Invited Submission to the Standing Senate Committee on Transport and Communications Submitted by Robert Simpson September 30, 2024

1 Contents 1. Harm By Design .................................................................................................................................... 2 2. Background ........................................................................................................................................... 3 3. Betting-Related Harm ........................................................................................................................... 3 3.1 Characteristics and Etiology ................................................................................................................ 3 4.

Data Analysis ........................................................................................................................................ 4 4.1 Distribution of Loss ............................................................................................................................. 4 4.2 Two Business Imperatives ................................................................................................................... 5 4.3 Responding as Intended ...................................................................................................................... 5 5.

Claimed Economic Benefits .................................................................................................................. 6 5.1 Cited Benefits ...................................................................................................................................... 6 5.2 Economic Benefit Fallacies .................................................................................................................. 6 5.3 Government Obligation ....................................................................................................................... 7 6.

Recommended Action: Sports Betting Advertisements ....................................................................... 7 6.1 Recommendation One ........................................................................................................................ 7 6.2 Recommendation Two ........................................................................................................................ 7 6.3 Recommendation Three ...................................................................................................................... 8 6.4 Recommendation Four ........................................................................................................................ 8 7.

Concluding Thought ............................................................................................................................. 8 Appendix A: Kindred edges closer to net zero harmful revenue goal .......................................................... 9 Appendix B: Example of a Data Monitoring Chart ...................................................................................... 10 Author Biography ........................................................................................................................................ 11

2 Submission to the Standing Senate Committee on Transport and Communications 1. Harm By Design On September 20, 2025, the Canadian Gaming Association (CGA) issued a news release announcing a “comprehensive research paper evaluating gambling advertising and regulatory intervention”. The release was titled, “CGA research: gambling ad regulation misaligned with evidence” and stated, “New research from the CGA suggests that regulatory policies around gambling advertising are evolving at a faster rate than relevant evidence and warns the misalignment could lead to regulations that are wide of the mark.

The CGA added that policy can be shaped by “fulfilling cultural expectations that depart from empirical findings or broader scientific theory” but warned that “policymakers should be made aware of where evidence ends, and social preferences begin.” CGA, September 20, 20241 The CGA has consistently drawn from the well-described playbook used by a broad range of industries to counter legislative and regulatory measures anticipated to constrain their ability to generate revenue.

A core playbook strategy is for businesses to commission studies of their own, one first introduced by the tobacco industry and, in recent years, embraced by the CGA. In this instance, its “comprehensive research” review first discredits the existing research base and then specifies a long and expensive research agenda which, it claims, would only then satisfy empirical robustness for action. Meanwhile, the CGA suggests carrying on with (and expanding) existing regulatory regimes which place no meaningful constraint on the pursuit of revenue.

However, these regimes depart from Canadian legislation for consumer protection and product safety, and which prohibit including false and misleading information in business practice. In part, this brief counters assertions in the CGA release and its commissioned study. It demonstrates how the analysis and application of gambling data can be used to frame regulatory responses to the advertising of sports betting.

In 2012, the groundbreaking publication, Addiction By Design,2 described the myriad strategies and mechanisms employed by gambling providers to maximize “time in seat” at casinos and thereby maximize revenues (and patrons’ losses). These and novel strategies and mechanisms are now embedded into online gambling and, more recently in Canada, sports betting.

Meanwhile, research has unequivocally established that harm arises from excessive gambling involvement and occurs not only in the relatively few who have become addicted, but across a much broader spectrum of the gambler population, suggesting the revised title Harm By Design. From the analyses that follow, this brief argues that the Senate Committee expand its focus to include advertising directed to existing sports betting patrons with the intention of increasing their losses. 1 Accessed September 20, 2024 at: https://www.canadiangamingbusiness.com/2024/09/20/cga-research- gambling-ads-regulation/ 2 Schull, N.

(2012) Addiction By Design, Princton University Press.

3 2. Background In a 2019 statement in support of legalizing single-event sports betting, Paul Burns, CEO of the CGA, stated, “. . . one small change can drive enormous benefits to the Canadian gaming industry, Canadian communities, as well as Canadians who just want to be able to bet on the outcome of the Stanley Cup, NBA Finals, or World Series”.3 But, as it turns out, sports betting had little to do with the final outcomes of games. Mr. Burns failed to mention in-game promotions and inducements for events that are entirely unrelated to final scores, and which are now employed to extend digital “time in seat”.

