The Quebec government’s site-blocking legislation not only raises serious freedom of speech and civil liberty issues, making lawsuits likely, it’s also unclear whether it’s intended to shore up the current monopoly or pave the way to a new multi-operator European-style licensing regime, writes Ron Segev of Segev LLP.
It’s been just over a year since we last reviewed the Canadian igaming landscape, and the last 14 months have kept us busy following some interesting twists and turns.
We will be skipping over the Alberta Gaming and Liquor Commission's plan to launch an online gaming site (not happening), Ontario Lottery and Gaming Corporation’s first-year results for PlayOLG.ca (didn’t happen as expected) and yet another federal bill attempting to legalise single–event sports wagering (a common happening).
Instead we will focus on more dynamic news in the Canadian igaming market. In particular, Quebec remains in the news with talk of some major changes to law and possibly the way provincial lotteries have traditionally done business online.
Where is Quebec heading?
How well has Loto-Québec’s igaming website, EspaceJeux.com, been performing? According to the provincial lottery corporation, pretty poorly.
Loto-Québec reported that in light of offshore competition, under their “current business model and in the light of results seen in other Canadian lottery jurisdictions, we do not believe that we will be able to increase this share in any major way”.
This means that the government is losing significant amounts of money. Illegal online gaming is a growing problem. Loto-Québec believes that a solution must be implemented that will enable the online games of chance offering to be channeled in a controlled and measured way.
The Quebec Working Group on Online Gaming was commissioned by the province to recommend improvements to EspaceJeux.com. The Group released its report in 2014 and provided five recommendations to increase government revenue for the province.
The report recommended the province adopt a European-style licensing regime whereby the province would license third-party operators to operate in the province and take action against unlicensed operators.
The French Canadian firewall
Believing it could not effectively pivot to this new regulatory framework without ensuring that unlawful offshore operators were excluded from the Canadian market, Bill 74 was born.
Bill 74 was approved in the Quebec legislature on May 18, 2016 and requires internet service providers (“ISP”) to block access to government blacklisted online gambling sites.
Bill 74 includes provisions requiring ISPs serving Quebec residents to block access to online gaming sites blacklisted by the Province.
The blacklist of online gambling sites is expected to be prepared over the next few months and ISPs could be fined between CA$100,000 to CA$500,000 and/or penalised should Loto-Québec become aware that its blacklisted sites have not been blocked.
This would ultimately give the Quebec government the power to censor the Internet and block any competition.
Internet censorship is unprecedented in Canada, and critics fear that other provinces may follow suit.
The ISP blocking technology will filter out the majority of online gaming companies, however it may not be completely effective in blocking just online gaming sites.
Serious freedom of speech and other civil liberties issues arise, and as a result the proposed legislation and the precedent it sets for Quebec and other provinces is worrisome to many.
As a result, ISPs and internet technology companies, publishers and civil liberties groups are expected to proceed with lawsuits challenging the proposed law under the Canadian Charter of Rights and Freedoms, the Canadian Constitution and the Quebec Charter of Human Rights and Freedoms.
Furthermore, site-blocking is likely to be judicially challenged on the grounds that the federal government holds jurisdiction over communications in the country.
What are Quebec’s intentions for its new wall? We can only speculate, but broadly speaking there appears to be two major possibilities:
- strengthen the EspaceJeux.com monopoly, or
- dismantle the EspaceJeux.com monopoly.
The Finance Minister for the province, Carlos Leitao, brought the bill forward and explained that site blocking was not an end in of itself but a means to an end; giving the government leverage to negotiate access to a Quebec market with a reworked regulatory framework similar to that seen in many European countries.
As drafted in the bill, Bill 74’s proposed site blocking legislation only comes into force six months after the date of assent – or the date it becomes law.
Meaning no ISP will be charged with not site blocking a blacklisted company for a period of six months after the bill becomes law.
Leitao has been quoted as saying that this six-month period is intended to provide the province with a period during which it can negotiate with offshore operators interested in licensing with the Government of Quebec to become lawful operators in the Quebecois market.
Reputable sources in the Canadian press are, however, reporting that the strategy is meant to simply stifle offshore access to the Quebecois market and focus internet traffic to the otherwise poorly performing EspaceJeux.com website.
