Canadian Gaming Business Fall 2011

Canada's Premier Gaming Industry Magazine

Vol. 6 No. 4

Fall 2011

The State of Recovery:

An Update on the North American Numbers

Inside:

PM 40063056

Ross McLeod Remembered Examining BC’s Voluntary Self-Exclusion Program Government: Online Operators or Online Regulators?

11212_Gaming_Fall_2011.indd 1

June 11-13, 2012

Scotiabank Convention Centre Niagara Falls, ON more details on pg. 28

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Video_SciPlay_Ads.indd 1 11212_Gaming_Fall_2011.indd 2 Untitled-1 1

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Fall 2011 Volume 6 Number 4

Publisher

Paul Murphy

paulm@mediaedge.ca 416-512-8186 ext. 264

Editor

contents 4

EDITOR’S NOTE

Matthew Bradford matthewb@mediaedge.ca

6

MESSAGE FROM THE CGA

Advertising Sales

Paul Murphy

paulm@mediaedge.ca

8

COVER STORY:

Senior Designer

Annette Carlucci

14

Gaming Trends:

18

Supplier Profile:

20

Tribute:

Remembering Ross McLeod

22

CGA's Economic Impact Report

24

Security & Surveillance:

26

Finance:

27

Legal:

30

MARKETING:

annettec@mediaedge.ca

Designer

Jennifer Carter

design2@mediaedge.ca

Production Manager

Rachel Selbie

rachels@mediaedge.ca

Circulation Manager Circulation Inquiries

Lina Trunina

The State of Recovery: An Update on the North American Numbers

Governments: Online Operators or Online Regulators?

Q&A with Spielo International

linat@mediaedge.ca

Proudly owned and published by:

President Kevin Brown

President & CEO Bill Rutsey

kevinb@mediaedge.ca

wrutsey@canadiangaming.ca

Vice President, Strategic Development Chuck Nervick

Vice President, Public Affairs Paul Burns

chuckn@mediaedge.ca

pburns@canadiangaming.ca

Canadian Gaming Business is published four times a year as a joint venture between MediaEdge Communications and The Canadian Gaming Association

Blueprints and Roadmaps for Successful Business Transformation Arbitration Clauses in Online Gaming Contracts

For advertising information, Contact Paul Murphy 416-512-8186 ext. 264

BCLC's Self-Exclusion Case Study

Finding the Best Casino Talent in a Social World

paulm@mediaedge.ca

Copyright 2011 Canada Post Canadian Publications Mail Publications Mail Agreement No. 40063056 ISSN 1911-2378 Guest editorials or columns do not necessarily reflect the opinion of Canadian Gaming Business magazine's advisory board or staff. No part of this issue may be reproduced by any mechanical, photographic or electronic process without written permission by the publisher. Subscription rates: Canada $47.25 per year, $84.00 two years. All rates are payable in Canadian Funds only.

Postmaster send address changes to: Canadian Gaming Business Magazine 5255 Yonge Street Suite 1000, Toronto, Ontario M2N 6P4

Volume 6 No. 4 Canada's Premier Gaming Industry Magazine

Vol. 6 No. 4

Fall 2011

The State of Recovery:

An Update on the North American Numbers

Inside:

PM 40063056

Ross McLeod Remembered

Official Publication of the Canadian Gaming Summit

11212_Gaming_Fall_2011.indd 3

Examining BC’s Voluntary Self-Exclusion Program Government: Online Operators or Online Regulators?

June 11-13, 2012

Scotiabank Convention Centre Niagara Falls, ON more details on pg. 28

Canadian Gaming Business | 3

11-11-16 11:53 AM

editor'snote

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It seems like just last month we were preparing to attend the 15th Annual Canadian Gaming Summit, and not that long ago when we were previewing the latest gaming innovations and services set to debut at the 2011 G2E in Las Vegas. We're not sure where the year went, only that we've barely had time to bid adieu to 2011 before looking ahead to the new Canadian gaming initiatives, technologies and changes coming down the pipe in 2012.

Looking back, HLT revisits its comprehensive 2010 report on the state of the North American gaming in its follow-up cover story, “The State of Recovery: An Update on the North American Numbers”. Also read with interest our summary of CGA's 2010 Economic Impact of the Canadian Gaming Industry Report, which provides a similarly positive overview of Canada's gaming sector.

Of course, we cannot ref lect on 2010 without paying tribute to the late Ross McLeod, and in these pages you'll also find the Great Canadian Gaming Corporation's farewell to its former CEO, and one of the industry's most respected visionaries.

Looking forward, this issue examines the challenges of online gaming in both Morden C. Lazarus, Brian Hall, Cory Levi, and Edwin D. Monzon's article, “Governments: Online Operators or Online Regulators?”, and Javad Heydary's legal feature, “Arbitration Clauses in Online Gaming Contracts: Not another Boilerplate Provision”.

On the topic of evolution, please also read with interest our Supplier Profile, featuring a Q&A with Walter Bugno, President and CEO of the newly formed Spielo International, as well as BCLC's examination of B.C.'s Voluntary SelfExclusion (VSE) program in our Security and Surveillance section.

As always, KPMG has provided another insightful piece outlining the path to corporate success in, “Blueprints and Roadmaps for Successful Business Transformation”, and Marshall Fenn returns with advice on using social media to recruit the best talent for your business no matter how large or small it is in, “Finding the Best Casino Talent for Your Casino in a Social World”.

We hope you enjoy t h is issue, a nd i nv it e you to send your your story ideas, leads or suggestions to me at matthewb@mediaedge.ca, or CGB's publisher Paul Murphy at paulm@mediaedge.ca.

Matthew Bradford Editor, matthewb@mediaedge.ca

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messagefromCGA

Legalizing single event sports betting – the process begins in earnest

By Bill Rutsey, President and CEO of the Canadian Gaming Association

As expected, Joe Comartin, the New Democratic Party House Leader, introduced a Bill (C-290) to amend the Criminal Code to allow single event sports betting on September 28, 2011. The first hour of debate at Second Reading took place November 1, with a second hour of debate and the Second Reading vote expected to take place on or around December 13.

However, as during the first hour of debate (on November 1) many Members of Parliament spoke in favour of the Bill (from the perspectives of both law enforcement and economic development), Mr. Comartin--sensing strong support from all parties--called for the vote on the Bill, and with consent of the House of Commons it passed Second Reading and was referred then and there to the Justice Committee for consideration. In so doing, Mr. Comartin fast-tracked the process by at least 30 to 45 days.

Canada has enjoyed legalized parlay-st yle spor ts wagering for many decades, but the current restriction, which prohibits wagering on a single sporting event, does not ref lect the modern reality for sports bettors. With the passage of this Bill, Canadians will have a legal and regulated product for wagering on the individual sporting events of their choice.

The realit y is Canadians are wagering on spor ts predominantly through illegal means, either with bookies or online. This Bill will enable sports wagering to occur in safe, regulated environments. A review of the annual reports of the Criminal Intelligence Services Canada (CISC) indicates that illegal bookmaking exists in all regions of Canada, with organized crime ultimately profiting from the revenue. While the size of the Canadian market is unknown, estimates suggest it is in excess of $10 billion

annually. The growth in wagering on sports through the internet has significantly increased over the past decade, with estimates showing Canadians wager in excess of $2 billion annually through offshore sports books.

A recent report by the Canadian Gaming Association on the impact of sports wagering on Ontario border casinos (Single-Event Sports Wagering in Canada – A Case Study: Border Commercial Casinos in Ontario) cites the facts set out above and highlights the benefits of offering a legal regulated sports wagering product in the Ontario border casinos of Windsor and Niagara Falls. The potential benefits generated by additional visits from U.S. patrons include the creation of up to 250 new jobs directly in the two casinos, and economic benefits in the broader community.

Examining the effect of Super Bowl weekend on the Las Vegas economy is instructive in this regard. Though sports wagering in Nevada accounts for only approximately 1% of the total amount gambled annually in the state, Super Bowl weekend in Las Vegas is one of the busiest of the year.

In 2011, $87 million was directly wagered on the Super Bowl. More importantly, the Las Vegas Convention and Visitors Authority estimates the weekend attracts 250,000 additional visitors who generate an economic impact equal to or greater than the amount wagered on the game.

Legal sports wagering would be a significant attractor for communities with casinos; there are more than 100 million U.S. residents within a 6-hour drive of a Canadian casino.

The only beneficiaries of the current legal framework are illegal offshore operators, bookies, and organized crime.

Now is the time for political action from the grass roots-for everyone to contact their Member of Parliament and let them know that this is a Bill worthy of their support.

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coverstory

The State of Recovery:

An Update on the North American Numbers

By Robert Scarpelli and Katia Muro

8 | Fall 2011

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coverstory

In the November 2010 edition of Canadian Gaming Business, HLT’s article entitled

“After the Impact : The North America Numbers After the Worst Recession in a Generation” stated that the gaming industry in Canada (as a whole) experienced its first decline in revenues during 2010 (March 31st year-end) after 15 years of continuous growth.

Canadian Gaming Industry Win Trends Canadian Gaming Industry Win Trends

$20.0 $20.0 $18.0 $18.0 $16.0 $16.0

$14.2

$14.0

($Billions) Win Win ($Billions)

$14.0 $12.0

$12.2 $11.0

$12.0 $10.0

$10.0 $9.1

$10.0 $8.0 $8.0 $6.0 $6.0 $4.0

$8.1 $7.1 $6.4

$12.8

$12.2

$13.4 $13.5

$12.8

$15.2 $15.5 $15.1 $15.3 $15.2 $15.5 $15.1 $15.3 $14.8 $14.9

$14.8 $14.9

$14.2

$13.4 $13.5

$11.0

$10.0

$9.1

$8.1

$7.1

$6.4

$4.0 $2.0 $2.0 $0.0 $0.0

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011E

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011E

Note: Win generated by casino, EGD-VLT, EGD-Other and traditional lotteries are reported on a March 31st fiscal year end and represents approximately 92% of the total gaming win in Canada. All other sectors are generally reported on a calendar year end basis. For presentation purposes, fiscal and calendar year end data have been combined. For instance, March 31st, 2011 data has combined with December 31st, 2010 data and labelled “2011”.

Source: HLT Advisory Inc. based on most recent data available from various provincial government agency/corporation annual reports and HLT estimates, subject to update as further information becomes available.

Canadian Gaming Industry Win Growth (1995-2011)

$15.0 $17.5

Double Digit Growth

$20.0 $17.5 $20.0 $15.0$17.5

Double Digit Growth

$12.5 $15.0

$12.5 $15.0

$10.0 $12.5

$10.0 $12.5 Single Digit/Negative Growth

$7.5 $10.0 $5.0 $7.5

Annual Growth (%)

$17.5 $20.0

Canadian Gaming Industry Win Growth (1995-2011)

$7.5 $10.0

Single Digit/Negative Growth

$5.0

$7.5

$3.5 $5.0

$3.5 $5.0

$0.0 $3.5

$0.0 $3.5

$-2.5 $0.0

$-2.5 $0.0

Annual Growth (%)

$20.0

Win ($Billions) Win ($Billions)

A year later and after updates to and minor reclassif ication of our numbers, we can conf irm that the industry did in fact contract between 2009 and 2010, going from $15.47 to $15.12 billion for a 2.3% percent decline (slightly less than our original estimate of 2.5%).

Our latest estimates point to the industry as a whole growing in 2011 to $15.32 billion or by almost $200 million (or 1.3%), with gains estimated in all prov inces, except Quebec.

Quebec is estimated to have declined by about $100 million. Ontario and British Columbia posted the largest increases at almost $124 and $84 million, respectively. The remaining s e v en pr o v i nc e s p o s t e d mo de s t increases (around $9 0 million in total). Although the gaming industry grew in all provinces but Quebec, the performance of individual gaming sectors show significant variation in 2011.

From a sector perspect ive, the lot t er y sec tor accou nt ed for t he largest increase at over $350 million (or 9.0%) followed by the EGDsOther sector (i.e. slots at racetracks in Ontario, slots at bingo halls in British Columbia, etc.) at $79 million (or 4.1%). All other sectors declined.

The EGDs-VLTs sector declined in all provinces that have VLT networks.

In total, EGDs-V LTs declined by $97 million (or 3.6%), with Quebec accounting for just under half of this decline. While the total casino sector declined marginally (by $72 million or 1.2%), some provinces did experienced growth. Casino sector declines in Ontario, Quebec-- and to a lesser ex tent A lber t a- - were

$-5.0 $-5.0 $-2.5 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011E $-2.5 % Annual Growth

Gaming Win

$-5.0 $-5.0 Note: Win generated by casino, EGD-VLT, EGD-Other and traditional lotteries are reported on a March 31st fiscal year end and represents approximately 1995 1996 1998 1999 2000 2001 2002 2003 2006 2008 2009 2010fiscal 2011E 92% of the total gaming win in1997 Canada.

All other sectors are generally reported on a 2004 calendar2005 year end basis.2007 For presentation purposes, and calendar year end data have been combined. For instance, March 31st,Growth 2011 data hasGaming combined % Annual Winwith December 31st, 2010 data and labelled “2011”.

Source: HLT Advisory Inc. based on most recent data available from various provincial government agency/corporation annual reports and HLT estimates, subject to update as further information becomes available.

Canadian Gaming Business | 9

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coverstory

and commercial casinos. Indian casino revenue numbers are released by the National Indian Gaming Commission (NIGA) on a broad regional breakdown annually. The latest available numbers Change in Gaming Industry Win by Sector (FY2010-FY2011) are for fiscal year 2010. Commercial $18.0 casino revenue numbers are released by individual states. As per the American Gaming Association, there are now 14 $16.0 $350.2 states that have commercial casinos.

