally, it would prevent tax dollars from evaporating and better protect players. The license was further outlined over the course of 2020, and is expected to come into effect in Q1 of 2022.
With the expected growth for the online gaming market as a whole, and in Canada in particular, Ontario capitalizes on the current global momentum. About 70 online casinos and other gambling providers (online poker rooms, bingo providers, bookies) are interested in this license.
Casinos seem ready to shift, but players will have to follow suit to make the Ontario license a success. With upcoming changes in the law, channelization should follow from the bigger and better offering being put in front of players.
Each gambling license has its own peculiarities, and Ontario will be no exception. While each law takes steps to protect players from predatory casino tactics, Ontario has already announced some unique measures that should protect players:
- Autoplay is disabled for slots
- Each spin should take at least 2.5 seconds
- ‘Wins’ lower than the bet value cannot have an animation suggesting a win
- Multi-screen betting is not allowed
- A player’s credit needs to be shown in Canadian dollars, not credits, coins, or points
On a macro-level, Ontario is letting go of some restrictive measures:
- There is no cap on the amount of operators that can obtain a license
- Single-event sports betting will be allowed; a reversal from previous laws
When it comes to advertising, operators need to adhere to similar rules that are in place in other countries. These measures protect minors and at-risk players, and include:
- Restrictions on mascots and spokespeople that would appeal to a young audience
- Avoiding the impression that gambling can bring financial success
- Training personnel in recognizing and addressing problem gamblers
In a response to our inquiries, the Ontario Gaming Commission mentioned that, “registrants can select a one or two-year term option, with fees payable to match the length of the term”. These relatively short timeframes help Ontario create an agile environment.
The rise of local licenses - New Jersey (USA)
The US gambling market is one of the most important markets in the world. In this market, the state of New Jersey holds a special place. Historically, New Jersey is the second largest state in betting revenue (see graphic), undoubtedly due to the presence of Atlantic City. It is not just the historical angle that sets New Jersey apart - this state cleared the way for online gambling in all 50 states.
In a 2018 Supreme Court decision, New Jersey won the right to provide sports betting opportunities, reversing a 1992 law that banned sports betting from all states (NYTimes, 2018). In the wake of that important ruling, other states followed. Online sports betting is now legal in nearly half the states (and being discussed in nearly every other state). Not only other states followed New Jersey’s example, but other forms of gambling were also implemented as a result of the new situation.
In 2021, New Jersey is one of five states that have a license for online casinos (alongside Nevada, Michigan, Pennsylvania, and West Virginia). In its role as the US trailblazer of online gambling, the New Jersey license is perhaps the most interesting of that quintet.
New Jersey has a long history in gambling. In the 1920s, many of Atlantic City’s infamous night clubs doubled as illegal gambling halls. The lack of enforcement during prohibition led to the nickname ‘The World’s Playground’, a reputation that got a revival with a 1974 referendum that allowed for legalized gambling - a decision put in place in 1977.
Since then, casinos have sprouted across Atlantic City, making it the American east coast’s hotspot for gambling. Where Americans gamble, sports betting takes the top spot: estimated revenue is nearly $500 billion for the whole United States (CBCNews, 2012). Like other governments, New Jersey watched as valuable tax dollars disappeared in a large, illegal market - worth about $600 million a year (NJcom, 2019).
In 2011, New Jersey residents voted to legalize sports betting in the state (in spite of federal restrictions), a decision that was formally implemented in 2012. Online casino gambling followed a year later. After years of court rulings that ended in the Supreme Court victory for the state, federal restrictions were removed, and New Jersey started implementing an online gambling license. This made New Jersey the first US state to officially legalize and regulate online casino games.
Perhaps in honor of its past, New Jersey has one of the least restrictive gambling laws in the US. Like other online gambling licenses, such as Belgium and the province of Buenos Aires, the number of available online licenses is capped and linked to the brick and mortar casinos in its jurisdiction: every Atlantic City-based casino can get five licenses. These licenses can be used under its own brand, or sub-licensed to offshore parties, such as Unibet, for example.
