Bet on It: The Taxation of Online Gaming

• Author: Benjamin Alarie & Alex Igelman
• Pages: 115-138

115

Chapter 7

Bet on It: The Taxation of

Online Gaming

benjamin alarie & alex igelman

A. INTRODUCTION

Internet use by Canadians has grown dramatically over the past several

years. According to Statistics Canada, from 1999 to 2003 the number of

households with at least one individual regularly using the internet at home

nearly doubled from 28.7 percent to 54.5 percent, and by 2005 had reached

61 percent1 The average speed of internet connections is also improving.

Also, according to Statistics Canada, about 45 percent of Canadian house-

holds were connected using broadband connect ions in 2005.2 C ontinued

rapid growth in the use of the internet by Canadian households is widely

expected. At the same time, following the amendments made to t he Crim-

inal Code3 by Parliament in 1985, the social acceptability of gambling has

increased and the variet y of gambling options made available by provincial

governments has proliferated.

In a combination of these underlying trends, Canadians are discover-

ing that in order to ga mble, it is no longer necessary to travel to traditional

destinations such as Las Vegas or Atlantic City ; to provincially operated

1 See Statistics Ca nada, “Household Internet use, by loc ation of access, by province,” online:

www40.statca n.ca/l01/cst01/comm12a.htm; and Statistics Ca nada, The Daily (15 Augu st

2006), online: ww w.statcan.ca/Daily/English/060 815/d060815b.htm.

2 Ibid. Of the 61 percent of households with inter net access, 50 percent connect using cable

and 44 percent connec t using a telephone line. Of the 44 p ercent using a telephone line, 59

percent use DSL or other, faster, non-d ialup technology.

3 R.S.C. 1985, c. C-46, as ame nded.

116 benjamin alarie & ale x igelman

casinos in Niagara Falls, Montreal, Windsor (and elsewhere); or even to the

corner store to buy a lottery ticket. The thrill of a spin of the roulette wheel,

the subtle psychological di mensions of a game of Texas Hold’em, and the

strategic challenge of blackjack, are available twenty-four hours a day, seven

days a week, through literally hundreds of online gambling sites4 eager to

offer would-be gamblers the opportunity to play at any moment.

Although the legality of online gambling is t hreatened or is clearly

proscribed in many jurisdictions, most sig nif‌icantly in t he United States,

this has not stopped several of the largest online gambling sites, such as

PartyPoker.com,5 888.com,6 and Paradise Poker,7 from becoming publicly

traded (some through holding companies) on the London Stock Exchange

(LSE). Given t he considerable valuations placed on these companies by

the market, onli ne gambling as a viable business is obviously considered

by many i nvestors to be a good bet. Alt hough the market capitalization of

PartyGaming Plc alone (which operates the most active online poker site,

PartyPoker.com) was £6.29 billion as of 31 October 2005; two years later, it

has fallen to approximately £1.1 billion.8 Signif‌icantly, for a t ime its valua-

tion had resulted in Par tyGaming Plc being made a member of t he FTSE

100 Index, though in light of the recent turn in t he United States against

online gambling and the associated tumble in the company’s shares, it has

now been moved to the FTSE 250 Index.9

4 Gambling Onli ne Magazine has reported t hat eCommerce and Online Gam ing Regulation

and Assurance (eCO GRA) has approved a total of 66 online c asinos. According to Gam-

bling Online M agazine,

The online casi nos that have gained the “Play It Safe” sea l from eCommerce and

Online Gami ng Regulation and Assura nce (eCOGRA), have all … passed probit y,

fairness and ef f‌iciency inspections a nd have been awarded the seal by t he board of

directors of the st andards authority. All t he online casinos underwe nt extensive testing

and inspect ion by independent professional teams from a top inte rnational business

services and aud iting group to ensure compliance wit h the standards and requi rements

of the organisation concer ning operational eff‌ic iency, fair and responsible gambling

and player protection.

Online: ww w.gamblingonlinemagaz ine.com/gambling-news-deta il.php?articleID=43.

5 Par typoker.com is owned and operate d by PartyGaming Plc, a compa ny based in Gibraltar.

PartyGa ming Plc trades on the London Stock Exc hange [LSE].

6 888.com is operated by 888 Holdings Plc , which is based in Gibraltar and i s traded on the

LSE.

7 Paradise Poker is op erated by Sportingbet Plc, a Brit ish company listed on the LSE.

8 Online: ww w.londonstockexchange.com/en-gb/pricesnew s/prices/system/detailedprices.

htm?ti=PRT Y.

9 Membership in the FTSE 100 Index a nd FTSE 250 Index is reserved for the 100 and 250

largest companies tr aded on the LSE, respectively. For a list of t he FTSE 250 Index compa-

nies, see online: ht tp://en.wikipedia.org/w iki/FTSE_250 _Index.