Five of these states also permit racetrack $14.0 casinos (similar to slots at racetracks in Canada). Revenue numbers from these $12.0 Change in Gaming Industry Win by Sector (FY2010-FY2011) racetrack casinos were included in the $18.0 commercial casino numbers for those $8.0 $79.0 states that have both. (*Please note $16.0 since last year’s article, one additional $350.2 $6.0 state has been added to the commercial casino list (West Virginia). With this -$27.7 $14.0 $-33.9 -$71.6 said, West Virginia was excluded $2.0 -$96.6 from the analysis since we could not $12.0 easily source monthly revenue data for $0.0 comparison purposes).

Bingo Casino EGDs-VLTs EGDs-Other Lottery Pari-Mutuel $8.0 Note:Win generated by casino, EGD-VLT, EGD-Other and traditional lotteries are reported on a March 31st fiscal year end and represents approximately For$79.0 comparison purposes, monthly 92% of the total gaming win in Canada. All other sectors are generally reported on a calendar year end basis. For presentation purposes, fiscal and United States data was reformatted into calendar year end data have been combined. For instance, March 31st, 2011 data has combined with December 31st, 2010 data and labelled “2011”.

Source: HLT Advisory Inc. based on most recent data available from various provincial$6.0 government agency/corporation annual reports and HLT March 31 fiscal year ends to match how estimates, subject to update as further information becomes available.

-$27.7 $-33.9 Canadian casino (and EGD-Other) -$71.6 numbers are reported.

Also, no attempt not certain and it would likely take If not for the growth in the lottery was$2.0 -$96.6 Casino and EGDs-Other Win Performance in Canada sector (and specifically the success of a couple of years before the industry to conver t cur rencies was made. $10.00 the win level achieved in 2009. Canadian and United States figures are the national Lotto Max game which reached $0.0 Casino EGDs-VLTs EGDs-Other reported in their Lottery respective Pari-Mutuel currencies.

Prior toBingo presenting the updated replaced the Super 7 g a me), the The Canadian casino (including Canadian gaming industry as a whole numbers, it is important to review $9.00 have declined for the second definitions and data sets used. In the EGDs-Other) sector currently accounts would straight year in 2011. Further, despite United States, the casino sector can be for 50.9% (or $7.80 billion) of the total a $200 million increase in gaming divided into two groups: Indian casinos Canadian gaming industry. In 2011, the win$8.00 in 2011, the industry has not yet Casino and EGDs-Other Win Performance in Canada $7.94 rebounded to the level reached $7.74 in $10.00 $7.80 $7.80 2009 ($15.47 billion). While there are a variety of factors at play,$7.19 mixed results of a$7.00 number of$7.00 provincial casino sectors, $9.00 and the further decline of the EGDsV LTs sector in each province that operates $6.00 a network, are not indicative of $8.00 a strong recovery. $7.94 Gaming Win Annual Change ($Million)

magnitude (1.9% decline in Canada compared to a 5.9% and 4.0% decline in United States). On a-go-forward basis, we suggested future Canadian growth

the CasIno seCtor – Canada Vs. unIted states $5.00 Last year, we2006 reported 2007 the Canadian 2008 g a m ing indust r y, a nd especia lly the casino sector (including slots at racetracks and bingo halls), weathered the economic recession better than commercial casinos in the United States. In short, the impact was shorter in terms of time (one year decline in Canada compared to two in United States) and less severe in terms of

Win ($Billions)

Win ($Billions)

Gaming Win Annual Change ($Million)

somewhat offset by modest increases in New Br unsw ick (f irst year of Casino New Brunswick operation), British Columbia, and Manitoba.

$7.74

$7.00

$7.80

$7.80

2010

2011E

$7.19 $7.00

2009

2010

2011E

$6.00

$5.00 2006

2007

2008

2009

Source: HLT Advisory Inc. based on most recent data available from various provincial government agency/corporation annual reports and HLT estimates, subject to update as further information becomes available.

10 | Fall 2011

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coverstory

sector only grew by 0.1% (or less than $10 million). This flat performance was primarily due to the negative performance of casinos in Quebec and Ontario, which offset increases in other provinces. In 2009, at the height of the market, the sector reached $7.94 billion.

The commercial casino sector in the United States also generally remained f lat in 2011. The sector only grew by 0.5% from $30.74 billion to $30.90 billion. Like Canada, the commercial casino sector in the United States is still below its historic high ($34.0 billion) that was reached in 2008. Also like Canada, certain States grew while others contracted (7 contracted and 6 grew). If not for Pennsylvania, which grew by over $500.0 million (mainly due to the opening of a casino in Philadelphia and introduction of table games), the United States would have experienced a third consecutive year of decline.

Within individual States there were also mixed results. For instance, Las Vegas strip casinos posted a 1.5% increase in 2011 (to $5.77 billion), while the Rest of Nevada posted a 3.7% decrease (down to $4.61 billion). With that said, Las Vegas and the Rest of Nevada are still well below their historic Commercial Casino and Racetrack Casino Performance in the US $40.00

Commercial Casino and Racetrack Casino Performance in the US

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$40.00

$35.00 $35.00

$34.00

Win ($Billions) Win ($Billions)

$32.85

$34.00

$31.98

$32.85

$30.00 $30.00

$30.90

$31.98

$30.90

$30.74

$30.90

$30.74

$30.90

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2006

2007

2008

2009

2010

Annual % Growth in Casino and EGD-Other Win (US vs. Canada) Annual % Growth in Casino and EGD-Other Win (US vs. Canada)

25.0%

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2011

Source: HLT Advisory most recent data various state 2010 government gaming 2006Inc. based on2007 2008available from 2009 2011 agency/ boardmonthly reports.

25.0%

■

20.0% 20.0%

Annual % Change Annual % Change

15.0% 15.0%

10.00% 10.00%

5.0%

7.6% 5.9% 6.1%

6.3%

5.9% 6.1%

6.3%

5.0%

7.6%

2.7% 2.7%

3.5%

2.7%

3.5%

0.5% 0.1%

2.7%

0.0%

0.5% 0.1%

0.0%

-1.9% -4.0% -1.9%

-5.0% -5.9%

-5.0%

-10.0%

-4.0%

-5.9%

-10.0% 2006

2007

2006

2007

2008

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2009

2010

2011E

US 2008 Casinos

2009 CND Casinos

2010

2011E

US Casinos

CND Casinos

Note: Year End - March 31st.

EGD-Other: Slots at Racetracks (Canada and US) and bingo halls (Canada) Source: HLT Advisory Inc. based on most recent data available from various provincial government agency/ corporation annual reports, and state government gaming agency/board monthly reports.

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coverstory

"To achieve growth in this type of economic environment, gaming operators need to be creative and able to identify and penetrate new demand segments."

highs reached in 20 08 (15.1% and 22.4% respectively). Discounting 2010 results (bottom of recession in Nevada), the 2011 results for Las Veg as strip casinos represent the lowest total since 2005, while for the Rest of Nevada, current results are the lowest in the past decade.

I n conclusion, wh i le bot h t he Canadian and United States casino sectors (in total) have rebounded, not all provinces/states experienced a rebound. Also, in both countries the current results have not yet rebounded to historic highs. In the United States, 2011 results are off by 9.1% from 2008 results even after signif icant new supply has been added in some states.

In comparison the Canadian casino sector is only off 1.7% from its historic high achieved in 2009. In this sense, Canada continues to fare better than its neighbor to the south.

What to expeCt In the near term The current state of the economy coupled with the increasing maturity of the indust r y in ma ny reg ions

of Ca nada is ma k ing the a nnua l budgeting process more diff icult f o r i n du s t r y o p e r a t o r s . I n t h e pa st, a sig nif ica nt component of the budgeting process was timing implementation estimates of new gaming supply (e.g. new facilities, new dev ices, etc.). W hile supply changes (including new and enhanced gaming products) will continue to be important, the economic outlook for the consumer market will likely dominate annual budget discussions over the next few years.

There are a number of new and en h a nce d suppl y de velopment s / enhancements that are planned to be implement ed in a number of provinces over the next two years.

Tw o s i g n i f i c a nt d e v el o pm e nt s / enhancements include: • VLT replacement/modernization initiatives in Quebec, A lberta, Manitoba, Saskatchewan and Nova Scotia.

• Introduction of internet gaming in Ont ar io and the continued ex pa nsion of inter net g a ming initiatives in British Columbia and Quebec.

Just how (including the speed that) the consumer market reacts to these supply changes is not certain. Uncertainty about the economy still persists and fears of another recession are real.

The weaker recovery (specifically in the United States), in addition to the European debt crisis and major issues surrounding the f inancial markets have forced major banks to lower Canadian growth expectations for the next couple of years. The latest bank forecasts indicate that Canada’s economy will continue to grow over the next couple of years; however, near–term growth is forecast to be

Latest Canadian Real GDP Growth Latest Canadian Real GDP Growth Forecasts Prepared by Major Canadian Forecasts Prepared by Major Canadian Banks Banks TD TD CIBC CIBC RBC RBC BMO BMO Scotia Scotia Average Average

Date 2010A Date Sep-11 2010A 3.2 Sep-11 3.2 Sep-11 3.2 Sep-11 3.2 Sep-11 3.2 Sep-11 3.2 Oct-11 3.2 Oct-11 3.2 Oct-11 3.2 Oct-11 3.2 3.2 3.2

2011F 2011F 2.2 2.2 2.2 2.2 2.4 2.4 2.2 2.2 2.1 2.1 2.2 2.2

2012F 2012F 1.9 1.9 2.2 2.2 2.5 2.5 1.8 1.8 1.7 1.7 2.0 2.0

Source: HLT Advisory Inc. based on the latest economic Source: Advisory Inc. based on the latest economic forecastsHLT prepared

by Major Canadian Banks. forecasts

by Major Canadian Banks.

A=Actual prepared & F=Forecast A=Actual & F=Forecast n/a: Not available n/a: Not available

Latest Canadian Consumer Spending Latest Consumer GrowthCanadian Forecasts PreparedSpending

by Major Growth Forecasts Prepared Canadian Banks by Major Canadian Banks TD TD CIBC CIBC RBC RBC BMO BMO Scotia Scotia Average Average

Date 2010A Date Sep-11 2010A 3.3 Sep-11 3.3 Sep-11 n/a Sep-11 n/a Sep-11 3.3 Sep-11 3.3 Oct-11 3.3 Oct-11 3.3 Oct-11 3.3 Oct-11 3.3 3.3 3.3

2011F 2011F 1.9 1.9 n/a n/a 2.1 2.1 1.8 1.8 1.9 1.9 1.9 1.9

2012F 2012F 2.3 2.3 n/a n/a 2.4 2.4 1.8 1.8 1.8 1.8 2.1 2.1

Source: HLT Advisory Inc. based on the latest economic Source: Advisory Inc. based on the latest economic forecastsHLT prepared

by Major Canadian Banks. forecasts

by Major Canadian Banks.

A=Actual prepared & F=Forecast A=Actual & F=Forecast n/a: Not available n/a: Not available

significantly below 2010.

In shor t, the cur rent st ate and near-term growth outlook for the Canadian economy does not support the expectation of a strong rebound in gaming win for the next couple of years. To achieve growth in this type of economic environment, gaming operators need to be creative and able to identify and penetrate new demand segments. If operators are successful in identifying and penetrating new segments, part of the growth will likely offset potential decreases in historic key consumer demand segments.

Robert Scarpelli and Katia Muro are with HLT Advisory Inc. as managing director and manager; respectively.

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gamingtrends

Governments:

Online Operators or Online Regulators?

By Morden C. Lazarus, Edwin D. Monzon, Brian T. Hall, and Cory R. Levi

Online gaming (or iGaming) has existed since the end of 1995, with Antigua and Barbuda becoming the first jurisdiction to create and pass legislation allowing for a gaming company to apply for and receive a license to operate online. However, it wasn't until January 1, 1998 that Planet Poker became the first online operator to offer a real money multi-player poker platform. Shortly thereafter, by 2001, Paradise Poker, Party Poker, and Poker Stars followed suit.

Realizing the ever growing opportunity, many new casino and poker sites surfaced online over the next 5 to 10 years, including Full Tilt, Absolute Poker, Ultimate Bet (later UB.com), and Bodog to name a few–with many of the larger ones earning hundreds of millions of dollars in revenue. Even today, our law office receives numerous inquiries on a weekly basis requesting information and guidance on starting up and operating an online gaming site, despite the fact that many feel the market is already heavily saturated.

To date, legislation in Canada is very clear as regards gaming; simply put, unless you are the government or have received special authorization from same, it is a criminal activity to own and/or operate a gaming endeavour of any nature. Furthermore, anyone found in such a location can also be subject to prosecution.

The global market for online gaming alone is between $16 and 20 billion, with Canada representing approximately $1 billion. In Canada, online gaming is subjected to the same g aming legislation as land-based or “brick and mortar” gaming–the Criminal Code of

Canada (the “Code”), more specifically section 197 and following–and as we have seen, provides a government monopoly over the industry.

Over the past few years, provincial g o v er n m ent s h a v e r e a l i z e d t he lucrative potential of online gaming.

In t a k ing advant a ge of the antigaming “monopoly” provisions of the Code, several provinces have recently developed their own online offerings, such a s PlayNow.com in Br itish Columbia and Espacejeux in Quebec, and put forth the idea of forming a multi-province consortium to grow their online liquidit y.

However, as a result of the lack of success with regard to this initiative, both Quebec and British Columbia are re-thinking their roles as operators of a gaming site, and the M a r it i m e P r o v i nc e s , originally involved in the six province consortium, have already left the said consortium.