In so doing, they generate the majority of provider revenues, patron losses, and harm. In the subsequent legalization of sports betting through Bill C-218 (the Safe and Regulated Sports Betting Act), the federal government opened the way to a broadly expanded participation base and, within it, migration toward ever-increasing levels of involvement (i.e., time and money spent betting). It was foreseeable that involvement would become excessive for some, and that harm would ensue. Accordingly, how and why sports betting evolves to become excessive and harmful merits investigation.

The first investigative step is to recognize that Sports betting is advertised in two forms. The first, General Public Advertising, is designed to

a) engage new patrons,

b) normalize the activity,

c) enhance its cachet through celebrity endorsement, and

d) provide assurances of safety via “responsible gambling” resources. Although the focus of current Senate Committee review, it is not the subject of this submission. Rather, it focuses on the second form, Direct-to-Patron Advertising, which employs a broad range of strategies designed to increase levels of involvement and is where “Harm By Design” occurs. 3.

Betting-Related Harm 3.1 Characteristics and Etiology Harm from gambling, sports betting included, occurs across the full spectrum of patron involvement, from “recreational” to “intensive” levels, and is not confined to the small proportion identified as “problem” or “addicted”. In fact, non-problem gamblers contribute more to the overall burden of gambling harm than do problem gamblers. Harm occurs when bettors exceed personal limits of what can be afforded, and affects financial, psychological, interpersonal, employment, and legal wellbeing.

Impact can range from minor to catastrophic and duration ranges from short term to permanent. Why bettors lose more than they can afford is very much influenced by built-in incentives to bet increasingly more – the process of cultivation. Once a patron is registered, sports betting providers employ Direct-to-Patron Advertising designed to cultivate increased involvement as reflected in betting frequency, bet amounts, and cumulative loss.

These are also the most significant predictors harm as patrons exceed personal affordability limits. 3 Canadian Gaming Association Calls on All Party Support For Single-Event Sports Betting, October 10, 2019.

4 4. Data Analysis 4.1 Distribution of Loss Meaningful gambling discourse requires data, but Governments and their agencies have not yet made the necessary metrics available for informed analysis. Accordingly, the following chart draws from casino-based and online survey data to suggest what might be reasonably expected. Actual values can be substituted once provincial regulators make them available. The key metric is gambling involvement, which organizes players from the lowest to highest in relation to annual loss (also providers’ revenue) and separates the results into deciles.

As a frame of reference, if a provincial population of sports bettors totaled one million, each Decile could hold 100,000 people.4 In line with reference arrows outside the diagram, five key takeaways are: 1. Just under 20% of patrons in Deciles 1 and 2 will break even or come out ahead at the end of the year. These outcomes, of course, are necessary and can be considered the cost of doing business.

Whereas these patrons benefit, the remaining 80% loses money. 4 At present, the only available patron metric is for registered accounts. Patrons can be registered for more than one provider, so the actual number of sports bettors is not known. Decile Average Loss % Total Loss D-1 -$1,260 - D-2 $1 - D-3 $10 0.10% 5. Cultivation D-4 $28 0.30% D-5 $67 0.50% D-6 $150 1.00% D-7 $360 2.00% D-8 $890 4.20% D-9 $2,400 11.50% D-10 $15,200 80.50% Distribution of Gambler Loss 1 3 2 4

5 2. Although losses more than double in each transition from Deciles 3 through 8, the 60% of patrons they represent nonetheless contribute just over 8% to overall revenues. However, losses of the 10% in Decile 9 jump significantly, increasing the average of Decile 8 from $74 to $200/month and contributing a substantial 11.5% to overall revenue. 3. The average loss in the 10th Decile increases to $15,200 or more than $1,200 per month and more than sixfold that of the 9th Decile. Of further note, loss amounts are highly skewed such that the maximum loss in the 10th Decile is over $1.5 million.5 4.

