Six Months in, Ontario’s Privatized Online Gambling Market is Growing Quickly

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On October 12, iGaming Ontario (iGO) released its revenue figures for July through September. That period marks the second quarter of operations since the province’s privatized online gambling market launched.

As with the first report, covering April to June, iGO hasn’t provided much detail. Unlike various US states, Ontario does not offer a revenue breakdown by operator or vertical.

That said, what numbers there it does provide show a growing market.

(Editor’s Note: iGO has made the confusing decision to call the July-September period “Q2” in its report because it is the second quarter for the market. Bonus uses that notation exclusively for calendar quarters. Thus, in this article and elsewhere on the site, Q2 refers to April-June and Q3 to July-September.)

Ontario’s Gaming Market by the Numbers

Twenty-four operators served the market in Q3, using 42 approved gaming websites. That’s roughly a one-third increase from Q2. Unlike US states, Ontario doesn’t cap the number of operators. Neither does it require them to partner with a retail gaming property.

Excluding promotions, those operators generated a total betting handle of $6.0 billion (CAD), up from $4.1 billion in the previous quarter. Total gaming revenue came in at $267 million, up from $162 million.

That means a margin of 4.4% for Q3, a slight improvement from 4.0% in Q2. That is largely in line with typical casino margins, but the increase may reflect higher-margin sportsbook operations picking up in the opening weeks of the NFL season.

This Q3 showing brings Ontario’s six-month revenue tally to $429 million. Despite an underwhelming opening quarter, it looks as if the market is on track for at least $1 billion in revenue over its first year. Of course, that would still leave the market short of both VIXIO Gambling Compliance’s $1.6 billion estimate and the $1.875 billion “best case” projection by the Bonus news team (then writing for Online Poker Report).

Getting to $1.6 billion in the first year would require the current growth rate to continue exponentially through the next two quarters. That seems unlikely.

Even so, Paul Burns, President and CEO of the Canadian Gaming Association, claims that Ontario’s iGaming market “has been taking North America by storm.”

Will Ending the Gray Market Bring Further Growth?

Burns is presumably among those hoping that Q4 will be even bigger.

Per Alcohol and Gaming Commission of Ontario (AGCO) requirements, October 31 marks the end of the province’s grace period. Any company still serving Ontarians after that date without an iGO operating agreement will be doing so illegally. Danielle Bush, senior counsel and co-chair of the gaming practice at McCarthy Tetrault LLP, said during a G2E panel:

Unlike in a land-based situation, the online-gaming industry is global. Very large online operators have been taking players from Canada for decades… to have those companies choose to come in and be regulated, that really is the compelling story.

The assumption is that this will drive another significant topline increase over the next quarter or two. However, it’s important to note that a hypothetical jump in Q4 revenue may broadly reflect the capture of existing, previously-shrouded activity by the regulated market. The same may be true of part of the Q3 increase.

Organic growth will be slower once that low-hanging fruit is gone.

The good news is that the end of gray market operations will provide a fuller picture of Ontario online gambling. Even then, the absence of operator- or activity-level data will make it difficult to understand what is – or isn’t – driving growth.

Is Ontario Hitting Its Stride?

The sparsity of available information makes it challenging to gauge Ontario’s performance. Some called the April-to-June numbers “disappointing” or worse. Optimists said they showed “room for growth.”

There certainly is growth, but is it enough?

We’re far from having a complete picture of what Ontario has in store. Experience in the US has shown us that every market is different. Consider, for instance, Michigan and Pennsylvania.

Michigan took its time to launch legalized online gambling in January 2021. When it did so, it posted nearly $80 million in revenue in its first full month. Its performance has continued to be good, with annual revenue growth of 37%, year-to-date in 2022.

Pennsylvania’s launch came much sooner, in July 2019, but was not nearly as smooth. In the early going, the Pennsylvania Gaming Control Board had only authorized three operators and a handful of games. Revenue for its first full month was under $4 million. By the same token, however, it enjoyed explosive growth in its second year after resolving those initial difficulties.

In all likelihood, Ontario’s launch will likely land somewhere between these extremes. However, unless the impact of the impending gray market migration is greater than expected, it will still trail far behind these two states.

Given Ontario’s restrictions on advertising, bonuses, and inducements, it’s fair to question how long we can expect the post-launch boom period to last and how much growth we’ll see before it slows down.

Per-User Spending on the Rise

It’s essential to keep in mind when evaluating markets that gambling revenue corresponds to real money lost by real people. Not all of those losses are ones the gamblers can afford. That is a front-and-center issue for the Canadian Centre on Substance Abuse and Addiction (CCSUA).

Despite the overall lack of detail, iGO does provide one fascinating data point in these reports. That is the number of active player accounts and a calculation of their average monthly spending.

In this latest quarter, iGO reported 628,000 active player accounts in Ontario, spending an average of $142 per month. These are quarterly increases of 27.6% and 25.7%, respectively. In other words, we’re seeing similar amounts of growth on both axes, which combined to produce the 65% increase in total revenue.

CCSUA recommends a “safe” gambling cap of 1% of household pre-tax income. As Bonus mentioned in our coverage of the first iGO report, that equates to $67 per month for the median Ontario family. Last quarter’s $113 loss per account already exceeded that by 69%. Now, the average loss is more than double that guideline.

iGO doesn’t provide demographic information on who exactly is playing and how much disposable income they have. However, the growing expenditures per account are unlikely to quell the fears of those who expect to see a wave of problem gambling in the province.

About the Author

Emile Avanessian

Emile is a one-time banker turned freelance writer. He previously worked in equity research and as a member of the Financial Sponsors Group with Goldman Sachs, where he worked on numerous casino- and gaming-related projects. His written work has focused largely on sports (NBA basketball and European soccer) and sports betting. Emile currently also writes for Squawka and Urban Pitch. His work has also been published in The Los Angeles Times, The Blizzard, Yahoo Sports, SI.com, and ESPN.

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