The rise and downfall of different licenses

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 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.

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.

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.

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.

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.