Due to the anti-gaming provisions, most online

gaming sites are forced to “set-up shop” offshore to avoid any and all criminal liability. This has led to what has become known as the “Foreign Operator Principal”. However, the provisions of the Code, as currently d ra f t e d, fa i l t o sec u re a n e qu a l monopoly for the online market as a result thereof. This is primarily because the jurisdiction of the Code is restricted to within Canada's borders, and as such any and all operations that emanate from outside cannot be regulated by it.

This is how many of the larger and credible operators, such as Party.Bwin

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and William Hill, enter the Canadian market and accept Canadian players; that is, the totality of their operations is outside of Canada, offshore, and thus is said to not be in breach of the anti-gaming provisions of the Criminal Code.

The same is not the case in the United States, where up until 2006 online gaming was tolerated. In October of 2006, the U.S. government created and passed the Unlawful Internet Gaming Enforcement Act (UIGEA) which prohibited the facilitation of payments made by Americans to online gaming operators, whether situated in the U.S. or not. At that time, many online operators were “head-officed” in “tax havens” so as to avoid having to pay taxes. As a result, a lot of revenue being earned from U.S. residents, was not staying in the country. It was the government's belief, that by enacting UIGEA, online gaming would come to a halt, or at the very least slow down.

To the contrary, however, it only got bigger and more popular, without any real substantial reduction in U.S. online gaming business; in fact, prior to the events of April 15, 2011 (Black Friday), the U.S. was the largest market for online gaming.

Realizing that their plan perhaps backfired on them, several governments at the State level and even the Federal level, over the past few months, have been attempting to enact and pass legislation that would bring gaming back into the U.S. legally, and with it, the hundreds of millions of dollars of lost foreseeable revenue. A thorough analysis of the proposed bills show their plan is not to compete with the Poker Stars and Full Tilts of the world, but rather to regulate online gaming, and generate revenue through licensing fees and taxes.

Also realizing the amount of potential revenue, several Canadian provinces, in 2010, sought to legally bring online gaming into Canada, however not in the same manner as in the U.S. In 2010, the Quebec government announced plans to open the ver y f irst provincially-operated online gaming site, www.EspaceJeux.com, in hopes of earning a piece of the billion dollars gaming industry. By February of 2011, www.PlayNow.com, British Columbia's online gaming site, joined forces with Quebec on the Canadian Poker Network allowing only residents from both provinces to play against each other.

Although appealing to many due to the control measures and ways to monitor a person's gaming habits, many players do remain hostile to the idea as they are limited to only playing with residents of Quebec and/or British Columbia, as opposed to the tens–if not hundreds–of thousands of players playing online from around the world.

Based on all of the foregoing, we believe that of the paths chosen by the U.S. and Canada, the licensing and regulatory scheme of the U.S. is wiser, for two simple reasons. For one, as an operator rather than a regulator, provincial governments will have to compete with sites that have been around for over a decade, which offshore sites have much more k nowledge, k now-how, tools, and experience than they do–and most importantly–have a solid player base to draw from. Secondly, as an operator as opposed to a regulator, provincial governments will have to “take the heat” for any and all complications that may arise from play on their site, rather than 'punish' a clandestine private operator, and hence avoid any and all negativity in the eyes of the public.

It is no surprise that governments, both in Canada and the U.S. are well aware of the monetar y benef its of online gaming; however, the billion dollar question remains as to whether governments should recognize the legitimacy of this industry and enter it as a regulator or attempt to compete in it as an operator.

Which decision will be the right one?

Only the future can tell.

Morden C. Lazarus, Edwin D. Monzon, Brian T. Hall and Cory R. Levi are all associated with the law offices of Lazarus Charbonneau (www.LazarusCharbonneau. com) located in Montreal, Quebec (Canada).

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Canadian gaMing

LawyerMagazine

voluMe 4 nuMBer 2 octoBer 2011

extraterritorial igaming

eManating froM within Canada

Further Thoughts on Jurisdictional Issues in Canadian Internet Gaming S. 203: A Mule of a Rule or Part of Our Colt-ture?

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Message from the Editor

With another

Canadian Gaming Lawyer (“CGL’’) edition ready for publishing, it is time to collect my thoughts and write the editor’s column.

With G2E scheduled for early October instead of mid November, the fall edition of CGL is set to be distributed six weeks earlier in time for the big event.

Held in its new location at the Sands Convention Centre, G2E is expected to be larger than ever, attracting not only more participants, but also more attendees.

Internet Gaming (iGaming) will certainly play a larger role at G2E, what with talk of legislation being introduced to regulate iGaming in the US Congress and a number of states in 2012 and 2013. It is interesting to see Canada taking the lead in regulated iGaming in North America. How the future of internet gaming will roll out in Canada is still anyone’s guess. Whether the Ontario Lottery Gaming Corporation (OLG) will be ready to launch iGaming by 2012 as announced is still an open question.

This edition focuses three of its articles on internet gaming. Our feature story, authored by my partner Kevin Weber and yours truly, discusses the legal basis for extraterritorial iGaming emanating from Canada. In it, we make the case that an iGaming operator such as BCLC or the OLG operating from within Canada can lawfully offer iGaming to customers outside Canada without attracting liability under the Criminal Code (‘’Code’’). If international competition in iGaming continues to grow as expected, the ability of a Canadian iGaming operator to accept bets from jurisdictions where it is expressly legal to do so will certainly become a common issue in the near future.

Another important question facing Canadian iGaming operators and law enforcement authorities is whether jurisdiction exists under the Code to prosecute off shore iGaming operators who knowingly target Canadians. Stu Hoegner of Toronto discusses some of the legal principles that a Crown prosecutor would consider in determining whether jurisdiction does exist to charge an offshore iGaming operator with violating the gaming prohibitions under the Code.

On a more enlightened note, Nick Nocton and Tony Coles of the firm Jeffrey Green & Russell of London England review the planned changes for remote gambling in the UK. Many experts in opine that, but for its regressive tax on iGaming, the UK would have been the ‘centre of the universe’ for iGaming. Having relinquished that title to such jurisdictions as Alderney, Isle of Man, Malta, and even Kahnawake, Nick and Tony discuss the proposal that all gambling operators - irrespective of their location - wishing to do business with players in the UK will be required to obtain a UK remote gambling license; therefore changing from licensing at the point of origin to licensing at the point of consumption.

Turning away from iGaming, and looking to the past, Jack Tadman of Toronto returns to the CGL with an interesting piece on the history of section 203 of the Code which prohibits one from engaging in the business of placing bets on behalf of another.

I trust you will enjoy reading the articles and look forward to receiving your comments.

In closing, I want to extend my deep appreciation to Tony Coles who will be stepping down as president of the IMGL this fall. His unfailing support for the CGL has been a source of strength. I look forward to working with his successor, Kelly Duncan from new Orleans, and one of my oldest ‘gaming law’ friends. Like Tony Coles and myself, Kelly was a one of the founding members of the IMGL over 10 years ago.

Canadian Gaming

Lawyermagazine October 2011 Volume 3 Number 2

Publisher

Paul Murphy

paulm@mediaedge.ca 416-512-8186 ext. 264

Editor

Michael D. Lipton, Q.C. mdliptonqc@dickinsonwright.com

Advertising Sales

Paul Murphy

paulm@mediaedge.ca

Senior Designer

Annette Carlucci

annettec@mediaedge.ca

Designer

Jennifer Carter

design2@mediaedge.ca

Production Manager

Rachel Selbie

rachels@mediaedge.ca

Circulation Manager

Lina Trunina

circulation@mediaedge.ca

Proudly published by:

Publisher Paul Murphy

President of the IMGL Tony Coles

paulm@mediaedge.ca

arc@jgrlaw.co.uk

Editor Matthew Bradford

Executive Director, IMGL Melissa Lurie

matthewb@mediaedge.ca

IMGLDirector@aol.com

Canadian Gaming Lawyer is published twice a year as a joint venture between Canadian Gaming Business Magazine and the International Masters of Gaming Law (IMGL).

For advertising information, Contact Chuck Nervick 416-512-8186 ext. 227 chuckn@mediaedge.ca

For editorial information, For editorial information: Contact Michael D. Lipton at mdliptonqc@dickinsonwright.com

Canadian Gaming Business Magazine is owned and published by:

Michael D. Lipton mdliptonqc@dickinsonwright.com 2 | Canadian Gaming Lawyer Magazine

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MESSAGE FROM THE PRESIDENT

e

In introducing

this edition of Canadian Gaming Law yer, I must acknowledge the invaluable work its editor Michael Lipton contributes to its success.

Also, I thank on behalf of IMGL all of the contributors and advertisers without whom this publication would not be possible.

As exemplified by the prestigious and successful gaming law conference which IMGL organized in California last May, its members continue to show their dedication to the enhancement of gaming law education worldwide. IMGL’s Spring Conference 2011 was its most successful ever and re-emphasized the importance of the work which IMGL and its members undertake to expand gaming law education. Building on this success, IMGL is arranging its next gaming law conference to be held in Vienna, Austria on September 15th and 16th, 2011.

As part of its international work in gaming law regulation, IMGL has for some years recognized regulators who, by their overall body of work during their career as a regulator, have contributed to the gaming industry, made noteworthy achievements in regulation, and assisted in providing a regulatory environment in their jurisdiction. The recipients of the IMGL Awards have been identified as people of high integrity demonstrating service in the gaming community. Therefore, I am very pleased IMGL has made gaming law regulator awards in 2011 to Mr Lipparelli (Gaming Regulator of the Year – Americas), Norman H DesRosiers (Gaming Regulator of the Year – Indian Country), Manuel Joaquim das Neves (Gaming Regulator of the Year – Evolving Jurisdictions) and Juan Carlos Alfonso Rubio (Gaming Regulator of the Year – Europe). All four recipients of the Regulator of the Year Award were highly deserving of this recognition, which I firmly believe reflects not only the continued expansion of gaming law regulation, but IMGL’s increasing influence, membership and importance as a leader in international gaming law education.

I am also pleased IMGL has continued its invaluable educational commitment by publishing not only this journal, but also Casino Lawyer, European Gaming Lawyer and - in Spanish - La Ley del Juego. All of IMGL’s journals can be downloaded from its website (www.gaminglawmasters.com) where further

details of our organization and its members contributions can be found.

Readers may wish to note IMGL’s on-going support for the publication of the Gaming Law Review in conjunction with the University of Nevada, Las Vegas. This law review - details of which are also available on the IMGL website represents a valuable contribution to the proper study of gaming law worldwide, and continues to offer academic materials of the very highest quality.

2011 has been a pivotal year in the development of gaming law and regulation. Not only have there been significant developments in Canada, in many other parts of the world governments are changing the way in which the industry is viewed, regulated, and taxed. I would not be alone in commenting that not all of these developments are necessarily welcome by all sectors of the industry (let alone by the wider communities concerned), but I know IMGL members are at the forefront in pressing for the development of effective, workable, and sensible gaming law regulations so the industry can move forward in the most constructive way for all concerned.

As my second year as IMGL President draws to a conclusion, may I say what a privilege it has been to serve with my distinguished fellow IMGL members. I thank them for their trust and support in what has been a thoroughly enjoyable but nonetheless somewhat time consuming task. I am, however, not alone in contributing to IMGL’s work since I know our general and affiliate members do their utmost to ensure IMGL continues to be the best gaming law organization in the world. It has been an honour to follow my distinguished predecessors as leader of this prestigious group, and I am confident our new president, Kelly Duncan, will take our organization to even greater heights. All of IMGL’s members are committed to the enhancement of worldwide gaming law education, and I know that under Kelly’s able leadership IMGL will achieve even more success in its aims. Kelly Duncan is well known as a leading international figure in the gaming world, and has long been recognised as one of our greatest gaming lawyers.

Tony Coles President International Masters of Gaming Law October 2011 | 3

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cover story

By Michael D. Lipton, Q.C. and Kevin J. Weber

Extra-Territorial iGaming

Emanating from Within Canada The legal status of online gaming (“iGaming”) in Canada remains a matter of conjecture in Canada. Most often, this conjecture centres around whether an iGaming operator based entirely outside Canada may lawfully accept customers from within Canada. A less considered question is whether an iGaming operator located within Canada can lawfully offer iGaming to customers outside Canada without attracting liability under the Criminal Code (the “Code”).

This is not a purely theoretical issue; a growing number of European jurisdictions license foreign iGaming operators, permitting them to accept customers from within those countries.

In many such countries, the computer servers used to operate iGaming do not have to be physically located in the licensing jurisdiction. Our belief is such servers could be located in Canada without offending the gaming prohibitions in the Code, as long as customers are only accepted from countries that explicitly permit the iGaming activity.

The issue has never been addressed by any Canadian court, but two cases have touched upon it indirectly. In R. v.

World Media Brokers Inc. (“World Media”),1 the defendants offered European lottery tickets to U.S. residents from locations in Canada. There was no evidence it was lawful to sell or purchase these tickets in the U.S. In Reference re Earth Future Lottery (“Earth Future Lottery”) 2, the Province of Prince Edward Island (“P.E.I.”) proposed to license a charity to conduct and manage an online lottery that would have

accepted customers internationally and throughout Canada. It was intended that this Earth Future Lottery would operate in all provinces of Canada without being licensed by any of those provinces except P.E.I., and internationally without regard to whether it was expressly legal to offer such a lottery in any foreign jurisdiction.

In World Media, the defendants sought to shelter under the exemption provided by s-s. 207(1)(h) of the Code, which reads as follows: “No t w it h s t a n d i n g a n y o f t he provisions of this Part relating to gaming and betting, it is lawful: . . .