In some ways, the New Jersey gambling license follows best practices already in place. Players can self-exclude (online or in person), and advertisements come with mandatory resources for at-risk players. Self-excluded players are always excluded from online play at every New Jersey online casino, but New Jersey also offers players the option to only exclude online play and continue playing in the state’s brick and mortar casinos. Casinos also have the option to place players on an exclusion list, which will then ban them from other casinos in the same jurisdiction.
The New Jersey gambling license allows for all forms of online gambling: Casino, eSports, Poker, Sports Betting, Lotto, Bingo, Horse Racing, Bitcoin Casino, Games of Skill and other gaming-related activities.
While the gambling license is strictly enforced within the borders of the state of New Jersey, play is not limited to residents (as it can be in other local licenses). Anyone 21 years or older within the borders of New Jersey is welcome to use its betting services. Verifying this location is done with a mandatory GeoComply plugin.
The downfall of regular licenses - The Kahnawake license
The Kahnawake Mohawk Territory is an Indian reserve nation near Montreal (and the Quebec-Ontario border). The nation’s size is less than 15% of neighbouring Montreal city, but Kahnawake has played an important role in the history of online gambling. In 1996, Kahnawake’s was the first license for online casinos, and has been in effect since 1999.
Although on Canadian territory, the Indian reservation of Kahnawake is autonomous, and therefore not subjected to the old federal Canadian rules on gambling. The Kahnawake casino license is therefore akin to land-based casinos on American and other Canadian Indian reservations.
Although a smaller license, the Kahnawake casino license is fairly reputable. It lacks the reputation of bigger parties such as the UKGC or MGA, but has remarkable transparency, a clear legislative framework, and regularly bans or fines offending casinos.
The Kahnawake Gaming License was conceived in 1996, and first became active in 1999. This early date made this one of the first licenses in the world, predating the Malta license by two years, and the UK license by eight years. The sovereign nature of the Kahnawake Mohawk territory in its gambling affairs has been upheld by law since then.
Kahnawake also hosts two land-based casinos, Playground and Magic Palace, and a number of smaller poker rooms.
The best-known peculiarity about the Kahnawake gambling license is its stipulation to use the nation’s hosting services. As the website says, “Online gaming operators that are licensed by the Commission must be hosted at Mohawk Internet Technologies, a data center located within the Mohawk Territory of Kahnawake and managed by Continent 8 Technologies.”
Registrants with Kahnawake don’t pay business tax on their revenue - one of the main draws for using the Kahnawake license. An annual $20,000 fee covers the license, and applying is a fast process, especially compared to better-known licenses. Other equivalents with a fast and cheap registration process have a much poorer reputation, and don’t have the reliable infrastructure Kahnawake has to offer.
Where the Kahnawake license offers businesses a good opportunity for an affordable fee, other governments aren’t thrilled. In 2016, the New Jersey gaming commission and the Kahnawake Gaming Commission reached an agreement that banned casinos offering their services from Kahnawake. This agreement might become an important precedent for other local gambling licenses; it is not hard to imagine Ontario doing something similar, especially considering the geographical proximity between the two.
Online gaming is a big part of Malta’s infrastructure, and not just because of the companies present on the island: KPMG estimated that about half of the country’s international bandwidth is used to facilitate online gaming.
The MGA (Malta Gaming Authority) is the world’s most popular license. It has a great reputation, and gives access to the European market, although companies from all over the world use this license. The rise of local licenses could steadily chip away at the MGA license - not because there’s anything wrong with it, but simply because it is no longer needed.
At first glance, licenses from Kahnawake and Malta are in a similar position: as early adopters, they facilitated the rise of online casinos. Now that the industry is shifting and governments are taking gaming matters into their own hands, both Malta and Kahnawake will face considerable challenges.
Just like Kahnawake, Malta was one of the first jurisdictions to offer a remote gaming license. The Malta Gaming Authority (MGA) was formed in 2001, and in 2004, Malta was the first EU member state to enact comprehensive legislation. This early entry in the market helped the MGA license’s popularity, but so did the political stability, the quality of the digital infrastructure, and the presence of a well-established financial services industry.