The losses of patrons in the 10th Decile generate over 80% of provider revenues.6 Thus, the Sports Gambling Business Model vitally depends on these patrons for financial viability. 4.2 Two Business Imperatives Given that profits are tied to revenues, the Business Model requires that providers not only retain revenues from the 10th Decile year-over-year, but also increase them to meet growth targets.

However, a considerable proportion of heavily involved gamblers – e.g., those in the 10th Decile – quit or substantially cut down on their gambling each year, often in response to the burden of harm they have experienced. Accordingly, the Business Model centers on two immutable imperatives. First, the retention of profits requires replacing the annual reduction in heavily involved patrons with ones moved up from lower Deciles. Second, growing profits requires increasing the average loss in the 10th Decile. 5.

To realize the business imperatives for retention and growth, providers employ a formidable range of inducements to

a) cultivate patron progression from lower Deciles toward the 10th, and

b) to simultaneously increase the losses of those in that Decile. Cultivation inducements are delivered through providers’ Direct-to-Patron advertising activities mentioned earlier. Of greatest concern, these inducements are ubiquitous, relentless, and without limitation – they continue until the gambler can accommodate no additional losses.7 4.3 Responding as Intended Considering the above, it must be appreciated that patrons whose gambling becomes excessive and harmful have responded exactly as intended. Moreover, there are no meaningful limitations of the nature or frequency of Direct-To-Patron advertisements.

This is where the Consumer Protection Act and Product Safety Act, and the prohibition of false and misleading information in business practice have direct application and may justify establishing national standards for compliance. 5 Gambling losses are lognormally distributed, meaning that the average value (or “mean”) is greater than the median (50th percentile value). Overall distribution skews toward the high end, reflecting that those losing the largest amounts have a disproportionate influence on mean values.

It also means that the gap between the median and the mean widens in each successive decile and is most extreme in the 10th Decile. 6 Lognormality further suggests that the top 1% of patrons generate an estimated 25% of revenues. 7 Perversely, the industry’s “responsible gaming” model amounts to telling patrons to resist the very inducements they administer to encourage exceeding personal limits.

6 5. Claimed Economic Benefits 5.1 Cited Benefits Material originating from the CGA extolls sports betting’s benefits to the province, citing non-tax revenue to government, employment, and providers’ ancillary spending as part of operations.

In addition, it has made claims about recovering the $14 billion in revenue it claims has been “lost” to “illegal and grey market gambling providers”.8 Data supporting these claims have never been produced.9 5.2 Economic Benefit Fallacies • Reallocation of Consumer Spending: No analysis has been made about where the sudden and substantial inflow of new money to sports betting is being reallocated from elsewhere in the Ontario economy (“outflow”).

Past analyses of OLG’s expansion of land-based casinos10 suggest that much of the reallocation in discretionary income will flow from Statistics Canada’s “leisure and entertainment” sector, and that the substantial loss in the billions of dollars will harm the viability, employment, and ancillary expenditures of businesses in this sector. • Extractive Industry: Gambling, including sports betting, is regarded as an extractive industry that concentrates revenue into the hands of a few providers, many of which are centred outside Canada.

Were the extracted revenues left in the leisure and entertainment sector, they would have been continuously cycled through the circular flow of local and provincial economies. • Employment: In the above-mentioned land-based gambling analyses, it was determined that the leisure and entertainment sector in Ontario employed 2.4 times more people per $1 million revenue than did casinos, suggesting that the reallocation of consumer spending to casinos would result in a net loss of jobs.11 The same can be expected for sports betting operations. • Externalities: The revenue from sports betting (and all gambling) flowing to the Ontario government is never compared to offsetting expenses (“externalities”) incurred by the province.

To illustrate in relation to alcohol, the overall cost burden to Ontario exceeded government revenues by $1.3 billion in 2022.

In similar fashion, the externality costs of gambling to the Ontario government will certainly diminish any income received and may exceed it.12 Providers, whose operations create externalities, bear no direct responsibility for addressing them. 8 The CGA also emphasizes that illegal and grey market sites lack any “meaningful regulation” for the prevention of harm and refers to Ontario as a “regulated market”, suggesting that it is safe for patrons. 9 These claims were investigated in the report published by Cardus and found to be assertions without any support whatsoever.

