Canadian Gambling Industry Facing Challenges
To the casual observer, an industry that consistently enjoys fat margins that are the envy of most other businesses can’t be facing real challenges. Yet, since the widespread introduction of government sponsored gambling in Canada 15 years ago, and the explosive growth in revenue it generated, gambling in Canada is facing a number of challenges to sustaining its marketplace presence.
Unique Features: The gambling industry in Canada has a number of features which set it somewhat apart from other economic activities. It is governed by the Criminal Code of Canada, which essentially states that all gambling is illegal unless conducted by governments or charities. Further, the Criminal Code provides that only provincial governments can operate and manage electronic gaming machines (slots and video lottery terminals), creating a provincial monopoly over the most profitable sector of the industry.
The majority of gambling revenue flows to provincial governments. The Canadian gambling industry generates significant revenue – about $14 billion in 2012, after prize payouts and before expenses – revenues that provincial governments have come to rely on in their search to contain deficit pressures.
And while gambling is seen as part of the entertainment industry, it is a controlled substance restricted to those above the age of majority.
The Canadian gambling industry generally enjoys a global reputation as safe and well regulated. Nevertheless, the nature of the industry and the large volumes of transactions it involves inherently attract undesirable activities, among them incidences of fraud and money laundering, cheating at play, and underage gambling. Ongoing vigilance and oversight is essential to minimize their impact.
Gambling addiction is another major issue gaining an increasingly high profile. It is estimated that 3.7% of the Canadian adult population is at moderate risk or addicted to gambling (Canadian Gambling Digest 2011-12), and that this population component contributes over 20% of the gambling industry’s gross revenue (John Fletcher, Canadian Medical Journal September 2013) – neither a morally nor financially sustainable position.
First Nation Gambling Development: As provincial governments have expanded gambling activities across Canada, so too have many First Nation organizations developed significant gambling ventures in partnership with provincial governments. First Nation casino development has generated significant direct and indirect economic and community benefits, flowing mainly to First Nation governments, communities and individuals. Gambling revenues are typically shared widely amongst First Nation groups in Canada.
New Challenges Have Emerged: While government gambling operators in Canada exercise a virtual monopoly position (charity gaming is a minor player in most provinces), competition does threaten some sectors of the market. Online or internet gambling is illegal in the U.S., and currently no Canadian jurisdiction offers internet gambling to non-residents. It’s estimated the internet spend in Canada is $1 billion per year, using internet sites located outside the country, some legal, some unregulated.
Sports betting, while legal in Canada, is limited to a pari-mutuel bet on the outcome of a minimum of three sporting events (Criminal Code of Canada) rather that the much more popular single event sports wager. The Canadian Gaming Association estimates the value of single event wagering in Canada at $14 billion – most of it illegal and most of it offshore. Bill C 290, currently stalled in the Canadian Senate, would, if passed, permit single event sport wagering (some opposition to the Bill exists within the Senate; it was passed unanimously in the House of Commons).
As well, indirect competition for the entertainment dollar is constantly evolving as new and attractive non-gambling entertainment options appear in the marketplace almost daily.
Most gaming products are nearing market maturity and revenues have plateaued. Lotteries are required to offer large and growing prizes to sustain player interest. Electronic gaming revenues have flattened across Canada in recent years. Prime electronic gaming market segments are beginning to decline as the population ages, while younger age groups exhibit lower gambling participation rates.
The cost of gaming equipment and associated IT systems that manage play and offer enhanced business and predictive analytics are increasing rapidly. Also, greater compliance requirements have added cost and complexity without contributing to the bottom line.
And expansion of gambling continues to be controversial; ongoing public opposition has successfully blocked a proposed downtown Toronto casino and stopped expansion of the current downtown Vancouver casino facility.
Solutions: As with most challenges, those who carefully look for them will find solutions. Much can be learned and adapted from other organizations’ experiences with similar challenges, both within and outside the gambling industry. New IT systems and methods of analyzing business and customer interactions generating predictive analytics can lead to better business decisions and enhanced customer knowledge.
Often external management resources with fresh eyes and ears can assist organizations in finding solutions and testing and adapting them.