As a member of the European Union, it further capitalized on the free movement of services that allowed most European citizens to use the gambling services offered under the Malta license. Dutch efforts to restrict this free movement of information (before the local Dutch license was active) were thwarted in court.
The strength of the MGA license didn’t just come from its geographical location. In a pioneering era, Malta offered players a high degree of protection: the Malta license aims to protect the rights of players, especially young and at-risk players. It also took measures to keep the online gaming industry free of money laundering efforts and other criminal activities.
Other rules that have since become commonplace with other licenses include the separation of players’ money and operating funds, regular financial audits (without warning), and a long list of technical requirements. Any of the services offered through the Malta license are not available to residents of Malta - another common rule for regulated offshore licenses.
What will happen with Kahnawake after the introduction of local licenses?
Right now, the Kahnawake Gaming Commission is the biggest party in the (practical) geographical location of Canada. Although Ontario and other provinces do have their own casinos, Kahnawake is the only Canadian licensor. The weight that Ontario brings to the industry, however, will probably lead to two major shifts:
- Casinos catering to Canadian players will get the Ontario license
- Other provinces are likely to follow suit, or piggy-back on the Ontario license and adopt the Ontario license
Insofar as casinos cater to Canadian players, they will want to make sure they get an Ontario license, legitimizing their offer. Aside from complying to legal standards and remaining a legitimate casino, any government measures to increase channelisation (such as GeoComply in New Jersey) could dramatically drop their player base, too - Unibet, for example, has seen a similar scenario when the Dutch online gambling license was rolled out.
In these measures to increase channelisation, there is a good chance Ontario will take a look at New Jersey. No other local government has seen such dramatic success with their channelisation efforts. The agreement with Kahnawake to exclude casinos that offer their services to New Jersey citizens, for example, would be easily replicated by the province of Ontario.
While these agreements are understandable, they also show the vulnerability in the online casino licenses of Kahnawake, Curacao, and Malta. These territories have catered to the entire world for years, but as the rest of the world starts creating their own licenses and excluding these three main parties, the slice of the accessible pie gets smaller and smaller.
The rise of local licenses will only continue. In the United States, only a handful of states are not debating an online gambling license. This alone would add nearly 50 local licenses, increasingly taking away from non-territorial licenses.
Although it’s not uncommon for casinos to have multiple licenses (the combination of a UKGC and MGA license is still common), casinos might be pickier in which territories they do and don’t cater to. Kahnawake, Curacao, and Malta could be stuck with the casino world’s leftovers: some scraps of territory not worth pursuing for the bigger brands. These big brands, the Unibets and Bet365s of the world, will increasingly offer localized services, backed by a smorgasbord of licenses.
Kahnawake vs Ontario
Looking specifically at the current and future differences between Kahnawake and Ontario, it seems plausible that Kahnawake will suffer most from Ontario’s new license. At first sight, that may seem counterintuitive - Kahnawake is only responsible for a small portion of current Canadian casinos.
Although Kahnawwake technically does not compete with Ontario directly (offering offshore regulated casinos that can be applied worldwide), it does not offer the secondary benefits providers will find with Malta and Curacao - both islands host a significant number of companies. While a casino could take on an Ontario license and a license from Curacao or Malta, the same cannot be said about Kahnawake. Besides, other provinces - British-Columbia for example - are expected to follow Ontario in regulation in the coming years. This will result in more problems for Kahnawake, because they will lose more territory in Canada.
Some providers have already indicated that they will exchange the old Kahnawake license for the Ontario license. Overmore, the geographical challenges for Kahnawake will make it an easier target for the AGCO. Canada remains an important market for Kahnawake, and losing access to that market will hurt more than it would for other jurisdictions.
What did we see in similar markets?
Again, the success of implementing these local licenses depends on channelisation - the percentage of players that stick to legitimate casinos in a certain jurisdiction. To back our predictions and gauge the past success of different markets, we have looked at channelisation success in markets that have recently introduced a local license.
Most countries aim for a 80% channelisation rate. This means that 80% of players visit the legitimate casinos within that jurisdiction and have traded unregulated or regulated off-shore casinos for regulated onshore casinos.
