There is a well-known series of images in The Economist that illustrate changing sentiment towards Brazil’s economic prospects over the last decade. At the end of 2009 as the world was emerging from the global financial crisis the magazine’s cover showed Rio’s famous Christ the Redeemer statue shooting skyward like a rocket with the caption ‘Brazil Takes Off!’ A follow-up article in 2013 showed the same statue hurtling out of control and plunging towards the ground with the caption ‘Has Brazil Blown it?’ A third image in 2016 showed the forlorn statue shrouded in clouds holding up an SOS sign. The caption read ‘The Betrayal of Brazil.’
We are now witnessing the same euphoria and disillusionment when it comes to Brazil’s gambling reforms – this time compressed into months rather than years. Brazil’s gambling market was set for take-off when a new law was passed last year, designed to fully regulate the market. But, delayed ordinances and hostile signals from the government mean it is now Brazil’s sports betting hopefuls holding the SOS sign.
The global direction of gambling regulators over the last decade has been to replace grey markets with legal, regulated markets. This has largely been a response to the proliferation of online sports betting and the globalisation of the industry. Regulation is good for both consumers, who enjoy better, more reliable services and established betting companies, who can operate in a transparent predictable market.
Brazil is just the latest and most exciting market to regulate sports betting and iGaming after US states started to liberalise laws over the last few years. Brazil is seen as a must-win market for major sports betting companies, who are now watching developments with concern. The market reached around R$120bn (US$21.17bn) in 2023 and could grow by 50% annually until 2028.
So, how did we get to the present situation when hopes were so high earlier this year?
At the end of December 2023, the approval of Federal Law 14,790/2023, which regulated the sports betting and online casino market in Brazil, was passed as a broad package of economic reforms that would boost the economy and generate tax revenues to help Brazil’s Government meet its target of a zero deficit. Through the imposition of taxation on operators and bettors, the potential revenue was estimated at over R$10bn.
There were hopes that a flourishing gaming industry would bring well-paid, high-tech jobs. The legislation required that sports betting companies have headquarters and management in Brazil. This would increase the demand for specialised professionals: Data analysts, technology and information security specialists, compliance professionals and specialists in personal data protection, among many others.
Navigating these less welcoming dynamics is a challenge that must be faced by the operators in this new market. From euphoria to tragedy in a few months. Now it’s the sports betting companies that are holding the SOS signs
In April, the Ministry of Finance instituted the Regulatory Policy of its Prizes and Betting Secretariat, providing for the publication of eleven ordinances by the end of July 2024.
The policy had three objectives: Establishing the regulatory actions considered priorities; providing legal certainty, predictability and efficiency; and providing a stable, current, transparent and attractive regulatory environment for sustainable investment.
Slow progress
But by mid-July, only five ordinances had been published; among them, the most awaited, Ordinance SPA/MF No. 827, which established the criteria for obtaining the authorisation licence for betting operators in Brazil. Published on 21 May, it set a deadline of 20 August for operators to submit the authorisation request to operate from 1 January, 2025.
The other ordinances were published in the last three days of July; namely, five ordinances whose content had to be absorbed by 20 August by operators wishing to operate in the country from 2025. The delay in publishing the regulatory ordinances hindered the detailed understanding of the rules of a completely new market.
Despite this, a surprising number of applications were received. The Ministry of Finance received 113 requests for national licences from sports betting companies. This surprised both the market and the government as predictions ranged from 50 to 70 applications.
The requests came from 108 different companies; among them, five companies submitted two requests, which means they can operate up to six different brands.
The catch
But, here’s the catch. The threat to a full understanding of the new rules, given the delay in publishing the regulations, may result in operators having the applications denied due to errors, because the maturation period was significantly shortened. The high number of national licence applications does not necessarily mean an equally high number of granted licences.
As if this wasn’t enough, in the second week of July, some betting sites were suddenly blocked, not only in Rio de Janeiro but in other Brazilian states. The block, which went against provisions set out in the law, lasted for a month and caused significant losses to operators by making their websites unavailable.
The block resulted from a court decision blocking betting sites that did not have a licence issued by Loterj, the state lottery. The decision went against the provisions of Federal Law 14,790/2023, which allows betting companies to operate in Brazil until the end of 2024.
The Government’s approach to taxation has also been causing concern due to a proposal to apply a ‘sin tax’ to betting. The new law already imposes a 12% tax on gross gaming revenue (GGR), which is the revenue from games discounted by prizes and taxes paid on prizes.
But, here’s the catch. The threat to a full understanding of the new rules, given the delay in publishing the regulations, may result in operators having the applications denied due to errors, because the maturation period was significantly shortened
The Tax Reform Bill is currently in the Senate. The expectation is that the plenary vote will take place by 22 September, even before the Economic Affairs Committee has the chance to hold a public hearing. If the sin tax on betting is approved, there will be an excessive tax burden on the sector. The results of excessive taxation are not difficult to predict. Namely, the growth of the informal market.
An illegal betting market takes us back to square one and brings countless negatives such as a reduction in tax revenue, an increase in money laundering, match-fixing, predatory advertising, pathological gambling and player insecurity – exactly the opposite of what was envisioned.
On top of all this, the Parliamentary Commission of Inquiry on Match-Fixing and Sports Betting Manipulation, established in the Federal Senate in April after match-fixing scandals in the country, began to blame operators for being negligent in failing to report possible match-fixing. This implied that sports betting operators were complicit in match-fixing rather than victims.
A need for clarity
The lack of a clear procedure for reporting suspicions of manipulation is a problem that must be addressed to protect those who make such reports. It is crucial to establish clear procedures for reporting suspicions of manipulation, including responsibilities, response times and whistleblower protection, to ensure that operators can effectively cooperate with authorities.
Navigating these less welcoming dynamics is a challenge that must be faced by the operators in this new market. From euphoria to tragedy in a few months. Now it’s the sports betting companies that are holding the SOS signs.
