Ontario online gambling starts seeing some defections from its open approach in a crowded market

With more than 40 operators in Ontario, it seemed inevitable that some companies would exit a saturated Canadian online gambling market.

Several online gambling companies are leaving the Canadian market

When Ontario announced last year that it would be creating an open market for online gambling, most gambling companies large and small jumped at the opportunity. The Canadian market officially opened on April 4th, 2022, with about 25 licensees offering sports betting, casino and/or poker. Almost every company that has a sportsbook also offers casinos, while 888 Gaming and BetMGM also offer poker.

Online gambling in OntarioNew sites came into the market throughout the year and as of March 18th there were 44 legal entities operating 29 sportsbooks, 65 casinos and 11 poker rooms in Ontario. And, Delta Gaming has also been licensed to offer bingo. WSOP is the only site strictly devoted to poker, although it is owned by Caesars Entertainment, which offers sports and casino on its BetCaesars site.

Each licensee is required to pay a $100,000 annual licensing fee per vertical and give the province 20% of it’s gross gaming revenue. Consequently, companies like MGM would be paying the province $300,000 in license fees for the three verticals on BetMGM, as well as $100,000 per vertical for LeoVegas and Royal Panda, which MGM purchased in August 2022. And Apollo Entertainment, which operates 7 separate online casinos, would be paying $700,000 a year in licensing fees. Other companies like Cadtree Limited are also paying for multiple sites.

Exiting Canada

With that many operators it seemed inevitable that some would drop out in such a crowded market, despite the low tax rate. The only question was when. For two operators that time is now.

Coolbet, a Malta based company, which was one of the first to get licensed and to advertise in Ontario, told customers they would be leaving Canada at the end of the month and Mansion Group, a Gibraltar based company that has two casinos licensed in Ontario under the casino.com and mansioncasino.com brands, announced they will be leaving Ontario at month's end too.

Coolbet Canada Wildz CcasinoCoolbet's blog post stated it would be pulling the plug on April 3rd and indicated the site would be shut down to further betting on March 22nd. Without giving specific details, it's clear that the company just wasn't able to make inroads against the other larger, more well-known brands. Coolbet's website suggests that customers sign up with another Malta licensee called Wildz. This is the notice on the Coolbet website:

Although Coolbet will no longer be available in Ontario, the show must go on. We highly recommend you to check out the amazing product that our friends are offering.

The website then shows a graphic to a sign up area for wildz.com/en-on. It does not appear that the two companies are related in any way; if Coolbet is getting some sort of incentive for every customer that signs up with Wildz through the link; or if it’s just one Malta company doing another a solid. But what we do know about Wildz is that it’s owned by Rootz Limited, which just recently entered the highly contentious German gaming market and it only received its Ontario license in January 2023, meaning they have 10 months to determine if coming to Ontario is a good move. It's also notable they have four skins under the names Caxino, Spinz, Wheelz and Wildz. No doubt the company has far deeper pockets than Coolbet does and probably feels that casinos are a safer and easier environment to operate in than sports betting. But given that Mansion is leaving, and they were casino only, it may be hard for Rootz to make up the $400,000 in licensing fees for the four skins.

While Mansion has made no formal announcements about leaving Ontario, a gambler who tried to deposit funds at Casino.com was told not to, since the company will be ceasing operations at month’s end. This was the letter that was received:

"The deposits and the registration on the website will be restricted on the 28th of March, and the gameplay will be restricted on 29th of March. However, you will be able to login up until 29th of May 2023 and request a withdrawal. After the website has officially closed, you will have further 60 days until 30th of July 2023 to contact us via phone call and e-mail and request a manual withdrawal of your remaining balance. After this date, any balance remaining unclaimed will be divested towards institutions or entities working, researching or promoting responsible gambling causes. If you have any further queriers, please visit our FAQ page."

The FAQ section indicates that they are leaving because of "increased operating costs in Ontario".

It should also be noted that both Coolbet and Mansion Group were operating from the outset, so when the renewal came due in April, they simply chose not to renew their license. But upwards of 35 licensees got a license after the April launch date with many not entering the market until mid-to-late 2022, which has to make those at iGaming Ontario wonder if there are other companies that will not renew licenses and only announce the withdrawal closer to their one year license renewal date. It is clear that any companies that started in April and have not made any announcement will renew this year. That is good news for customers of companies like BetRivers, PointsBet, BetMGM, FanDuel, Unibet, Bet365, Rivalry, BetCaesars and a host of others.