(h) for any person to make or print anywhere in Canada or to cause to be made or printed anywhere in Canada anything relating to gaming and betting that is to be used in a place where it is or would, if certain conditions provided by law are met, be lawful to use such a thing, or to send, transmit, mail, ship, deliver or allow to be sent, transmitted, mailed, shipped or delivered or to accept for carriage or transport or convey any such thing where the destination thereof is such a place…”

The Ontario Court of Justice held that s-s. 207(1)(h) of the Code did not

“A growing number of European jurisdictions license foreign iGaming operators, permitting them to accept customers from within those countries.”

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cover story assist the defendants, because it was not established that the U.S. was a place where it was, or could have been, lawful to use the lottery tickets. This implies that had the defendants offered lottery tickets to persons in foreign jurisdictions where it was lawful to sell or purchase them, they could have been acquitted under s-s. 207(1) (h) of the Code.

where the lottery scheme only allows the sale and purchase of g aming privileges to customers in foreign jurisdictions where the laws of those foreign jurisdictions render such sales and purchases expressly lawful.

In Earth Future, the P.E.I. Court of Appeal was more reluctant to apply s-s.

207(1)(h) to a the sale and purchase of

to in s-s 207(1)(h) must occur, if at all, only in the province where it is lawful.” 5 The P.E.I. Court of Appeal did not acknowledge the World Media decision or its statements on the application of s-s.

207(1)(h).

The Supreme Court of Canada dismissed an appeal brought by P.E.I. from the findings of the P.E.I. Court

“The fact s-s. 207(1)(h) exists at all serves to indicate that even the few extra- provincial activities referred to therein would not be permitted in its absence. It also indicates Parliament intended that any activity necessary to gaming not referred to in s-s 207(1)(h) must occur, if at all, only in the province where it is lawful.”

The Ontario Court of Justice in World Media clearly considered the sale and purchase of gaming privileges to be a foreign “use” of something “relating to gaming and betting” which could be rendered lawful in Canada by s-s. 207(1) (h) of the Code. As the court stated: “While the purpose of [s-s. 207(1)(h)] may be to permit Canadian printers or manufacturers to supply lottery-related materials to places where they can be lawfully used, I agree with the defence submission that its language would appear not to preclude the sending of material soliciting participation in an ongoing lottery to a place where it is or could be lawful to do so.”3 This statement of law was left undisturbed by the Ontario Court of Appeal in its decision upholding the convictions. World Media indicates that s-s. 207(1)(h) exempts the conduct, management and operation of a lottery scheme within Canada from prosecution,

gaming privileges. The Court sought to limit the ambit of s-s. 207(1)(h) as not applying to those seeking “extraprovincial” customers, stating that “the only activities Parliament permits to occur extra-provincially relating to gaming is the making, printing, and transporting of anything to be used in a place where it would be legal,” and “ the list of permitted extra-provincial activities under s-s. 207(1) (h) is very limited.”

Accordingly, the P.E.I. Court of Appeal in Earth Future expressed the opinion the authorization provided by s-s. 207(1)(h) was not “broad enough to permit all the activities that would be taking place extraprovincially in the operation of the Earth Future Lottery,” concluding: 4 “The fact s-s. 207(1)(h) exists at all serves to indicate that even the few extraprovincial activities referred to therein would not be permitted in its absence. It also indicates Parliament intended that any activity necessary to gaming not referred

of Appeal, providing a one-sentence decision: “The Court would dismiss the appeal, substantially for the reasons of the Chief Justice of Prince Edward Island.”6 “Substantially” means “most, but not all.” 7 Accordingly, while the Supreme Court agreed the proposed Earth Future Lottery would have been unlawful, it did not specifically concur with the reasons of the P.E.I. Court of Appeal relating to the application of s-s. 207(1)(h).

In our view, the interpretation of s-s.

207(1)(h) of the Code set out in World Media better accords with both the legislative history of section 207 of the Code and the generally understood principles on the application of Canadian criminal law Canadian-based activity creates effects that are experienced outside Canada. Subsection 207(1)(h) of the Code should accordingly apply to the conduct, management, and operation of a lottery scheme within Canada, where that lottery scheme only allows the sale of

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feature gaming privileges to customers in foreign jurisdictions whose laws explicitly permit the sale and purchase of such gaming privileges.

Section 207 of the Code was enacted in its present form as the result of a June 3, 1985 agreement between the federal and provincial governments (the “1985 Lotteries Agreement”). 8 Pursuant to the 1985 Lotteries Agreement, the Government of Canada undertook to remove itself from the field of gaming and betting and to refrain from re-entering that field, and further undertook “to introduce amendments to the Criminal Code in substance in accordance with the draft attached hereto as Schedule A, which amendments shall be subject to consultation with the Provincial Ministers responsible for the administration of Justice…”9 Schedule A to the 1985 Lotteries Agreement clearly indicates that the territorial restrictions set forth in what is now section 207 applicable to the conduct, management, and operation of gaming and betting in Canada were only intended to operate within Canada. They were enacted in order to prevent lottery schemes conducted and managed in one province from “poaching” on the markets of other provinces, with no intention to prohibit entering markets outside of Canada.10 Schedule A to the 1985 Lotteries Agreement also indicates that Parliament intended s-s. 207(1)(h) of the Code to apply to permit Canadians to conduct and manage lottery schemes in foreign jurisdictions where such activity is lawful.

The exemption was not restricted to permitting Canadians to supply materials for use in lottery schemes conducted

and managed by other persons in such jurisdictions.

As well, an interpretation of s-s.

207(1)(h) that permits the conduct and management of lottery schemes from Canada that sell gaming privileges to customers in jurisdictions that consider the sale and purchase of such gaming privileges to be lawful would comply with basic principles of the extraterritorial application of Canadian criminal law. Canadian law may not validly criminalize actions that take place in Canada, and whose effect is felt solely outside Canada, where that external effect is lawful in the jurisdiction where it is felt.

The seminal case governing the extraterritorial application of Canadian criminal law is R. v. Libman11 (“Libman”).

In Libman, the Supreme Court of Canada clearly indicated that the extension of Canadian criminal jurisdiction is justifiable only where a “transnational offence” is committed. A transnational offence involves circumstances where “the same criminal act may…be subject to prosecution in more than one country.”12 The Court canvassed a number of English decisions on the extraterritorial application of criminal law, and identified the unifying factor among these decisions as being that in each case, “it might be possible to charge an accused in two different countries” and “there may be sufficient links to different jurisdictions to justify proceedings in more than one place.”13 The Court in Libman referred to the effects upon the foreign populace as being “wrongs” and the foreign population as victims of actions commenced in Canada.

1. (1998), 132 C.C.C. (3d) 180, 1998 CarswellOnt 3952 (Ont. Ct. of J.); affirmed, (2003), 174 C.C.C. (3d) 385 (Ont. C.A.).

2. (2002), 215 D.L.R. (4th) 656 (P.E.I. C.A.); affirmed [2003] 1 S.C.R. 123, 2003 SCC 10, 222 D.L.R. (4th) 383 (S.C.C.) 3. Supra note 1 at paragraph 39 (Ont. Ct. of J.).

4. Supra note 2 at paragraph 12 (P.E.I. C.A.).

5. Supra note 2 at paragraph 12 (P.E.I. C.A.).

6. Supra note 2 at 384 (S.C.C.).

7. The Supreme Court has in the past been criticized for giving “a perfunctory disposition of…important issues” by upholding a decision “substantially for the reasons” of the court of appeal. “If the Supreme Court of Canada does not fully agree with the reasons of the court below it should provide its own reasons.” Peter W. Hogg, Constitutional Law of Canada, 4th Edition (Toronto: Carswell, 1998), pp. 1082, fn. 101.

Where a lottery scheme creates no “wrongs” or “victims” either inside or outside Canada, there is no “transnational offence” and no prosecution under the Code is supportable. The Canadianbased operation would be a lawful seller of gaming privileges according to the laws of the jurisdiction where the gaming privileges are being purchased. No persons in Canada would be customers of the operation. There is no precedent for extending the jurisdiction of the Code to such a situation, and accordingly such an extension is not supportable under the principles set forth in Libman. In that light, s-s. 207(1)(h) of the Code should be seen as a codification of a common law principle, expressly setting forth circumstances where the gaming and betting provisions of the Code will not be applied extraterritorially in order to provide certainty.

Whether justified by the exemption in s-s. 207(1)(h) of the Code, or general principles of Canadian criminal law, the conclusion holds true. The gaming prohibitions in the Code are not applicable to a seller of gaming privileges that only accepts customers from jurisdictions that consider it lawful for persons in their territories to purchase of such gaming privileges. CGL

Michael D. Lipton, Q.C and Kevin J. Weber are with Dickinson Wright LLP in Toronto.

Michael is a founding member and past president of the IMGL. He has been recognized by his peers in "Chambers Global" for excellence in Gaming Law, and recently received CGA's 2011 Industry Leadership and Outstanding Contribution Award.

8. Canada. Federal–Provincial agreement respecting gaming and betting entered into on June 3, 1985. Referenced in: Canada. Senate. Standing Committee on Legal and Constitutional Affairs. Evidence, 38th Parl., 1st sess., Issue 3, December 1, 2004, per Senator Joyal.

9. Supra note 8, clause 1.2.

10. Supra note 8, Schedule A, section 2. This also accords with statements made by the Minister of Justice in 1969, when the original exemptions for “lottery schemes” were enacted into the Code: Canada. House of Commons.

Standing Committee on Justice and Legal Affairs, Evidence and Proceedings. 28th Parl., 1st sess., March 13, 1969.

11. 1985 CarswellOnt 951, [1985] 2 S.C.R. 178, 21 D.L.R. (4th) 174 (S.C.C.).

12. Supra note 11 at paragraph 11.

13. Supra note 11 at paragraphs 18–21.

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Feature

By Stuart Hoegner

Further Thoughts on Jurisdictional Issues in Canadian Internet Gaming:

How Far Is Close Enough?

In a cogent and thought-provoking article in this magazine this past April, Michael Lipton and Kevin Weber set out some thoughts on criminal jurisdiction as it relates to internet gaming in Canada1. The issue is whether and under what circumstances the Canadian Criminal Code will apply to foreign internet gaming operators doing business with Canadian residents. While the cases in which online operators have been prosecuted by the Crown to date have had ample physical connections to Canada, practitioners should not blithely conclude that there is little or no conceptual basis for a Canadian court reaching out and exerting jurisdiction where Canada is merely the location of the internet gaming or betting customer. Foreign iGaming operators must be cautious in examining the issue of when criminal sanctions will apply to transactions that may assume take place outside Canada.

The Basic Issue: When Will the Code Apply?

As Lipton and Weber point out, the Code sets out a number of prohibitions on unlicensed gaming and betting, and they rightly emphasize the Code provides that only the provincial governments may conduct and manage gaming and betting operated on or through a computer or video device3 - including by means of the internet.

However, the Code also states that, generally, no-one shall be convicted of “an offence committed outside Canada.”4 So, the crux of the jurisdictional question in gaming with regard to Canadian criminal law is this: what factors should be considered in determining whether an offshore internet gaming site is committing an offence that is not “outside Canada” and subject

to the Code? Is it enough that there is an interactive gaming or betting customer in Canada transacting business with a nonresident operator where that operator has no other connection to Canada? Or must the enterprise taking bets or wagers have some further nexus to Canada other than having a customer here?

From the Decided Cases, the Answer is Unclear Whether the Code will apply in these various scenarios has not been conclusively addressed and answered by the Canadian courts. The judiciary has provided a broad framework for how these sorts of cases will be addressed, but Crown prosecutors and the courts have not applied it in a case where only internet gaming customers are in Canada.

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feature The legal analysis invariably starts with R. v. Libman5, an Ontario fraud case. For an offence to be subject to the jurisdiction of Canadian courts under the Code, “a significant portion of the activities constituting that offence” must take place in Canada6.

Expressed another way, there must be a “real and substantial link” between the offence and Canada7. In Libman, the accused directed a sales team in Toronto, Canada to telephone United States residents and induce them to purchase mining securities.

The accused’s employees were directed to misrepresent the quality and value of the securities; the shares were worthless. The Supreme Court of Canada had no trouble concluding there was a real and substantial link with Canada; the preparatory activities, the initiation of the scheme, the essential operating functions, and its directing minds were all in Toronto.

How many connections must there be - and of what kind - in order to establish a real and substantial link with Canada? In Society of Composers, Authors and Music Publishers of Canada v. Canadian Association of Internet Providers8, the Supreme Court considered the Libman test in a Copyright Act9 context. The issue in SOCAN was who should compensate musical artists for their Canadian copyright in music downloaded in Canada from a foreign country by means of the internet. SOCAN stands for the proposition that relevant connecting factors under Libman, as regards the internet, “include the situs of the content provider, the host server, the intermediaries, and the end user. The weight to be given to any particular factor will vary with the circumstances and the nature of the dispute.”10 Justice Binnie went on to state in SOCAN that the Supreme Court “has recognized, as a sufficient ‘connection’ for taking jurisdiction,” circumstances where Canada is the country of transmission or the country of reception11. As to this latter point, the majority in SOCAN cited Canada v. Canadian Liberty Net12, a contempt of court case relating to the broadcast of racist and antiSemitic messages on a telephone number in the United States available to Canadian callers. In Liberty Net, the majority of the court concluded that so long as part of an offence takes place in Canada, Canadian courts may take jurisdiction13. It would seem the Canadian courts have left the door open to asserting jurisdiction in situations where the only connection to Canada is that individuals there receive messages through the internet; conceptually, at least, this could include foreign internet gaming operators that have no nexus to Canada other than their customers being present there.

