To begin, could you give us a brief update/overview on both the positives and pressure points of the state of play in Brazil at this moment?
The main positive is that all the regulations have now been issued as of 31 July. Since then, there have been a lot of ups and downs. There continues to be a dispute between the Federal Government and states, especially the state of Rio de Janeiro, because Rio is the only state that benefits from a specific paragraph of the federal law that recognises an acquired right to issue its own licences. What is important about Rio is that its licence holders can currently accept bets from outside of state territory. This has created a lot of turmoil. Elsewhere, in the week of 17 September, the SP regulator issued ordinance 1475, which in practice moved forward the cutoff date of the transitional period from 31 December to 1 October.
This has led to complete havoc in the market. Not least because it cut the transitional phase by three month; this, in my opinion, violates the federal law, which stipulates six months at least for the transitional period. Before, everything was fine, everybody was getting their skates on producing their applications. Then this ordinance that came out on 17 September said applicants that had already filed by the end of the day on 17 September would have the ability to stay active and operational until 31 December while their applications were being processed. Now, as of the 11 October, the federal regulator has begun blocking all websites that are not on that list. Apparently, they may be blocking more than 2,000 websites accessing the Brazilian market.
One of the main points of contention earlier this year when we last spoke was the issue of regional vs federal licence applications. How has this played out thus far and what do you see happening moving forward?
Yes, running parallel to everything previously mentioned, there is also a lot of activity in court involving the federal regulator and the regulator from Rio de Janeiro. Rio de Janeiro has taken legal action against the Federal Government in the federal courts of Brasilia, saying that since the state regime is totally separate to the federal regime, they were not subject to any of the ordinances of the SPA – practically stating, ‘we’re not going to do anything you want us to do.’ They succeeded in obtaining injunctive relief, which stated that the ordinances would not be applicable to them, which is a great victory. However, the Federal Government appealed that decision and it said Rio de Janeiro could not continue with its extra territoriality that allowed it to accept bets from outside the state. This is just another battle in a fight that is probably going to go on for a long time.
Something that was very recently announced was a proposed ban on PIX payments, Brazil’s most used payment method, for betting. Why do think this proposal has been brought to the authorities now?
That was actually I a comment from the President of the Federation of Banks (FB) in Brazil. What has happened in the last few months is that many sectors of the economy and society, including the banks, have produced reports saying Brazilians are spending their life savings on betting and that families are getting indebted. Subsequently, something of an agenda against betting companies has begun to proliferate. Unfortunately, the betting industry has not been capable of joining forces and combating all this negative publicity they’re getting. Regarding PIX, for those who don’t know, it is a payment method that accounts for a large percentage of transactions in the betting industry and all other industries in Brazil. A few people have been urging the Government to change its mind when it comes to PIX and gambling, regarding the amount that could be wagered with PIX.
More recently, President Lula, who was initially 100% in favour of legalising and regulating the industry, is beginning to look like he’s a bit regretful of what he has done and has really criticised the industry. He has now said that if regulation doesn’t resolve the problem of the black and grey markets, he’ll do whatever he can to backtrack. He doesn’t have the power to reverse everything that is already done because you need Congress to do that.
Nevertheless, apparently his feelings towards the betting industry have changed dramatically. I think another contributing factor is that a number of beneficiaries of his famous Bolsa Familia programme – which offers financial support to some of the nation’s poorest communities – have been spending a lot on gambling. All of this has created a very strong urge to try and restrict betting because it has become something of an untamed monster in Brazil – and nobody knows why because the regulation is there. Operators that want to act legitimately are doing what they need to do. Possibly it’s because it is still a novelty and things will calm down in the coming years. The fact remains that there is a lot of social uproar against the betting industry. Yet, it hasn’t seemed to affect all the applications that have been coming in. They’ve been swamped both at a state and federal level.
Many licence applications are likely to still be pending; do you think that – because of the delay in regulations being published – applications may be denied due to a shortened maturation period?
Those who filed by 20 August will be in the first wave on 31 December. I believe there were around 113 companies that filed by that date. Interestingly, the general comments I’ve heard from the regulator is that the majority of applications were very poor. This means there is a large likelihood they will not meet all the requirements needed to obtain the licence. Remember that the federal regulator’s original expectation was to have around 40 licence applications. Now we’re at five times that in total. Of course, that is obviously good news for the Government because each one must pay BR30m ($5.4m). However, we will have to see how many will actually make it to the finish line.
Another licensing-related pressure point is the very high fee that operators must pay for the federal licence – although this, clearly, hasn’t affect business either. Why do you think fees are so high?
For one, the Government is seeing that there is an appetite for paying BR30m. Otherwise, there wouldn’t be 200 applications on the table. Of course, the country is also setting out to try and achieve zero fiscal deficit as soon as it can, which was a large motivation behind opening the market. Another reason could be that there was some lobbying going on backstage, where only the large operators want to dominate the Brazilian market; so perhaps the fee was set at a higher rate to separate the men from the boys, so to speak. In this instance, for those who don’t have the BR30m in their pocket, other options like the Rio licence, which is a sixth of the price, become very interesting.
For a start if you compare the federal licence fee with the Rio licence fee, which is just over BR5.2m, it’s much more attractive. They have also seen success in Rio with around 50 applications and the window for licensing is still open, which means there’s still time for anyone interested in taking the risk. At present, a licence in Rio still gives you the ability to accept bets nationwide – for now.
What do you think are the key decisions the Government must get right between now and when the market opens in the new year?
I think they should stop being influenced by public opinion, because this latest ordinance is just another example of them changing the rules midway through the process. I don’t think it’s good for the country. It doesn’t provide legal certainty and it may push away potential investors. I think sticking to the rules they laid down originally is important. Secondly, I haven’t heard of anyone yet having been given the green light that everything is in order, and they’ll be issued their licence on 31 December. We’ll have to see exactly what is going to happen but some more clarity in this area is needed. Third, the Government is going to have to show how sharp its teeth are, because as of 11 October, it has started its own enforcement of unauthorised websites. We’re going to see whether the Federal Government now possesses the tools to do what it set out to.