When we look at other jurisdictions that have recently undergone the transition from regulated off-shore to regulated onshore casinos, channelization often seems to exceed those expectations. New Jersey, Sweden, Nevada, and Pennsylvania transitioned from offshore to onshore casinos. The United Kingdom has been an onshore-only jurisdiction for quite some time now, and can offer the best numbers: 99% channelization. New Jersey’s newer legislation reaches an impressive 82%.
From the casinos’ perspective, many of these brands didn’t want to miss out on these bigger markets (New Jersey and Pennsylvania have bigger economies than other important markets such as Singapore, Denmark, Australia, and the Netherlands). The cap of licenses available in New Jersey helped to quickly shape a market, but other channelization efforts, too, are helpful.
The agreement with Kahnawake and use of GeoComply show a dedication to keep players in the jurisdiction and keep (un)regulated offshore parties out. By making it hard for players to go elsewhere, and for other parties to intervene, channelization efforts are boosted. On top of that, there are few restrictions on betting events and types, so players have less incentive to go elsewhere.
Ontario will undoubtedly be looking at these newer jurisdictions to copy their success. With a current channelization rate of 31% (for the entire Canadian market), Ontario has a lot of catching up to do. On top of that, it has shown not to shy away from putting restrictions in its license.
Comparing the licenses
The current situation for Canadian casinos shows the importance of regulated offshore casinos. Malta is the most common license, followed by Curacao. The UK license and the Kahnawake license play smaller roles in Canadian casinos. Not all licenses are equal, though. Parties looking for a license will pay attention to the difficulty to obtain a license, upfront (and annual) costs, and taxation costs. Below, we will discuss the different factors and explore how the different licenses relate to each other and the new Ontario license.
One of the big differences between the licenses is the complexity to be awarded one. Often, a more complex license will have a better reputation. Costa Rica, for example, hosts many casino operators, but filing for a “casino license” in this jurisdiction has the complexity of renewing one’s driver’s license. On the other hand, the UK and Malta have notoriously difficult application processes.
Once the license is obtained, scheduled audits and regular reports may further increase the complexity level of a license. The amount of paperwork will differ substantially between licenses. Adhering to taxes, paying additional fees, and other factors further increase the complexity of getting and keeping a license.
More complex licenses also often see a longer time frame in processing. Getting a reputable license from one of the bigger jurisdictions can take a few months, whereas smaller (and less reputable) licenses often work quicker. Complexity, reliability, cost, and swiftness are understandably related: a cheap and easy to require license will have less demanding paperwork and therefore less restrictions and oversight.
Another note is that upfront costs can be deceiving. The Dutch gaming commission, one of the most transparent in the world, charges a €48,000 fee for its application, but mentions that operators should estimate the total annual cost of its license at between €1 and €1.5 million (including taxes and other fees).
The Ontario Gaming Commission issued similar warnings, saying that:
"Regulators should keep in mind that additional costs will be applied to registered operators".
Bigger casinos will gain an economy of scale, but the annual costs often exceed costs known upfront.
Finally, taxes can be a decisive factor. For governments, taxes are one of the main reasons to start implementing their own licenses, but higher taxes might deter providers (and hurt in channelization efforts). New Jersey’s 15% is supposed to be a good middle ground.
As mentioned above, licenses don’t just differ in complexity, but often also have different reputations. The age of a license can be an important factor, but often cost and complexity helps more in its reputationStricter licenses often have an edge over those with less regulatory demands. From a player’s perspective, a well-regulated casino will help protect the player’s assets and information to keep the license - the incentive for casinos with a lesser license might not be as incentivized.
A clear government mandate will also help in a license’s reputation. Anyone can read the UK’s laws on gambling, and a well-regulated license will often offer government-backed complaint offices.
Considering a formula with all those factors, Kahnawake has the government mandate, but it's license is easy to get, and not expensive. Curacao lacks any factors that would increase its reputation, while it also becomes clear why Malta and the UK have such good reputations.