See: How Big Is Canada’s Black Market for Sports Betting? at https://www.cardus.ca/research/work- economics/research-brief/how-big-is-canadas-black-market-for-sports-betting/ 10 OLG’s Modernization Plan aimed to increase patrons’ losses by over $4.3 billion annually in order to increase its turnover to the Ontario government (“Net Provincial Profit”) by $1.3 billion. 11 The Auditor General of Ontario has confirmed that promised job creation targets have been woefully unrealized. 12 Net impact might have been determined had the Ontario government not defunded independent gambling research in 2013.

7 5.3 Government Obligation The Canadian government has an existing legislative platform and an obligation to protect sports betting patrons, their families, and their communities from the foreseeable harm that results and escalates from excessive involvement. Of importance, however, constraining or banning General Public Advertising of sports betting will be of little significance to the larger issue of cultivated harm to patrons.

In this regard, the Senate Committee reviewing Bill S-269 might look to the Consumer Product Safety Act (CCPSA) in regard to “addressing or preventing dangers to human health or safety that are posed by consumer products in Canada” and the Competition Act in relation to “false and misleading advertising” as occurs in Direct-to-Patron Advertising as the bases for framing national standards. This brief argues that it is only through the adoption of innovative approaches to modifying the regulatory framework that stemming the burden of undesirable consequences will be addressed. 6.

Recommended Action: Sports Betting Advertisements Given the foregoing, and applied to a sports betting advertising lens, it is recommended that: Four actions are recommended for consideration. 6.1 Recommendation One Introduce a levy of up to 50% on all online provider advertising and marketing expenditures.

Doing so will raise the price of such activity and thereby apply financial incentive to do less, while generating new funds for unaddressed needs, as suggested in the following recommendation. 6.2 Recommendation Two Dedicate levied advertising and marketing revenues generated from Recommendation One to support: a. Independent research into the prevalence of harm and changes in its distribution over time. There currently are no mechanisms in place to monitor the nature and extent of harm arising from sports and betting in Canada, despite the availability of validated measurement instruments and protocols.

In addition, the offsetting externality costs to government from such harm should be quantified and factored against revenues. b. Research to develop effective preventive interventions. Preventive interventions aimed at reducing losses that patrons cannot afford can be built or adapted from existing approaches developed by Canadian firms and in other countries (see example in Appendix A). The Government of Canada place conditions on the continuing ability of sports betting providers to advertise and market their products in order to reduce the burden of foreseeable harm to patrons.

8 c. The mandatory incorporation of algorithms into all sports betting databases to identify

a) patrons at risk of harm and

b) those losing more than they can afford.13 6.3 Recommendation Three Require sports betting providers to produce semi-annual data summaries of patrons’ play similar to the illustrative table in Appendix B. Doing so would make explicit: a. Key trends, such as changes in the mean loss of the 9th and 10th deciles, and b. The impact, if any, of preventive initiatives and strategies.

Further to the creation of these summaries, require provincial regulators to develop systems to identify the population of unique patrons from the totality of providers’ registered patrons, and to produce similarly formatted summaries for this cohort. 6.4 Recommendation Four Amend the Criminal Code to define the key term, “conduct and manage”, which has devolved into rote statements that are often cited but are devoid of meaning.14 Defining these terms will provide context and clarity to gambling-related discourse and action – specifying, for example, what it means to “conduct a lottery scheme” or to “manage” its delivery.15 In so doing, a definition will bring accountability to every party involved in the provision of gambling, and Canada will join the many countries that have taken strong definitional and regulatory stands in the interests of preventing gambling-related harm.16 7.

Concluding Thought Statements by the CGA noted in the introduction are self-serving and disingenuous. Sufficient data exist to define the problem of excessive sports betting involvement and resulting harm. These data must be made available for independent analysis. Sufficient capabilities exist to reduce the burden of harm to Canadians but are not being implemented.

The gateway to both is through regulatory amendment to the conditions under which sports betting providers are permitted to employ Direct-To-Patron Advertising for their products without meaningful constraint. 13 Such algorithms have already been developed and validated, and only require adaptation to specific settings. 14 The Ontario government commissioned an opinion when first opening the Windsor Casino in the 1990s but subsequently removed all public access to the resulting report.

