Ontario: Does the 91.1% channelization rate hold up?

In late May, Ontario released a new study that placed its channelization rate at 91.1%, an incredible feat for a market that only legalized online gambling in 2022. 

The channelization study, which was conducted by Ipsos, found that traffic to legal sites increased by 7.4% year-on-year, while illegal traffic fell from 16.3% to 8.9%. 

Doug Downey, Attorney General of Ontario, said: “These results are clear – Ontario is an international leader in upholding a safe, competitive and regulated online gaming market. 

“Only four years ago, our Government took action to bring online gaming into a modern, regulated framework that protects players, supports greater choice for consumers, and tackles the illegal market. 

“To date, we’re proud to see Ontario’s world-class online gaming model continue to support jobs, innovation, and economic activity across the province.”

But how does the methodology hold up under a microscope, and how does it compare to other regulators? 

What have the findings said in Germany?

The Joint Gambling Authority of the Länder (GGL), or the German Gambling Authority, was founded in mid-2021 but found itself in immediate controversy when it began publishing its channelization figures. 

Some of the first official reports placed the black-market rates at around 4%, but a subsequent study in 2023 challenged this. 

The Schnabl Study, which was commissioned by the German Sports Betting Association (DSWV) and the German Online Casino Association (DOCV), found that channelization was closer to 50.7%.

Notably, the Schnabl Study defined an illegal site as ‘a platform without a licence that can be accessed by German players without a VPN, that doesn’t exclude players with a German address and includes promotions in German.’

Regarding the unregulated sites, 28.9% of traffic was to European-based providers who did not have a German licence, while 19.9% was to unlicensed offshore providers. Despite ‘only’ taking 49.3% of player traffic, the report estimates that the black market in Germany could account for up to 75% of online revenue. 

How does the UK compare?

Understanding the UK methodology for gambling is a little more complicated, to the point where there are five whole slides dedicated to trying to explain the process in some recent reports. 

The process weighs web traffic, affiliate traffic and search data against customer activity, then reflects it against reported onshore GGR. These figures are then adjusted for native app usage and VPN usage. 

There are several mathematical equations, but after all is said and done, recent data has placed the UK channelization rate at 96%, with 92.3% of customer spend going towards the licensed sector.

So how does Ontario stand up to scrutiny?

So, with the UK championed as one of the highest channelization rates in the industry; and with Germany – operating a new gambling market for roughly the same time as Ontario – potentially only having 50.7% in channelization, how did the Canadian regulator manage this feat? 

Well, they simply asked players if they were playing on illegal sites. 

The Ipsos survey interviewed 2,012 Ontarians, and 8.9% said they had only wagered on unregulated sites within the past three months. 

The 91.1% figure comes from the respondents who reported wagering on regulated websites within the past three months. 

While this is a significantly less scientific or objective approach than the other two countries, it still offers an insight into the market – or at least part of it. 

Perhaps a more mathematical approach to the channelization rate would create a different result, but that also raises the dilemma of whether it is worth raining on the Ontario parade for this. 

Prior to the launch of Ontario’s legal iGaming market in April 2022, the Government estimated that 70% of online gambling was taking place on the black market. Even if only 8.9% are now playing exclusively on black market sites, that is still a great achievement. 

The tricky part is acknowledging the playerbase that are playing on both regulated sites and black market ones, but this is not a unique struggle to Ontario.