Popularity in the top 50 of Canada
In the top 50 for Canada (pre-Ontario-license), some peculiarities can be seen. Most providers use the Malta license, but Curacao is remarkably popular. Nearby Kahnawake is only present in 5 out of 50 (please note that casinos can use more licenses).
If the Ontario license means that casinos will have to choose between the Ontario license and their previous license, Malta could suffer most from that license, followed by Curacao.
At first sight, the biggest distinction between the licenses is the tax rate (considering most costs for the license will be incurred up front). A lot of local licenses use best practices, which means that there are a lot of similarities between licenses. Marketing restrictions often follow the same guidelines. Nevertheless, different licenses use different sets of unique measures.
For example, New Jersey prohibits betting on in-state college sports, even if those teams play out of state. The United Kingdom has banned the bonus buy feature that is becoming increasingly popular. Ontario has a lot of unique rules players will find in the games themselves: autoplay will be disabled, and spins need to last a certain amount of time to slow down play.
Why prominent brands will choose the local license over the Kahnawake license
With 70 operators interested in an Ontario license, the virtual line wraps around the building of the Ontario Gaming Commission. We have discussed the statistics behind Ontario’s popularity before (population and gambling penetration).
The big difference between the Ontario and Kahnawake licenses is that Ontario is a local license only, whereas Kahnawake provides worldwide services. To a small casino, the license costs for Ontario may not be worth competing with 69 other casinos in the same limited jurisdiction - with restrictions on how much players can spend. Those license fees are better spent getting a worldwide license with less restrictions and missing out on Ontario players.
For bigger casinos, the license costs are simply the market entry fees. A channelization percentage of 80% means you can only reach 20% if you’re outside of the market. This means the (attractive) Ontario market is only available after paying the fees first. It’s more profitable to compete with 69 other casinos for a clear fee than to miss out on Ontario altogether.
Furthermore, most prominent casinos will already have a license that in complexity is comparable to the Ontario license. New Jersey shows a similar pattern: casinos active in that market are already active in tens of other markets, too.
In essence, then, choosing between the Ontario and Kahnawake license is a matter of a risk/rewards analysis. Based on what we know about each license, much of that analysis can already be done. An imaginary casino that wants to reach the Canadian market and can afford one license, will consider the following:
Ontario is the biggest Canadian market, but doesn’t take up the majority of that market. A Kahnawake license could still serve 57% of the Canadian gambling market (and a bit of the Ontario market spillover, as well as the rest of the world). The Kahnawake license also has less restrictions on marketing and gameplay.
Following this, the Kahnawake license is most attractive to casinos willing to operate in a grey market (regulated offshore) hoping to catch big players deterred by the strict regulations in the Ontario license. In fact, the Kahnawake license is only attractive as a cheaper alternative to the Ontario license, while knowing it won’t be as profitable.
Bigger brands can’t afford this strategy. Unibet can’t hope to fly under the radar to attract grey market players and hope that the rest of Canada will bring in enough to justify not getting the Ontario license.
This risk/reward analysis means Kahnawake will take a hit when Ontario introduces its license. Even though it doesn’t serve Canadian casinos as much as Curacao and Malta do, the rise of local licenses in general should worry Kahnawake. It doesn’t have the population to provide its own local license, and lacks the reputation that Malta has.
Additionally, Malta and Curacao are both known as portals to the gambling world. Even companies that do not offer their services to Malta (and sometimes even lack a license from Malta) might be based on the island. While Malta’s license will become less popular with the rise of local licenses, its infrastructure, history, and reliability can be translated into other advantages in the casino world.
- Alcohol and Gaming Commission of Ontario - Responses on inquiries & publicly available information
- iGaming Ontario - publicly available information
- Kahnawake Gaming Commission - publicly available information
- Malta Gaming Authority - publicly available information
- New Jersey Division of Gaming Enforcement - publicly available information
- VIXIO GamingCompliance - publicly available information
- Statista - publicly available information
- KPMG Report - publicly available information
- International Betting Integrity Association - An Optimum Betting market report - publicly available information
- New Jersey - True Jersey - publicly available information
- CBCNews - publicly available information
- NYTimes - publicly available information
- Publicly available articles