How have Crown prosecutors applied these rules in Canadian internet gaming cases? Thus far, there has been minimal guidance. In R. v. Starnet Communications14, the operation of an online gaming enterprise was conducted in and from British Columbia, and the game servers of the business were located in B.C. In R. v. 3370861 Canada Inc., the gaming enterprise had a physical office in St. Laurent, Quebec that was raided by the police, although the criminal information in that case referred to computers in Kahnawá:ke, Quebec. The accused in each case was charged under paragraph 202(1)(b) of the Code (among other

things, keeping or employing any machine or device for gambling or betting). Both prosecutions resulted in guilty pleas and disgorgement of substantial proceeds of crime. The question of the potential reach of the Code to foreign private internet gaming operators was not addressed in either case.

‘The Country of Reception’ Alone May be Sufficient to Ground Criminal Jurisdiction Some appear to believe it’s unlikely the jurisdiction of the Code extends to non-Canadian private internet gaming and betting operators that have no nexus to Canada other than having their customers here. For example, Morden Lazarus and Brian Hall rightly state that such operators have not thus far been subject to criminal prosecution by Canadian authorities. However, they go on to dismiss SOCAN’s relevance because it is a copyright case and therefore “easily” distinguishable on its facts from a criminal matter15. On this view, the Libman test will not apply to confer jurisdiction on a Canadian court where an internet gaming operator’s customers are the only connection to Canada.

There are two reported decisions that pose problems for this view. The first is SOCAN itself, where the Supreme Court conflates at least three different contexts in drawing up its ‘significant connection’ formulation: a copyright case (SOCAN), a criminal fraud matter (Libman), and the contempt power inherent to courts of common law jurisdiction in Canada (Liberty Net). Nowhere has the court indicated it will grind the sand fine enough to distinguish between Canada as “the country of reception” being good enough on its own to support jurisdiction in a contempt case but not in a criminal matter. The preferred view is that the court has at least left open the possibility of returning to SOCAN as good authority for exerting jurisdiction in a criminal case brought against an internet gaming operator that only has customers or end users in Canada.

The second is R. v. Stucky16 , a 2009 decision of the Ontario Court of Appeal. David Stucky operated a direct mail business in Ontario that sold lottery tickets and merchandise exclusively to people outside of Canada. Mr. Stucky was charged with 16 counts of making false and misleading representations “to the public” between 1995 and 2002, contrary to subsection 52(1) of the Competition Act17. On appeal by the Crown from acquittals, the Court of Appeal applied the Libman test and held that “the public” in this provision can include persons both inside and outside of Canada.

Stucky stands for the proposition that the Act will be read in a broad and purposive manner. The purpose of the criminal law, says the court, “is to protect the public from harm. That purpose is not achieved only by direct means, but also by underlining the fundamental values of our society and, in so doing, reinforcing the law-abiding sentiments of our society.”18 From Stucky, one can infer that a leading appellate court in Canada may well entertain a complaint under the Act when the facts are reversed and any objectionable conduct occurs outside of Canada and is merely received in Canada by means of the internet. Given the effect that October 2011 | 9

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feature section 74.06 of the Act has on gaming and contests in Canada, this is important enough on its own; but it gets worse for those relying on Canadian courts not to assert jurisdiction in criminal internet gaming cases. In obiter dicta, the Court of Appeal remarked that the Libman test has “general application” outside of criminal matters and again conflated the test across a series of legal matters, invoking the SOCAN decision, among others19. There is no indication in Stucky - especially given

some of its ringing purposive language - that the court will not, where it deems appropriate, apply the criminal law to a set of facts where only internet users and customers are in Canada and all other connecting factors are outside Canada.

It’s not abundantly clear that the Canadian courts will rely on decisions like SOCAN, Liberty Net, and Stucky to support a finding that internet gaming customers in Canada, as such, will sufficiently ground criminal jurisdiction.

1. M.D. Lipton & K.J. Weber, “Host Server Location and Jurisdiction over Extraterritorial iGaming in Canada” Canadian Gaming Lawyer 4:1 (April 2011) 14, online: http://www.gaminglawmasters.com/articles/ ExtraterritorialiGaminginCanada_2011.pdf (accessed 3 August 2011).

2. R.S.C. 1985, c. C-46 (the “Code”).

3 Supra note 1 at 14. The Code ignores the question of whether Canada’s First Nations have a right to conduct and manage gaming—whether land-based or online—based on constitutionally-recognized aboriginal and treaty rights. This is a critical issue in Canadian internet gaming law and it complicates the jurisdictional question, e.g., how will the Canadian courts perceive a private foreign gaming operator with no connections to Canada other than customers and game servers only in the Mohawk Territory of Kahnawá:ke, Quebec, government agencies of which license and regulate internet gaming? While this aspect of the matter is crucial, it does not change the fundamental jurisdictional questions and, because of space limitations, it will not be addressed in this article.

4. Supra note 2, s. 6(2). This rule has clear exceptions, e.g., certain sexual offences committed against children by a Canadian citizen or permanent resident outside of Canada will be deemed to have been committed in Canada (and therefore prosecutable in Canada) pursuant to subsection 7(4.1) of the Code.

5. [1985] 2 S.C.R. 178 [hereinafter Libman].

6. Ibid. at 213, La Forest J. 7. Ibid.

Thus far, the case law, such as it is, appears to show that Canadian authorities will not be interested in pursuing prosecutions in those circumstances. However, prudent counsel will not assume that non-criminal judicial decisions cannot inform the courts’ evolving views; on balance, the courts themselves have not made much of such distinctions. CgL Stuart Hoegner is a gaming attorney, accountant, and IMGL member in Toronto, Canada.

8. [2004] 2 S.C.R. 427 [hereinafter SOCAN].

9. R.S.C. 1985, c. C-42.

10. Supra note 8 at 456, Binnie J. 11. Ibid. at 457.

12. [1998] 1 S.C.R. 626 [hereinafter Liberty Net].

13. Ibid. at para. 52, Bastarache J. 14. (17 August 2001), Vancouver 124795-1 (B.C.S.C.).

15. M.C. Lazarus & B.T. Hall, “Mobile Gaming & the Foreign Operator Principle” (5th Annual Legal and Business Guide to Gaming in Canada, The Canadian Institute, 4 March 2010) at 4, note 7 [unpublished], online: http://www.lazaruscharbonneau.com/news/php6EvwnF.pdf (accessed 3 August 2011).

16. (2009) 256 O.A.C. 4, rev’g [2006] O.J. No. 4933 (Sup. Ct. Jus.) [hereinafter Stucky].

17. R.S.C. 1985, c. C-34 (the “Act”).

18. Supra note 16 at para. 27, Weiler & Gillese JJ.A. 19. Ibid. at para. 33.

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FEature

By Jack Tadman

S. 203: A MULE OF A RULE

OR PART OF OUR COLT-URE?

“S. 187 does not limit itself to the placement of bets for others at lawful betting establishments and can be said to also apply to the placing of bets for others with bookmakers. It must therefore be considered as the last word by parliament on the circumstances under which the placement of a bet is a crime.” – Justice Kerans, R. v. Arundel.1 In 1967, Canadian courts held that unlicensed off-track betting operations were legal. Parliament passed legislation in 1969, and again in 1975, with a view to prohibiting these unlicensed operations. This legislation, now found in section 203 of the Canadian Criminal Code2 (the “Code”) is the offspring of a brief but meaningful encounter between the Canadian Government and unlicensed offtrack betting shops. Eventually, unlicensed off-track betting shops were legislated out of existence, but their legacy lives on in section 203 of the Code. 3 Cab Fair? “..[t]he charge of bookmaking necessarily involves engaging in illegal betting, an element which…was not present here.” – Justice Schroeder, Regina v. Gruhl et al.3 Legal off-track betting began in Ontario in 1967 with the (unreported) Ontario Court of Appeal decision of Regina v. Lemelin and Brisson (“Lemelin and Brisson”).4 In Lemelin and Brisson, the two accused were taxi drivers who would frequently drive customers to race tracks in Toronto and Fort Erie. They were given money from customers and other people they knew and instructed how to bet that money. The two accused charged a fee to provide this service.

The two accused were charged with engaging in the business or occupation of betting. The court held that an essential element of book-making was engaging in illegal betting. Lemelin and Brisson were placing bets at legal racetracks5, and were thus acquitted.

This decision was followed in Gruhl. The accused’s business in Gruhl was to operate a pari-mutuel brokerage business. The accused received a commission based on the amount wagered. All bets were made at the race track.

Employees of the accused acted as agents of the principals (the bettors), and placed bets which they had undertaken to carry out for consideration. Gruhl was acquitted.

After Gruhl, numerous off-track betting establishments were opened. These establishments, legal at the time, collected money and received instructions from customers as to which bets to place. Employees known as “runners” would place those bets for customers at the racetrack.

You Ruse, You Lose “This was at best a very feeble effort to impart an air of legality or respectability to a business which fell clearly within the prohibition of s. 177A – a poor ruse which even the most credulous mortal would be disposed to find barren and unconvincing.” - Justice Schroeder, R. v.

Canavan et al.6 As a result of Gruhl, and the numerous post-Gruhl offtrack betting establishments, a new law came into effect on June 26, 1969 aimed at preventing the practice of receiving commission by acting as agents for bettors.

The new law, then subsection 177A(1) of the Code, stated: “Every one who places or offers or agrees to place a bet on behalf of another person for a consideration paid or to October 2011 | 11

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be paid by or on behalf of that other person is guilty of an indictable offence and is liable to imprisonment for two years.” 7 Once section 177A was passed, off-track betting shops could no longer operate using the business models approved by the Ontario Court of Appeal in Lemelin and Brisson and Gruhl. These shops attempted to circumvent section 177A by resorting to gimmicks such as selling racing sheets at 10% of the price of a wager 8 and only charging money for the redemption of winning betting tickets.9 These attempts to circumvent section 177A were generally unsuccessful.

Tipped Off “It is quite clear on the evidence that the service is rendered regardless of whether a gratuity is paid or not. It is also clear on the evidence that Adrian does not solicit by any means the payment of gratuities, nor does it operate any scheme like that castigated by the Court of Appeal in R. v. Canavan and Busby.”10 Justice Galligan, Adrian Messenger Services & Enterprises Ltd. v. Jockey Club Ltd.11 One successful strateg y used by off-track betting houses was to place bets as a free ser vice and collect tips. In Adrian, the Ontario High Court of Justice had to decide whether a messenger service acting gratuitously by placing bets for others on horse races violated section 177A of the Code. The messenger service’s sole source of revenue was tips from customers.

T he cou r t fou nd t h at t he ser v ice w a s prov ided regardless of whether tips are paid, and the accused in Adrian did not solicit, by any means, the payment of gratuities. As a result of these findings, Justice Galligan described the business model in Adrian as “ingenious” and held that bets were not placed “for consideration.”

Eventually, many of the off-track betting houses survived by pretending to take place horse racing bets for others, but were really booking the action themselves.12 As part of the Code amendments in 1975, parliament enacted two more subsections to what was, at that time, section 187.13

1.

2.

3.

4.

5.

[1987] A.W.L.D. 172, at para. 9.

R.S.C. 1985, c. C-46.

[1969] 2 O.R. 163, [1970] 1 C.C.C. 104, 4 D.L.R. (3d) 583 at para. 3 [hereinafter Gruhl].

R. v. Gula, 17 C.R.N.S. 129, [hereinafter Gula].

Paragraph 178(1)(c) of Criminal Code, 1953-54, c. 51, held that the betting provisions did not apply to bets made or records of bets made through the agency of an authorized pari-mutuel system.

6. [1970] 3 O.R. 353, 12 C.R.N.S. 385, [1970] 5 C.C.C. 15 (C.A.), at para. 5 [hereinafter Canavan].

7. An Act to amend the Criminal Code, S.C. 1968-1969, c. 37.

8. Supra note 6.

9. R. v. Williams, [1971] 1 W.W.R. 722, 2 C.C.C. (2d) 476.

10. Ibid. at para. 7.

11. [1971] 1 O.R. 575, 16 D.L.R. (3d) 121 at para. 7. [hereinafter Adrian] 12. See R. v. Benwell, [1972] O.J. No. 685.

13. Criminal Law Amendment Act, 1975, S.C. 1974-75-76, c. 93.

14. Ibid.

Subsections 187(b) and 187(c) created offences for engaging or holding oneself out (or allowing oneself to be held out) as engaging in the business or practice of placing or agreeing to place bets on behalf of others, whether for a consideration or otherwise.14 These subsections conclusively ended the legality of the business or practice of placing bets for others.

A Patchwork of Fossilized Law “All games were prohibited except for archery. That blanket prohibition, eroded through centuries of amendment and repeal, is with us today, a patchwork of fossilized law.”15 – Gail Glickman An era of Canada’s gambling history began in 1967 with the decision of Lemelin and Brisson and ended in 1975 with the passing of what are now subsections 203(b) and 203(c) of the Code. Between 1967 and 1975, unlicensed off-track betting shops were legally able to place bets on behalf of Canadians; initially for consideration and then only for gratuities.

As Campbell, Hartnagel, and Smith (2005) observe, amendments to the gambling provisions of the Code have been seemingly minor, ad hoc changes.16 Many of these ad hoc changes have implications beyond the original purpose of the legislation. The original purpose of what is now section 203 of the Code was to prohibit unlicensed off-track betting schemes.

Unlicensed of f-track bet ting schemes have been legislated out of existence. Section 203, however, has a much broader application than unlicensed off-track betting schemes. It applies to the placement of bets at lawful betting establishments and the placing of bets for others with bookmakers.17 It applies if consideration is paid for the placing of a bet and applies, regardless of whether consideration is paid, if one is in the business or practice of placing bets for others.