At the time of writing, we note that neither the province nor Loto-Québec have issued any draft gaming regulations setting out a new European licensing regime.
So, it is unclear how an offshore operator wishing to license in the province of Quebec would do so at this time.
It's equally unclear what the nature of such an operator’s discussions with the province would be during the six-month window when site blocking is not in effect following the assent into law of Bill 74.
The Amaya influence
Some industry pundits have speculated that talk of a European-style licensing regime coming from the province is a result of lobbying efforts of Amaya, the parent company of PokerStars.
As a Montreal, Quebec-based company, it’s been commonly speculated that Amaya has been eyeing its backyard as a potential market for PokerStars.com and its other online assets.
Within days of the Amaya’s PokerStars.com acquisition, Loto-Québec and Amaya entered talks to more closely cooperate (Amaya was already a Loto-Québec supplier), make PokerStars.com available lawfully to the Quebecois market and open the Quebecois market to third-party licensees.
Amaya may be attempting to enter the Quebecois market lawfully with an eye to becoming a lawful participant in the larger Canadian market with the support of a Quebec government initiative to modify provisions of the Criminal Code.
PokerStars.com has taken a similar back-door entry strategy to regulated markets in the US.
Under the current legal and regulatory regime offering, PokerStars.com within Quebec in accordance with license requirements would require a change to the law and Bill 74 does not propose to enact or change laws required for that to happen.
What about insider trading allegations at Amaya?
Amaya’s purchase of Rational Group (owners of PokerStars.com and FullTiltPoker.com) was heavily scrutinised by Quebec’s financial regulator, Autorité des marchés financiers (AMF), soon after the deal closed.
Following the investigations, Amaya chief executive David Baazov was charged with insider trading by Quebec’s securities regulator in connection with the US$4.9bn acquisition of Rational Group.
Five charges were filed directly against Baazov, and 23 charges in total were filed against three companies and other individuals.
Baazov has since taken an indefinite leave from the company and has said he will focus on contesting the insider trading allegations made against him, as well as pursue a future bid to buyout Amaya at his current valuation of CA$2.8bn to take the company back into private ownership.
Dismantling the current EspaceJeux.com apparatus will likely lead to considerable layoffs. Will Quebec politicians be willing to pay that political capital in order to shift to a European-style licensing regime that rewards offshore operators, including Amaya’s PokerStars.com?
Does the ongoing investigation and case against Amaya cast a dark enough shadow over its reputation; such that Loto-Québec won’t risk the negative optics of licensing them, especially in light of perceptions that Amaya lobbied the regulatory overhaul, which ultimately benefited them?
Will that possible shadow only darken further under a cloud of job losses at EspaceJeux.com?
Ultimately it appears like the safer political bet for Quebec’s elected officials is to distance Loto-Québec from Amaya until allegations against Amaya are settled and to appear to care about maintaining jobs at EspaceJeux.com.
Le guessing game
So, Bill 74 indicates that the Quebec government is either intent on Loto-Québec firming up its current monopoly or setting the stage for a successful shift to a new multi-operator European-style licensing regime.
Bill 74 could be used as a kill-bill meant to remove offshore operators from the Quebec market while encouraging them to get a licence from the province.
As mentioned above, whether or not Quebec will go European is uncertain, as we haven’t seen any draft laws or regulations.
Bill 74 could also be used to remove operators’ access to the Quebecois market at the exclusive benefit of EspaceJeux.com. Both scenarios assume the enacted law survives legal challenges.
Certainly other provinces are keeping on eye on how Quebec fares with its attempt to blacklist sites and possibly overhaul its online strategy.
While Ontario Lottery and Gaming Corporation just launched PlayOLG.com last year, the results thus far are underwhelming and it would no doubt be tempted to adopt and enforce a blacklist should Quebec’s Bill 74 survive legal challenges.
Furthermore, Alberta has yet to launch its own online igaming site and may be looking at Quebec’s experience with a new licensing model prior to doing so.
For the time being, with respect to what is happening in Quebec at the moment, it’s anyone’s bet.
Ron Segev is a partner at technology and gaming law firm Segev LLP.