Ontario Goes Online

by , Apr 14, 2013 | 9:49 am

The Ontario Lottery and Gaming Corporation (OLG) announced this past Friday that it has selected a vendor to be its online gaming services provider through PlayOLG.ca. Spielo G2 won the contract. The first phase of the online rollout for PlayOLG will include lottery (e.g., Lotto 6/49) and unspecified gaming offerings. Subsequent rollout phases are to include bingo, sportsbetting (perhaps single sports wagering if Bill C-290 passes?), Internet poker, and “other new products.” Ontarians are supposed to be able to use PlayOLG.ca by late 2013.

(We shall see. Ontario’s Auditor General is reviewing OLG’s modernization plan at the behest of a provincial legislative committee. That review is to include the OLG’s online gaming rollout. Rod Phillips, OLG’s president and CEO, tweeted on Thursday that its modernization and procurement processes are to “continue, no changes,” but the Auditor General’s probe may compel major alterations to the current plans.)

OLG’s press release on the vendor selection suggests that Ontarians spend $400M annually on Internet gaming. That number has never been publicly explained or supported by OLG, to my knowledge, but it may be right; Canada’s Internet gaming and betting market is supposed to be worth $1-1.2B annually, and Ontario has ~40% of Canada’s population. Early last year, OLG said in its Strategic Review that it could obtain $100M in profit from Internet gaming by 2018. Note from its press release that OLG now thinks that the net profit to Ontario from online gaming “could increase” by $375M by 2018.

It’s never been clear to me or to anyone I’ve talked to how these numbers are supported or derived, but let’s think about them. Let’s assume a straight line accrual for the province over the next five years, which strikes me as likely wrong, but it gives OLG the benefit of the doubt (i.e., there’s no ‘ramping up’ period and it only expects to receive 1/5 of its profit in year 5). On $375M in total over 5 years, that’s $75M in profit in 2017-18 alone. All wagers by Ontarians (not profits to Internet gaming operators) are supposed to be $400M right now. So the province thinks it’s going to jump in and capture almost 20% of the Ontario Internet gaming market as profit within five years. And presumably the amount wagered on PlayOLG.ca will be much higher to support that profit margin.

But that’s based on the current estimate of the value of the Ontario market ($400M), so now let’s assume that the market grows by 10% per year until 2018. (I don’t have any basis for that estimate. Perhaps OLG has a better set of estimates, but they haven’t shared them. Ten per cent seems aggressive to me, but I could be wrong about it.) That makes the value of all Internet wagers in Ontario almost $586M in 5 years, and OLG’s profit is still $75M, per our conservative assumption. That’s almost a profit margin of 13% on the total value of the Ontario industry, including OLG and all of its international competitors.

Can OLG do it? Conceptually, I suppose it’s possible. But without some basis for these figures from OLG, and given the size, liquidity, and experience of OLG’s international competitors, I think it’s hopelessly optimistic. The other provincial lotteries (BCLC and Loto-Quebec) have not been hitting it out of the park with their Internet gaming offerings; it’s not exactly clear to me why OLG thinks that it can.

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