Jack Tadman is a lawyer in Toronto, Ontario who has written extensively on Gaming Law matters. He can be reached at jacktadman@gmail.com.

15. G.E. Glickman, “Our Gaming Laws: Conditions Dicey to Say the Least,” 3 Canadian Law (1979).

16. Colin Campbell, Tim Hartnagel, & Garry J. Smith, “The Legalization of Gambling in Canada,” (2005), [unpublished, archived at Library and Archives Canada], online: Alberta Gaming Research Institute <http:// www.abgaminginstitute.ualberta.ca/what_is_a_crime.cfm>.

17. Supra note 2.

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feature

By nicK nocton anD tony coleS

UK Developments

Planned Changes for Remote Gambling All gambling1 in the United Kingdom2 is currently regulated under the provisions of the Gambling Act 2005 (2005 Act) and the detailed rules and regulations made under it. Responsibility for policy issues rests with the Department for Culture Media and Sport (DCMS), the relevant UK Government Ministry, while day to day regulation and advice on issues of principle are handled by the Gambling Commission. Taxation issues are the responsibility of Her Majestyâ&#x20AC;&#x2122;s Treasury (HM Treasury), a different UK Government Ministry, and neither DCMS nor the Gambling Commission has any overt involvement in UK taxation issues.

oCtober 2011 | 13

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feature Currently, the 2005 Act provides for all gambling whether internet gambling (which the 2005 Act calls “remote gambling”) or terrestrial gambling (called “nonremote gambling”) - to be regulated in a common way and with the intention to create what has been described as a “level playing field” so that, wherever possible, there is no difference between the way in which internet and terrestrial gambling activities are regulated. The intention is that it is the kind of gambling on offer which is relevant rather than the medium by which, or the venue at which, it is made available. Thus betting, gaming, and lotteries are each regulated in slightly different ways and with different detailed rules and taxes. One exception to the concept of the “level playing field” is that terrestrial casino profits are taxed at a higher rate than internet gaming profits, but all kinds of betting are essentially taxed in a common way.

Currently, an internet operator licensed in the UK pays tax on all of its profits regardless of the location of the players. Although the regulation of internet gambling under the 2005 Act and by the Gambling Commission is up to date and sophisticated, the imposition of a profits tax on global players has meant that internet gambling operation from the UK is not widespread. This is compounded by the fact there is no prohibition on UK located players playing on a site which is operated from anywhere in the world, whether or not it is regulated.

It is also compounded by the inclusion in the 2005 Act of provisions addressing the UK’s responsibilities as a Member State in the European Union (EU) under which the UK recognizes as valid - so as to permit marketing to UK players - any site licensed in any EU jurisdiction. This recognition was extended in the 2005 Act to cover jurisdictions outside the EU but which the UK Government has decided, on a case by case basis, have sufficiently robust regulatory regimes to be treated as if they were EU Member States. This concept of “white listing” has meant that sites licensed in any of Alderney, the Isle of Man, Antigua or Tasmania are, for UK purposes, treated as if they were licensed in an EU Member State.

It is not surprising that this EU licence and “white listing” recog nition has meant little benef it for an international operator to seek a UK licence and pay UK tax when it could market freely to UK players without a UK licence and without paying any UK tax at all, even on play from players located in the UK. Planned Changes In a w ritten statement made on July 14th, 2011 the DCMS announced the UK Government’s intention to change the 2005 Act so as to revise the UK’s approach to the licensing of internet gambling. This was shortly followed by an announcement by HM Treasur y that, once these new arrangements are in place, there will be changes in the taxation of gambling.

The statement from DCMS came in response to a public consultation initiated by the previous Government. It responds to what have been described as concerns that, while many operators licensed in the UK or in other EU or “white listed” jurisdictions are subject to the same level of regulatory controls, not all operators with whom UK residents may gamble are regulated in the same way, and many may not be contributing towards the cost of research, education, and the treatment of problem gambling in Great Britain. Thus it is has been proposed that all gambling operators, irrespective of their location, wishing to do business with players in the UK will be required to obtain a UK remote gambling licence.

UK law would therefore change from licensing at the point of origin to licensing at the point of consumption. This is seen by many observers as being consistent with the developing regulatory landscape across the EU. It is interesting that following the statement by DCMS, the Gambling Commission has itself indicated a transitional period will be proposed to enable EU and “white listed” jurisdiction licensees to have an automatic transitional licence so as to ensure there is no interruption in their trade with UK players.

As a consequence of the planned changes, the “white list” would be phased out since operators from anywhere in the world would be entitled to apply for a UK licence. Instead, it is planned that the Gambling Commission will adapt its approach to licensing so it would depend on where the applicant for a UK licence has its primary licence, with the Commission applying a “lighter touch” to those operations from trusted jurisdictions. This plan is also intended to minimise the duplication of compliance requirements.

Until full details emerge, it is not clear exactly how these proposed changes will affect either UK players or the operators currently doing business with those UK players. It follows from what is set out above that, at present, UK players are able to access any internet gambling site anywhere in the world and the only restriction under UK law is to prohibit marketing in the UK of sites which are not regulated in an EU or in a “white listed” jurisdiction. This will change once the new provisions are in place and the additional regulatory costs will clearly have an impact not only on operators, but also on UK players.

The statement from HM Treasury of consequential changes in taxation for those internet gambling operators doing business in the UK will also have an impact, although details remain to emerge. HM Treasury has highlighted the fact other countries are also changing regulatory and taxation regimes for internet gambling, and it plans to consider the tax implications of these development s a nd, i n pa r t icula r, way s to prevent operators in the UK being subject to double taxation on internet gambling.

At present there is no indication of what might be the applicable rate of UK tax under a new regime, but in other segments of the gambling industry a tax of 15% on

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feature gross prof its has been imposed. Whether or not this is an indication of what may happen in the future remains to be seen. W hen the 2005 Act was f irst introduced, it was suggested by the government at the time that it would make the UK a particularly attractive regulatory jurisdiction for internet operators. Under the current arrangements, where tax is imposed at 15% on a UK operator on its prof its from players around the world, this anticipation was not fulf illed; however, whether a different tax structure will be such as to address this current problem remains to be seen.

association has announced publicly that it is “supportive” of the Government’s proposals.

The new provisions will not be brought in to place until 2012 at the earliest, and between now and then there will be signif icant discussion between operators, their associations, the various UK Government Ministries, and the Gambling Commission. Any operator currently doing business with UK players, or planning to do in the future, should therefore ensure it is either involved in these exchanges or is, at the very least, kept up to date on what is happening.

Future Developments Until more information is released it is diff icult for any operator to make any sensible plan for changes but many operators, and their trade associations, are already lobbying the UK Government to seek to ensure that the detailed arrangements are as benef icial to them as possible. Indeed William Hill, one of the leading UK operators, has asked the Remote Gambling Association to canvass its members on “funding a war chest that could put in motion a legal challenge to the UK Government’s plans”. However, until the details of the new provisions are available, it seems diff icult to establish any basis upon which a challenge could be mounted, and it is also noteworthy that at least one other member of that

Further details of the changes, and advice on alternative actions, are available from the Gaming and Betting Group at Jeffrey Green Russell. They can be contacted at gaminggroup@jgrlaw. co.uk or individually: Tony Coles – arc@jgrlaw.co.uk Nick Nocton – njn@jgrlaw.co.uk Charles Gerada – ccg@jgrlaw.co.uk

1. There are separate provisions covering the operation of the UK’s National Lottery and the operation of spread betting. All other gambling is regulated under the 2005 Act. 2. For ease this Paper refers to the United Kingdom and to the UK, but the Province of Northern Ireland has different gambling regulations. Reference should be made to us if details are required.

LONDON

Leaders in the field R E G U L ATO R Y • C O M M E R C I A L • C O R P O R AT E

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supplierprofile

Q&A with Walter Bugno, President and CEO

This summer, Spielo revealed its new Spielo International name to the Canadian gaming industry, ushering in a new direction for the Lottomaticaowned company and its full integration with Atronic. To get a sense of what this will mean for Spielo International's clients, we spoke with Walter Bugno, the company's president and CEO, and the man behind the merger and the future of Lottomatica's Gaming Division.

What is Spielo and Atronic's history with Lottomatica?

If you go back into the histor y of the company, GTECH decided to buy Spielo some years ago. They were also in the process of acquiring Atronic from Austria not long afterwards, but between buying Spielo and making the decision to go ahead and buy Atronic, GTECH itself was acquired by Lottomatica, which put the Atronic deal in a slow down. Eventually, they acquired Atronic to create a presence in the gaming industry and the gaming machine industry, rather than just the lottery business.

When Marco Sala was appointed to Group CEO for Lottomatica, he basically undertook a reorganization of the Lottomatica Group and divided it into business units, which had profit responsibility for their respective sectors.

They were Lottomatica Italy--or Lottomatica Italia--which focuses on operations in Italy; GTECH, which is responsible for the provision of lottery products and lottery ser v ices to the whole W L A customer grouping globally; and our interactive online business called GTECH G2. He then took both Atronic and Spielo businesses outside of the GTECH organization and put them together in a group which became the Lottomatica Gaming Division.

What then led to Spielo and Atronic's integration?

When I was brought in over a year ago, the first key task I was given was to take Atronic and Spielo--two separate organizations – and merge them into one to start leveraging the opportunities and synergy between the groups. By merging two businesses together, and reducing duplication, we are able to increase the output of games. We are also able to invest in more on the single platform of technology, rather than try to maintain two separate platforms. Those were the key drivers behind us saying, “Here's a business that we could draw a lot harder in the marketplace to succeed even more than it has, if we could leverage the strength of these two groups and put them together as a collective.”

What does Spielo International hope to achieve with this integration?

The key is maintaining the focus on each individual customer segment, and foster the relationships. The front-facing end–-that is, our sales, customer service and support people--will remain unchanged. So if I am a customer, and I'm talking to this new organization called Spielo International, I'll be talking to the same people in the same offices that I've been dealing with for years.

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supplierprofile

That's a positive in terms of the relationships.

The other thing that will happen on the front end over time is our game library will increases in magnitude. Customers will now have access to the broader library belonging to Spielo and Atronic. Plus, we are able to continually enrich our game library. Customers should also benefit from an increased speed of delivery, particularly of new technologies, because rather than spend time maintaining separate platforms, we've kept the same number of people all working on the common platform, and increased output.

At the back end, the key thing for us is a common direction, and to make sure our priorities aren't conflicting.

We've put together an integrated management team that has responsibility for all segments, not just for a single segment; and all geographies, not just a single geography. That has allowed us to develop common product roadmaps, common technology roadmaps, and consistent costing and pricing.

Our marketing is now aligned into one message, so there are a lot of efficiencies and benefits this business will be able to draw from this integration and then convert that into positive momentum into the marketplace.

When I say â&#x20AC;&#x153;being differentâ&#x20AC;?, I mean taking some risks, particularly in the innovation side. From my perspective, innovation will become a big platform of ours, particularly when it comes to content and product.

Overall, how do Spielo and Atronic's clients benefit from being a part of the Lottomatica Group?

It's not just about financial security--it's being able to tap into the experiences and the resources, and leveraging the work that they've done in other sectors, markets, and other geographies for the benefit of growing the business. The best example is the Italy VLT project where, through our association with Lottomatica, Spielo was able to be first to market in the Italian VLT space. This gave Lottomatica first mover advantage in winning in its operations, and then gave Spielo the opportunity to prove to other concessionaires how good our product is, which resulted in three more concessionaires signing on with us as their major supplier and giving us our current number one position in the market in Italy. It's a fantastic relationship that goes beyond just being part of a big group. It's about leveraging all the components on it.

What does Spielo International bring to the table in terms of products and innovations?

We operate across t wo major segments. One is the government distributed business, which is effectively the VLT business and central system business--much like the Loto-Quebecs and AGLCs of this world. Then there's also the commercial casino market, in which we have a number of product groupings. We have product, which is effectively the machines and the games that go with those machines, and the systems that run venues. We have slightly different strategies, and there will be slightly different benefits to customers depending on which segment they represent. Broadly, I think what customers should see from us is an increased focus on game performance, as we are putting together the best of the best from our side. We're also investing in building our game development capability so we can continue to create and, in fact, improve upon the performance of the games that we have and are continuously putting out.

Already in the last number of months, we have seen our new content perform better than ever. The benefits are already starting to translate. We will be able to work closely with customers at bringing them the latest developments in technology much faster. We are not necessarily a technology leader; we don't have the technology investment that some of the companies much larger than us have. However, when we do put technology forward, we are very good at that and we can bring it forward very fast. We should see increased speed in delivery of the latest technology from our end.

Lastly, we will be significantly improving our focus on innovation, because one of my personal beliefs is when one is competing against organizations that are larger than you, you don't win by being the same; you win by being different.

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tribute

Remembering

Ross McLeod Ross John McLeod, a true pioneer of the Canadian gaming industry, passed away on September 5, 2011. An only child of parents Roy and Dora McLeod, Ross was born on August 22, 1952 at Grace Hospital in Vancouver. He grew up in the Eastside and North Burnaby, and exhibited signs of the leader and innovator he would later become at an early age. “[Ross] was always promoting or presenting ideas, events, and creative ways to earn a profit,” recall Roy and Dora, noting Ross was never content with a regular job, but knew from an early age he wanted full control and authority to make the decisions that would net him the greatest return on his investment.

Indeed, Ross loved the art of the deal. At just 18 years old, he began his career in the amusement and entertainment industry by purchasing amusement games and taking them on the road throughout the western provinces each summer, while attending the University of Victoria in the surrounding months. In the 1970s, Ross met Freddie Glasgow, a man who would become a driving force in his career. Freddy was a larger than life character who built his career in the amusement and entertainment business. He quickly became a mentor for Ross, as well as his partner in the formation of the Great Canadian Casino and Supply Company.