Who is making money in Ontario?

What is not known, however, is how the companies individually are actually doing in Ontario. Unlike many states, iGaming Ontario does release site specific performances, and it appears few operators have released any details about performance in Ontario in their public annual reports, likely because most would yet to have a full year of revenue to announce not.

online sports gambling exit Ontario CanadaHowever, talking to a couple of analysts who follow the situation closely, it appears the largest companies in Ontario in terms of both handle and revenue are Bet365, FanDuel, BetMGM and BetCaesars. I have been told from sources that TheScoreBet, which exited the U.S. market to focus only on Canada, has been pleased with its market share as well. I asked one analyst how DraftKings was doing in Ontario, since it is consistently the top brand or second biggest brand in almost every U.S. state, but he said they keep everything closely guarded, so he wasn’t sure. If the company is underperforming compared to other sites, it is possible that the two month delay to enter Ontario could have been an issue, not to mention that Ontario does not allow fantasy sports, which could have been a factor for both DK and FanDuel since they could not simply use the fantasy site as an enticement to wager on sports as well as they do in most U.S. states.

Ontario residents have been familiar with Bet365 for some time as they took over all Canadian accounts from Bowman's International just prior to the passage of the UIGEA in 2006 and have been actively advertising in Canada, including sponsorships with the CFL and CFL teams. So, it's likely their very large Ontario base that bet with them before April 4th, 2022 simply flipped their account to the iGaming regulated account, giving Bet365 a big head start.

Enough revenue?

According to the iGaming Ontario website which listed its Q3 findings on the iGaming Ontario wesbite, the province has 910,000 active accounts, averaging $167 spent per month with 11.53 billion in handle and $467 million in revenue as of December 31, 2002. Those numbers are better than the first two quarters, but are well below states like New Jersey, Pennsylvania and Michigan, which offer both online sports and casino gambling and are smaller than Ontario. Ontario’s population of over 14 million people would make it only smaller than California, Texas, Florida and New York. Of those four states, only New York offers online gambling. New York launched just before Ontario, but they only offer sports betting, yet in their first year of operations New York had over $1.4 billion in gaming revenue compared to Ontario, which had only $886 million for the first three quarters. If revenues in the fourth quarter grow like the first three quarters, Ontario will have approximately the same revenue as New York. This seems like something to celebrate, although again, Ontario offers casino gambling as well, which should give it a major boost over New York, despite New York having about 5 million more residents. Mind you, New York charges a 51% tax on revenue so for companies like DraftKings, PointsBet, FanDuel and others that operate in both locations, it’s most likely they will see a far better performance on their balance sheets from Ontario.

Bet365 applied for a New York license, but didn't receive one. If New York Senator Joe Addabbo’s bill gets passed resulting in more licensees and a lower tax rate, expect Bet365 to be one of the companies to receive a new license there. Bet365 has proven that it is both savvy and profitable wherever it operates, including Ontario and New Jersey, along with the UK and most of Europe. It should also be noted the figures cited in the iGaming Ontario report do not include the gambling products from OLG, the province’s lottery, which offers online sports and casino gambling also.

So, as Ontario approaches the one-year anniversary of regulated iGaming, it’s clear that it may have grown too fast for some businesses. The decision to give almost every business a license that wanted one was prudent for Ontario coffers in the short run, but it could backfire in the long run since many smaller businesses are looking at the landscape and simply see a very crowded field with no room for maneuvering or growth. That seems to be the case for Coolbet and Mansion and no doubt will be the case for several other operators in 2023. But what is certain is that even in a crowded field, there is room for profits for well-run businesses given the relatively low industry tax rate, so the cream will rise to the top as the weaker ones drop out and companies like Bet365, Flutter Entertainment (FanDuel), MGM  and Caesars will almost certainly be left standing to reap the rewards of operating in Ontario.

Read insights from Hartley Henderson every week here at OSGA and check out Hartley's RUMOR MILL!

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