Focus: Feds losing out on fantasy sports taxes

Despite widely held legal opinion that unregulated daily fantasy sports betting web sites are illegal, the Canadian government “has its head in the sand” on the issue, one lawyer says.

“It’s like the government has its head in the sand. It refuses to do anything at all about the matter,” says Michael Lipton, a gaming law partner at Dickinson Wright LLP.

Without regulation, “There’s a tremendous loss of tax revenue that’s being suffered by the government,” Lipton adds.

“The revenue I think could be in the billions of dollars.”

Daily fantasy sports web sites allow users to assemble their own teams of athletes who will compete against other lineups of athletes based on the real-life performances of all of the athletes.

Last year, the Canadian Gaming Association commissioned Don Bourgeois, formerly general counsel for the Alcohol and Gaming Commission of Ontario, to provide legal opinion on the legality of daily fantasy sports betting in Canada. 

Bourgeois’ conclusion was that the game is in fact illegal under the criminal law in this country. Daily fantasy sports betting is a gambling activity, as are other types of bets on the outcome of an athletic contest, Bourgeois tells Law Times.

Those who say the game doesn’t constitute gambling rely upon the notion that it’s a game of skill rather than chance, Bourgeois says, adding the argument is that both bettors and the athletes are skilled.

“In both of those cases, the case law in Canada suggests otherwise, that it is a game of mixed skill and chance,” Bourgeois says.

Bourgeois also explains that, under the Canadian Criminal Code, a game of chance is defined as one that either depends entirely on chance or is a mix of skill and chance.

“I think it’s fairly clear that this game is a mix of skill and chance, and in some cases, it’s really a game of chance,” he adds.

During his research into daily fantasy sports, Bourgeois says he noticed some gaming web sites in fact allow a computer system to match bettors who will play against each other, making the process random and prone to chance.

Even in the card game Bridge, where the skill of players is a major factor in the outcome of the bet, the Supreme Court of Canada has concluded that both chance and skill are factors, Bourgeois says.

“The cards ultimately are dependent upon randomness. There’s no skill that’s going to decide which cards you’re going to get,” he adds.

Proponents of daily fantasy sports also justify its legitimacy by claiming that it is lawful under U.S. federal legislation, specifically the Unlawful Internet Gambling Enforcement Act, which provides a safe harbour for fantasy sports betting.

But, says Bourgeois, “That’s irrelevant in Canada because Canada is a separate country; it has its own criminal laws at the federal level.

Whatever may or may not be legal in the United States is not relevant to an assessment of whether or not it’s legal in Canada.”

Lipton says daily sports fantasy companies are strictly regulated in jurisdictions such as England, Gibraltar, and Malta.

“I think it’s time that the [Canadian] government recognized insofar as Internet gaming is concerned, the monopoly that they have does not work. The genie is out of the bottle,” Lipton says.

“People can go online and enter into a betting contract with anybody else in the world and it just doesn’t work.”

Paul Burns, vice president of the Canadian Gaming Association, says his organization shared Bourgeois’ report with gaming operators across the country. When it comes to political action, “gaming is not everybody’s favourite issue to deal with,” Burns says, but “people’s patience is running out.”

He adds, “We [the Canadian gaming industry] employ tens of thousands of people and generate tens of millions of dollars for government revenue and yet we compete with people who pay none of those, employ nobody, and pay no taxes, and don’t have to follow the same regulatory regime that we do.”

To be clear, Burns says daily fantasy sports betting is “a great product” and people should have access to it. But “everyone should play by the rules,” he says.

“There’s lots of money leaving the country through basically what I would call holes in the law creating this grey area,” Burns adds.

“Canadians are accessing offshore sites with increasing regularity over a number of years. This issue isn’t going away; it continues to grow.”

To Lipton, the lack of political will to look at online sports betting could simply be that it’s not a top ticket item.

“I think the law enforcement authorities have bigger fish to fry, such as fighting terror, going after money laundering, drug operations, biker gangs, and things of that nature,” Lipton says.

“I don’t believe they have the resources nor the political will to do anything about it at this time.”

Past legislations to legalize single sports betting in Canada have faced similar political indifference. After passing through the House of Commons, bill C-290, the act to amend the Criminal Code (sports betting), languished for so long before its third and final debate in the Senate that it eventually failed to become law. Another private member’s bill, called bill C-221 or the safe and regulated sports betting act, is currently in its second reading.

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