How Great Canadian came to be is a special story. It all started when Ross was approached with a lucrative position with the Walt Disney Company. This offer was Ross’s dream, as Walt Disney exemplified all that was great to Ross in the entertainment business. He would always ask “what would Walt do?” whenever faced with a difficult decision, and in this case that decision was whether to join Disney's ranks or create a team of his very own. In the end, the true entrepreneur in Ross made the decision easy. Instead of accepting the offer, Ross decided to team up with partners Freddie Glasgow, John Hoegg, and Jim Conklin to form Great Canadian in February of 1982.

Those early years in the 80s saw Ross physically assisting with the build and design of gaming tables, as well as promoting various 'Casino Monte Carlo Nights' throughout the Greater Vancouver Regional District.

In the Winter of 1986, Ross and the Great Canadian team opened the first permanent casino at the Holiday Inn on West Broadway in Vancouver. The facility offered blackjack, roulette, sicbo, and a coffee bar for guests; and has raised

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tribute

hundreds of millions of dollars for charitable groups in BC. In the fall of 1997, it was also Ross who championed the introduction of slot gaming at his Great Canadian Casinos Surrey location, making it the first casino in BC to offer electronic gaming in partnership with the BCLC. Thanks to this and other important initiatives, BCLC's casino revenues have since grown from $40.7 million in fiscal 1997/98 to $1.6 billion in fiscal 2010/11.

Ross always believed in the little guy, and was known to say, “We know gaming and entertainment - let others assist us with the ancillary items.” Ross would meet with almost anyone who had an idea or invention. He knew how valuable it was to think outside the box, and gave so many people so many opportunities to make their mark in this world.

A driving force behind Ross's success was his affinity for seeking out new and exciting ideas that would improve his business. In fact, it was Ross who first to introduced the roulette chip machines now found standard around the world. It was also Ross who approved the Cirque du Soleil set-up in the Great Canadian show theatres in Richmond and Coquitlam, BC, allowing the company to offer clients a multifaceted facility that could handle conventions by day, and shows and events at night.

Ross always thought of what his guests would want and ensured that Great Canadian would always try to over deliver.

He understood the importance of customer service and took his company from operating limited facilities to the pride of Western Canada: the River Rock Casino Resort. When other companies and facilities were refusing mass transit (Canada Line) stations on their respective properties, it was Ross who not only agreed to one, but wanted it built in a public private partnership--a whole station with parkade, star walk, and all-because he knew years in advance the significance the line would have on the company's flagship facility.

Ross loved to “walk the line” and interact with his everyone on his team from the front line crew to his executives. He always had time to talk and listen to ideas and suggestions that could make the company and industry better. He was incredibly proud of his properties and his staff. He loved to hold meetings and appointments on property to showcase his jewel, River Rock, and loved to support events and fundraisers at the Boulevard Casino in Coquitlam, as well as at his properties in Ontario, Nova Scotia, and Washington State.

He was equally proud of the company’s racing properties and he spent his own money and time becoming a horse owner, breeder, and supporter of the Sport of Kings.

Ross’s many achievements include receiv ing the Outstanding Contribution to Canadian Gaming Industry Award, presented to him at the 1999 Canadian Gaming Summit in Windsor, Ontario. In 2007, Ross was also honoured with the Ernst & Young Entrepreneur of the Year Award (Hospitality and Tourism–Pacific Region) for his achievements in the British Columbia hospitality industry. In 2010, Ross was again honoured by the C.H.I.L.D. Foundation with the prestigious Doorman of the Year Award for his unsurpassed service to countless BC charitable organizations.

Without question, Ross was a great philanthropist. He promoted and helped introduce the charity gaming model in BC, and personally gave countless dollars to education, the arts, and health care. He was a gentle giant of a man; one who placed everyone ahead of himself. His passion for philanthropy assisted thousands of organizations and helped raise billions of dollars to make this province and our country so great. Ross believed that service to our community and province was truly a noble undertaking.

Outside of his work, Ross loved to travel and take his friends and family around the world to explore to share his passion for discovery and adventure. He will be greatly missed by his parents, Roy and Dora McLeod; his wife Sheila; sons Malcolm and William; his step-children Stuart, Rachel, and Trevor and his wife Julie and their two grandchildren.

The Canadian Gaming Industry may have lost a giant founder and leader, but it has also gained so much more by having Ross J. McLeod as one of its pioneers who has strengthened our industry from coast to coast.

Those who knew Ross will forever be touched by him.

Written by Howard Blank, Vice President, Great Canadian Gaming Corporation

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Canadian Gaming Business | 21 Untitled-3 1

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CGAreport

CGA's 2010 Economic Impact Report This October, the Canadian Gaming Association released its 2010 Economic Impact of the Canadian Gaming Industry report showcasing Canada's continued growth as a major player in the global gaming scene.

Highlights of CGA's report include stats indicating the Canadian gaming industry has generated a significant increase in revenues and charity dollars over a relatively short timeline. Specifically, it noted legalized gambling has nearly tripled in size since 1995, ballooning from $6.4 billion in gaming wins to more than $15.1 billion in 2010. In addition, the industry's non-gaming revenue was shown to have climbed $750 million from the CGA's previous report in 2008 (based on 2006 data), to its current $900 million level. These numbers place the Canadian gaming sector in the lead in terms of revenues generated, outperforming other forms of entertainment such as magazine and book sales, social establishments, spectator sports, movies, and performance arts.

“In the past 15 years we've seen tremendous investment across Canada to turn gaming facilities into entertainment destinations which generated not just economic benefits for the provinces, but employment opportunities as well,” said Bill Rutsey, President and CEO of the Canadian Gaming Association in the report.

Turning to the Canadian gaming industry's affect on the labour market, CGA's stats were equally positive.

According to the study, the industry directly supports more than 128,000 full time jobs and more than 283,000 ancillary jobs. In total, the industry is reported to have garnered $12.6 billion in labour income, including $8.7 billion toward the funding of government programs, communit y prog rams, charit able initiatives, and other social programs.

A significant part of Canada's success

is directly owed to the work of its Canada-based suppliers, retailers, and manufactures. One such company, Spielo International, is a prime example of the many local gaming companies leading the way to global success.

“As a supplier to the global gaming industry, New Brunswick-based Spielo International serves approximately 1,500 customers on five continents, and has only two local customers. That means the majority of our revenues comes from outside the province, and a significant portion comes from outside the country, adding new export dollars to the Canadian economy,” said Robin Drummond, VicePresident and General Manager of Public Gaming for Spielo International.

Speaking to the company's impact on the local economy, Drummond added: “We're also proud to be among the largest advanced IT-sector employers in the province, providing well-paying careers to more than 450 employees at our Moncton manufacturing headquarters.

In our 20-plus years of operation, we have continued to indirectly spur growth by supporting local suppliers and partners, which has created a gaming technology business cluster in our region. From Spielo International's perspective, the gaming industry has been a major contributor to the economic health of our community.”

Operating out of its head office in Calgary, Alberta, Chartwell Technology, an Amaya company, shares a similar perspective on the positive state of Canadian gaming. “Canada is one of the global leaders in legal, regulated markets–especially from an online gaming perspective. A lot of innovation

in game play and graphics is being developed in Canada and distributed throughout the world. We are fortunate to have such a pool of world-class talent right in our own backyard,” says COO David Acorn, adding, “Chartwell is a pioneer in the online gaming arena and has been developing quality online casino games, platform and gaming systems for regulated gaming markets since 1998. Our primary customer base is in Europe but now that we are a fullyowned subsidiary of Amaya Gaming–in Montreal–our online content can be found in new markets such as Kenya and will also be available via land-based gaming platforms such as betting shops in various other world-wide markets. We anticipate continued growth on a global scale.”

Overall, CGA's report paints a healthy picture of Canada's gaming industry. And while it notes recent growth has not been as rapid due to economic challenges and restructuring, Rutsey says the association is conf ident regardless, explaining, “Future growth will be tied into both the creation of new products for specific demographics and the strength of the overall economy. While this assessment points to overall stabilization, given the willingness of operators to respond to market demands and changing consumer tastes I'm confident Canadians will continue to enjoy the full range of entertainment options that the industry can provide.”

CGA's full report can be found online at www.canadiangaming.ca

22 | Fall 2011

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JCM Wins Resorts World New York There were a lot of horses in the race, and now JCM Global stands alone in the winner’s circle at Resorts World New York at Aqueduct with more than 4,500 VLTs. That’s because only JCM Global has the discipline of a jockey, the vision of a trainer and the speed of a thoroughbred.

Call your JCM account rep or visit JCMGlobal.com today, and ride with the winner.

EMEA: 49.211.5306.4550 • JAPAN: 81.6.6703.8400 • US: 702.651.0000 • US: 800.683.7248

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securitysurveillance

BCLC's Self-Exclusion Case Study New B.C. research shows self-exclusion programs well worth the effort Casino staff involved with administering voluntary self-exclusion programs are often frustrated when they see program participants try, and often succeed. in returning to the casino to gamble.

A few are even termed “prolif ic violators”, in that they repeat efforts to violate their self-exclusion agreements dozens of times. As a result, they take up an inordinate amount of resources as security staff are dispatched to intercept, identify, counsel, and escort them off the premises. Incident reports must then be written and filed.

It’s a small wonder that while many casino staff are generally supportive of the self-exclusion program, they still tend to question the overall effectiveness of these programs.

That said, new research by the BC Centre for Social Responsibility (University of the Fraser Valley) (BCCSR) indicates that, though there is room for improvement, the vast majority of selfexclusion participants get what they want: reductions in time and money spent gambling.

The study, VSE Longitudinal Study: Perception and Experiences from a Sample of Program Participants, examines the effectiveness of BC’s Voluntary SelfExclusion (VSE) program from the perspective of its participants. It is one of the few studies of its kind in Canada and provides an objective, empirically-based assessment of VSE in B.C. In addition to conducting multiple interviews with VSE participants over the course of four years, the study brought together focus groups of industry representatives including casino security, Responsible Play Info Centre staff (in B.C., called GameSense Advisors) and VSE administrators.

Among the findings: • A significant majority of participants were satisfied with the self-exclusion program (86 percent).

• Knowledge of the program played an important role in their decision to stop gambling (77 percent).

• More than half never tried to return to a casino.

• More than one third completely abstained from gambling during the four year study.

• More than half indicated their participation in the self-exclusion program played a significant role in their decision to seek out and participate in treatment.

• Almost all participants said they would recommend the program to others (92 percent).

• Of all the known options to control their gambling, almost all said the self-exclusion program was the best available option.

Perhaps most interesting was even those who admitted attempting to breach their agreement indicated support for the program, and indicated that it was a positive experience for them.

Dr. Irwin Cohen, lead researcher for the BCCSR summarised the study by saying, "Based on their feedback, we're confident the program is serving as an important resource for people with gambling problems."

The VSE program has been under a lot of scrutiny in several jurisdictions and is subject to legal challenges on a number of fronts, so this research represents a welcome opportunity to provide factual information based on what participants and problem gambling experts say about the program.

This is not to say there isn’t room for improvement.

T he s t u d y do e s of fer s e ver a l recommendations to strengthen the program, including enhancing efforts to detect attempted breaches by VSE participants. BCLC has already been taking steps to address this issue, including expanding the use of licence plate recognition technology and ongoing testing of facial recognition software.

Other suggestions made by the researchers included introducing random ID checks in casinos and developing a progressive enforcement framework for people who breach their VSE agreement.

“We want to ensure that programs designed to assist [those showing signs of problem gambling] are as effective as possible," said Shirley Bond, Minister of Public Safety and Solicitor General.

BCLC has committed to carefully consider the study’s recommendations with input from the regulator, the Gaming Policy & Enforcement Branch, and B.C.’s Office of the Information and Privacy Commissioner, and then to implement those that make sense for VSE participants, casino patrons, and BCLC’s service partners.

Most gaming operators across Canada have devoted considerable energy to creating and supporting a strong selfexclusion program. Despite negative publicity, legal challenges and taxing behaviour by participants who aren’t taking the program seriously, this research confirms what most of us already knew from anecdotal evidence: the program works for the vast majority.

A copy of the report is available through the Media Releases section of BCLC.com.

Gaming Security Professionals Announce AML Initiative The Gaming Security Professionals of Canada (GSPC) is pleased to announce a new Anti-Money Laundering (AML) initiative. The association membership consists of gaming security executives and managers from across Canada. The GSPC has created a sub-committee dedicated to developing a national strategy to prevent, detect, investigate and report on money laundering activities related to the gaming industry. Further information will be forthcoming as the sub-committee work progresses.

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Untitl

D O E S S O C I A L R E C R U I T I N G H AV E T O D O W I T H S AV I N G Y O U R C A S I N O M O N E Y ?

A L O T A C T U A L LY .

Attracting and keeping the right employees impacts your bottom line. The countless

hours you spend searching out prospects demands resources and finances. Then there is the enormous time and cost to screen candidates and determine the best ones to hire.

But we have a solution. MF Social Recruiting can help you find the right people when you need them, weed out the less qualified ones, and help you determine the right people to hire. We’ll help find the ones who are a better fit for your property. The ones who will ultimately become your casino brand ambassadors.

And we’ll do it with minimal effect on your bottom line.

We start by augmenting your recruiting strategy. By harnessing the power of social media, we can tap into extended networks of colleagues and professional connections. We’ll help you leverage social networks like Facebook, LinkedIn, Twitter, and even YouTube to attract the best talent.