A copy is available from the author. 15 A key question is whether transferring gambling operations to private sector providers meets the specification that lottery schemes are legal only if conducted and managed by provincial governments. 16 For example, 11 European countries have established duties of care owed by gambling providers to their patrons.

9 Appendix A: Kindred edges closer to net zero harmful revenue goal July 24, 2023 https://sbcnews.co.uk/europe/2023/07/24/kindred-net-zero-3-1/ (Outtakes from a quarterly report) Kindred Group chipped away at the proportion of its revenues derived from harmful gambling during Q2 2023, cutting the figure down from 3.3% in the previous quarter to 3.1%. The Stockholm-listed operator, active in various markets via its “Unibet sportsbook” and “32Red” igaming brands, set an objective in H1 2021 of achieving 0% revenue from harmful gambling.

As it stands, the 3.1% figure reported this week marks the lowest proportion of income from harmful gambling achieved by the group. This was accompanied by a record- high improvement effect after interventions, which stood at 86.4%.17 Nils Andén, Kindred Group Interim CEO, said: “Our ‘Journey towards Zero’ ambition is an important parameter for Kindred and our ability to contribute towards a fact-based dialogue on how to establish a more sustainable gambling industry. “It also acts as a fundamental metric in Kindred’s internal efforts to improve our responsible gambling efforts.

We have always been clear that we will not achieve this ambition overnight.” 17 The “improvement effect” measures changes in patron gambling after trained employees have intervened with protocols designed to reduce levels of gambling involvement that place patrons at risk of harm.

10 Appendix B: Example of a Data Monitoring Chart The following chart draws from available online and land-based data as illustrative of what might be expected in relation to Canadian sports betting. Were Recommendation 6.3 of this submission adopted, charts could be populated by actual player data which, in turn, could be repeated and analyzed for trends over time. Of particular interest are average loss values in the ninth and tenth deciles and the proportion of overall loss each provided (given that the risk of harm increases with the amount lost).

Effective preventive interventions could be expected to reduce average loss levels in both Deciles as harmful involvement is decreased. Similarly, the identification of patrons at risk of harm and those losing more than they can afford (Recommendation 2.

b) in combination with active intervention (e.g., Appendix

A) could further be anticipated to reduce average loss levels and attendant harm. Illustrative Sports Betting Data Chart Note that no illustrative data for days played are offered as the nature of sports betting is likely to differ substantially from the sourced gambling modalities. Decile Minimum Loss Maximum Loss Average Loss Median Loss % Total Loss Days Played D-1 -$400,000 -$43 -$540 -$160 - - D-2 -$43 $5 -$10 -$7 - - D-3 $5 $20 $15 $13 0.10% - D-4 $20 $50 $35 $34 0.30% - D-5 $50 $95 $70 $68 0.50% - D-6 $95 $180 $140 $129 1.00% - D-7 $180 $360 $260 $249 2.00% - D-8 $360 $820 $540 $526 4.20% - D-9 $820 $2,600 $1,440 $1,384 11.50% - D-10 $2,600 $1,500,000 $10,500 $5,957 80.50% -

11 Author Biography I have been involved in gambling research and gambling provider liability for the past 24 years, a period that encompasses 10 years as the inaugural CEO of the Ontario Problem Gambling Research Centre and, subsequently, 14 years serving as expert witness in six liability actions launched against the Ontario Lottery and Gaming Corporation and its contracted operators. These experiences have provided extensive access to the gambling literature and directly to leading researchers.

They have also provided unique insight into gambling industry operations through access to confidential information attained over the course of liability actions. Prior to these involvements, my career focussed on alcohol research and related program and policy development with the Addiction Research Foundation of Ontario. I have experience in health services planning as Executive Director of an Ontario District Health Council. This was followed by 12 years as CEO of a for-profit private health subsidiary of the Homewood Corporation in Guelph, Ontario.

Since 2000, having been principal author of Ontario’s server training program, I have been engaged in an expert witness capacity in 110 liability actions launched against alcohol licensees under the duty of care owed to their patrons and the public. I have published in the alcohol and gambling academic, grey, and popular literature.18 Of particular relevance to the present brief is the recent co-authorship of an

article in the Alberta Law Review examining when casinos should owe a duty of care to their patrons. 18 Available at www.reserachgate.net