The simple fact is: work life and social life are coming together in new ways. And we’d like to help you take advantage of that. Find out more at

Canadians are spending more and more time using social media. According to Comscore, 20 million Canadians report using social media. That’s a whopping 88% of us. And all reports show our participation in social media increasing in every age category.

MFSocialRecruiting.com or contact Jim Kabrajee at 416 962 3366.

11212_Gaming_Fall_2011.indd 25 Untitled-2 1

11419 - Marshall Fenn - Canadian Gaming Ad - Fall - 8.125 x 10.875 - Oct 14 2011

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finance

Blueprints and Roadmaps

for Successful Business Transformation

By Hart Mauritz and Ian Gilmour

When lot tery and g ambling companies embark on a journey to become more player- cent r ic a nd drive prof itable growth, they face the daunting challenge of having to create a cost-effective and secure 24/7 service platform that provides for an enjoyable player experience, and enables the company to optimize revenues in a socially responsible fashion.

This cha lleng e mea ns a na lyzing current channels, business processes, organizational roles and capabilities, and technology to provide a wide range of coherent services to customers in various segments. Key among these segments is a new socio-economic generation of players who float through life on various internet-based social networks, are technology-savvy, prefer a different breed of games, and play for motives other than "winning the jackpot".

Often, transformation managers underestimate by a factor of three to one the time, money, and people needed to deliver business transformation.

They often consider transformation a technology problem, underestimating the importance of the required changes to business and operational processes and their required integration with technology to achieve a player-centric gaming approach.

The CH AOS Repor t from The Standish Group has tracked success rates of large IT-enabled business transformations since 1994. Their results are not for the faint of heart: • 20 to 25 percent of these projects are cancelled before completion, providing few or no deliverables.

• Only 25 to 35 percent of projects deliver on time, on scope, and on budget.

• T h e r e m a i n i n g p r o j e c t s a r e “challenged”, exceeding schedules by 80 percent, overrunning budgets

by 43 percent, and delivering half the planned scope.

Although not the only success factor, in the modern entertainment business, IT is often the most critical key to achieving true transformation, hence the term “IT-enabled transformation”.

New technolog ies prov ide ma ny opportunities and legac y systems often represent extreme challenges.

Successful managers of IT-enabled transformation often employ t wo critical sets of documents to reduce complexity: business blueprints and project portfolio roadmaps.

Business bluepr int s prov ide schematics of ex isting and target business operations. They answer the important questions: “what does the business look like today,” “what results do we want to achieve,” and “what will operations look like after t ra nsfor mat ion?” Good business blueprints are formal diagrams that are integrated with each other, rather than the picture-heavy “slideware” traditionally used for conceptual design.

Diagrams start from the top down representing the business goals driving transformation and the process chain the delivers value to players.

T he se cond set of do c u ment s prov ide a por t folio -ma na gement “roadmap”; that is, a project-by-project implementation plan that guides the transformation process over months and, if necessary, years.

For example, when transformation managers at one lottery organization created blueprints to represent the “architecture of the business”, they uncovered significant opportunities to autom at e busi ness pro cesses, streamline and integrate activities, and reduce unnecessary channel service expenditures. They also identif ied gaps to creating a common view of the customer across ser vice areas,

and they developed the abilit y to serve players in an individualized, yet cost-effective fashion. Overall, these blueprints provided the necessar y requirements for them to overhaul their current IT systems, processes, and organizational structures to achieve a cost-effective multi-channel platform that considerably enhanced the player’s experience.

Investments required to implement transfor mational changes can be enormous. Therefore, it is important to understand the full business case for key transformational initiatives.

For instance, one lottery corporation stratif ied work into a portfolio of investment projects and prioritized them based on strategic value and feasibility. Projects with a high value to the business and high feasibility were targeted as “quick wins”, while those projects with high value but lower feasibility were scheduled for more detailed analysis and design work to increase their feasibility. Low value and low feasibility projects were dropped from the portfolio. Priority projects were then scheduled into a rolling multi-year investment roadmap.

The management team used the business blueprints and roadmap for quar terly reviews of the implementation of transformational ch a n g e s. T h i s a l lo w e d t hem t o make mid-course corrections where required and to harvest a significant portion of the profits achieved from quick wins to help finance the more costly projects in the portfolio. The use of bluepr i nt s a nd roa d m aps became a critical element in delivering a cost-effective, player-centric gaming strategy.

Hart Mauritz (hmauritz@kpmg.ca) and Ian Gilmour are partners with KPMG's Management Consulting Services.

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legal

arbitration Clauses in online Gaming Contracts: Not another boilerplate provision

By Javad heydaRy

operators oF onlIne GamInG sItes must give serious consideration to including mandatory arbitration clauses in their online gaming contracts. Given arbitration’s unique business and pragmatic consequences, arbitration clauses should address the protective concerns of legal counsel, but also require the input of management.

There are many reasons a gaming site operator would desire a mandator y arbitration clause. The parties to a gaming contract may feel more conf ident when disputes are resolved by someone knowledgeable about the industry than by a judge.

Experienced gaming industry veterans acting as arbitrators are likely to be more consistent and even-handed in their decision-making. Moreover, arbitration offers relative privacy and confidentiality in resolving disputes compared to the court system.

A r bit r at ion cl au s e s a l s o of fer defensive advantages to gaming site ow ners. They can frustrate class action proceedings by requiring any complainant to proceed on a case by case basis through arbitration. This will often keep many potential claimants from making a claim to begin with.

Generally, whether your arbitration falls under the domestic or international Ontario arbitration statute, courts are not given the f irst opportunity to decide any aspect of an arbitration award, as an arbitral tribunal alone can rule on whether it has the authority under the terms of the arbitration clause to hear the dispute. However, recent judicial consideration has opened the door to the courts taking jurisdiction over arbitration matters where there are no factual disputes, which potentially

i nclude s for ei g n a r bit r a l a w a rd enforcement.

On the negative side, arbitration awards can be pragmatically difficult to enforce in an online gaming context.

The place of events giving rise to a dispute, the place for dispute resolution, and the place of enforcement are often not the same. This disjunction is virtually always bound to occur where one operates an online gaming site.

B ecause online g a ming sites often operate internationally and are frequently located in different jurisdictions than most of their users, a mandatory arbitration clause allows the location and law of the arbitration to be favourably chosen in advance by the owners. This encourages consistency for the gaming site both geographically and substantively. The disadvantage to a locally decided arbitral award is the defendant likely has no assets in the chosen jurisdiction, and therefore the arbitral award must still be enforced in the home jurisdiction of the user to ensure payment.

When attempting to enforce a foreign arbitral award, the party seeking the enforcement must often endure the scrutiny of the “public policy” test of the enforcing jurisdiction. For example, the International Commercial Arbitration Act in Ontario (based on both the UNCITRAL Model Law and the New York Convention) is intended to enable recognition and enforcement of foreign arbitral awards. Prominent among the grounds to refuse enforcement is that “the subject-matter of the dispute is not capable of settlement by arbitration” under the law of the jurisdiction in question or that “the recognition or enforcement of the award would be

contrary to the public policy” in that jurisdiction.

Though public policy can encompass a number of concerns, a particular concern to online gaming sites is that a public policy defence may consider whether the debt that is the subject of the arbitration is barred by gaming legislation in the enforcing jurisdiction.

Where enforcement of private gaming contracts and debts is contrar y to local law, gaming site owners should remain aware that arbitral awards related to enforcing such contracts or debts from other jurisdictions may be unenforceable locally.

H o w e v e r, i n t h e c o n t e x t o f enforcement of foreign judgments, Ontario gaming legislation has been construed narrowly and public policy considerations have not precluded recog n it ion a nd en forcement i n Ontario of gaming debts incurred in other jurisdictions. The Ontario judiciar y has mentioned that the growth of casino gambling in Ontario has lessened the plausibility of a public policy defence to refuse enforcement of foreign judgments. Arguably, no different approach should be taken in the enforcement of a foreign arbitration award.

In closing, a well crafted arbitration clause in online gaming contracts is worth the attention of not only a company’s legal counsel but also a company’s management. What seems to be a routine legal provision in standard contracts can have substantial business implications when it comes to online gaming contracts.

Javad Heydary is chairman and managing director of Heydary Hamilton PC. Canadian Gaming Business | 27

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The 2012 Summit Thunders into Niagara Falls June 11-13, 2012 Scotiabank Convention Centre Niagara Falls, Ontario

NEW Dates!

June 11-13, 2012

“Where the Canadian Gaming Industry Meets”

16th Annual Canadian Gaming Summit Plan to attend Canada’s premier annual conference and exhibition for gaming professionals. The Summit is the leading provider of information and education to the Canadian gaming community. It is a unique and must attend experience and is the only national industry networking event. 2012 promises to be the most exciting Summit to date and we look forward to seeing you in Niagara!

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marketing

Finding the Best Casino Talent in a Social World

By Jim Kabrajee and Kevin MacKenzie

Casino employees are your brand ambassadors, deliverers of the customer experience, and the embodiment of your “Brand Experience”. However, finding and keeping the best employees is a costly and difficult part of the business. This is where social recruiting can provide a key competitive advantage.

Most executives and managers find that hires coming from their own peer network often work out better than most others. This makes sense because when a colleague or friend recommends a potential candidate to you, their recommendation is based on knowledge of the candidate’s skill set, personality and work ethic; they’ve done the initial screening.

This is exactly how social recruiting works. It can be a huge asset for employers...so why have so few organizations used this tool for hiring and recruiting? It’s a missed opportunity.

By harnessing the power of social media, you can yield good results in the initial screening phase, and for a very reasonable cost. Knowing how to use Facebook, LinkedIn, Twitter, Foursquare, and even YouTube opens up new ways to connect to your larger overall audience, establish fans and followers, and seed positive brand

imagery for your casino. Then you can review and research your fans and followers, select a short list, and invite them to respond to a job posting. In effect, you are contacting people who are positively predisposed to your brand; people who are believers. Done correctly, social recruiting can yield great results, but you have to start with a clear and purposeful strategy.

Unfocused attempts to use LinkedIn or Facebook are not the answer, and will never yield the kind of results that you expect.

Social Media Gameplan A good social media strategy centres on your ability to build relationships with your audience and deliver messages over time; yes, over time-not overnight. You need to develop a broad audience base organically, and this takes patience, effort, and time.

However, once established, you will have brand advocates and fans who

seek your organization out online. It follows then that when you need to go to market for recruitment, you can change the conversation for a moment from brand and focus on the story about working for your casino. The change is a subtle one but important; you must align your recruitment message to your casino’s overall brand positioning and strategy. Don’t forget that your audience established a relationship with your brand first. The job discussion happens later.

If you’re not convinced that your audience is adapting to social media quickly, consider this: we already have one of the highest rates of social media usage in the world.

A recent comScore study showed that the fastest growing demographic in terms of internet usage is users over 55 years old, increasing their time spent online by 12% over the previous year; and over 66% of all Canadian adults aged 35 and up are actively using Canadian Gaming Business | 29

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marketing

about the company’s culture, but to also give the employer an opportunity to pre-evaluate prospect before they applied for the job.

Your casino might be one of many that are swamped with applications and resumes, in some cases there are 100+ applications for some posted jobs. Wading and sifting through that is taxing on your HH department’s resources. Social media strategies, like the one mentioned above, can improve your casino’s ability to identify the best prospects for a particular position.

Successfully building your brand experience across social networks will require you to understand what your audience expects from your brand and how you compare to your competitors.

You cannot appear to want something social networks on a regular basis. In recruiters to research a candidate’s from them or be seen to be pushing an 2009, just 1% of Canadians online had background and potential fit for a agenda; you’ll lose them. The critical Twitter accounts. Today that number is position. However, this approach can element that ties all of these components over 20%, and continues to grow. be defeated by individual privacy and together is a well developed social Over the next 10 years, nearly 9 security settings which will block this brand strategy which then permits million workers (a staggering 26% as a tool for recruiters. the creation of a brand-aligned social of the Canadian population) will be This challenge has been met with recruitment strategy. Not an easy task. eligible for retirement. According to an equally creative solution, as some By carefully cultivating digital Statistics Canada, in about 10 years organizations are building unique relationships, you can identify your Canada may have more people leaving social experiences that encourage true brand advocates and then apply the labour force than entering it. These job prospects to actively engage with them to a social recruiting strategy. changes in the employment market them. One major hospitality company You will be able to attract better quality will change an organization’s prospects, spend less time sifting approach to finding workers. and sorting through applications, The challenge facing most "By carefully cultivating digital and yield better quality long-term organizations is ensuring their employees. All of this at a lower relationships, you can identify cost to you in terms of resources recruiting team knows how to employ social media and that and third party costs. their messages align to the your true brand advocates and Work life and social life are overall brand marketing. Many coming together in new ways and then apply them to a social HR departments have not yet innovative companies are using been able to capitalize on the that change to their advantage. recruiting strategy." proliferation of social media for a As the new generation in the variety of reasons: workforce re-defines the existing • Lack of organizational strategy; developed an online game for prospects fundamentals, smart companies are • Corporate policy; to play which takes the player/prospect already rolling up their sleeves to take • Technology requirements; through a series of tasks and episodes on the challenge.

• Departmental silos; and to score points. While it’s entertaining • Lack of resources and engaging, the real purpose is to LinkedIn, the original social network provide profile and aptitude scores of Jim Kabrajee is the CEO of Marshall Fenn, for professionals, has morphed into an the prospect as they perform against a full service marketing communications active place to solicit and advertise new objectives and under stress in a virtual agency with offices in Toronto and Las positions, as well as openly share one’s hotel environment. The game was Vegas. Kevin Mackenzie is an Account resume. It is used by almost half of all designed not only to inform prospects Manager and leads the social recruiting group 30 | Fall 2011

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