The novel about the regulation of online gambling in Brazil seems to have offered an exciting chapter yesterday, with the signing of Provisional Measure No. 1,182 that regulates sports betting by President Luiz Inacio Lula da Silva.
In principle, this single action leaves stormy years behind, which included a saga that began in December 2018, when then-President Michel Temer had sanctioned Law No. 13,756 that legalized sports betting in the country. Afterwards, there were endless parliamentary debates, with much opposition, as well as outright resistance from religious sectors with tremendous political strength and influence. As if all this were not enough, the scandal of the manipulation of the results of football matches in tournaments of different categories had been added.
That latest postponement of the regulation had come amid an ongoing investigation into alleged manipulation related to illegal betting on local football. Eight players from different First Division clubs were found guilty of manipulating results for money, while several others remain under the scrutiny of the authorities, in the process known as ‘Maximum Penalty Operation’.
A NEW AND EXCITING STAGE
Now, Lula’s signature generates new expectations, but also debate. The Provisional Measure is effective immediately and must be approved by Congress within a period of 120 days to become ordinary law. The PM includes several changes from the original 2018 law. The most relevant is the increase in revenue taxes from 16% to 18% of the operators’ GGR. Meanwhile, the cost of a license is expected to rise to R$30 million (USD 6.35 million, €5.74 million, £4.94 million) from the previously established R$22.2 million (USD 4.69 million, €4.25 million, £3.66 million), with those licenses lasting for only 5 years.
“Brazil’s new Government promised regulation a few months ago. There is a lot of interest from operators in applying for licenses, although some items in the PM are not as expected,” said Neil Montgomery, founding partner and director of the law firm Montgomery & Associates, speaking with iGB. Montgomery is referring to the 18% tax on GGR that the PM establishes which is above the percentage previously envisaged. Also, the 30% income tax that will be applied to player’s winnings exceeding R$2,112 (USD 444.50, €402.60, £345.30) seems a high value for the difficult economic reality of Brazilian gamblers, and of the people in general. The sector considers that heavy tax burden can become an obstacle when investing and doing business.
In fact, while the headline tax rate for operators published in the PM is 18%, this number really increases to a 30.82% tax on GGR once additional applicable taxes, such as PIS, Gaming Monitoring Fee, COFINS and ISS, are considered.
According to estimates by the local Treasury and Minister of Finance, Fernando Haddad, the measure will provide an additional collection of more than R$2 billion (USD 423 million) for the year 2024, and the Federal Government expects to receive between 50 and 100 applications for licenses.
Meanwhile, some Brazilian states, such as Rio de Janeiro and Paraná, are already granting gambling permits in their jurisdictions for local lotteries.
BETWEEN THE IDEAL AND THE POSSIBLE
“Sensible and sustainable regulation must inevitably include a series of minimum requirements. In a perfect scenario, regulations should reflect or take into consideration the experience of markets with successful regulations,” stated Andre Gelfi, Managing Partner for Brazil at Betsson.
The Swedish bookmaker founded in 1963 has a long tradition in sports, and currently sponsors important South American football teams, such as Boca Juniors and Racing Club in Argentina. They’ve also put their name to the First Division of Peruvian and Chilean football, and sponsored Copa America 2021 which Argentina won against Brazil at the Maracana Stadium. In 2022, Betsson recorded revenues of €777 million (USD 872 million), driven by the growth of its activities in Latin America.
Brazil is the largest betting market in the region, so it is a fundamental pillar of the operator’s strategy, especially after the acquisition in 2019 of Suaposta (at that time, the first and only Brazilian betting licensed brand in the country). Gelfi also serves as President of the Brazilian Institute of Responsible Gaming (IBJR).
“There is no doubt that Brazil has the potential to become one of the most lucrative iGaming markets in the world, with benefits for both operators and the Federal Government. To achieve this, good regulation, ensuring long-term competitiveness and prosperity, fair taxation, and adequate policies for the protection of players, sports federations and license holders, is essential,” he assured.
The IBJR was created to promote a responsible, sustainable, and competitive development of the gaming sector in Brazil, as well as representing the interests of the main authorized operators before regulatory bodies, legislators, business chambers, and sports entities. It brings together companies such as Bet365, Betsson, Betway, Entain, Flutter, Yolo Group and Rei do Pitaco, among others.
Last May, the IBJR joined forces with the International Betting Integrity Association (IBIA) to collaborate on defending and protecting integrity in sports betting. In recent weeks, representatives of both entities were summoned by the ICC to collaborate in the case of alleged match fixing.
In the words of Gelfi: “Integrity is the core value of partnerships. The IBJR has worked tirelessly to convey our concerns and share our global experience with regulatory authorities. We have been putting our expertise and operational knowledge on online gaming. Our contributions are aimed at preventing missteps with unnecessary costs and taking advantage of the opportunities that the market presents us.”
A BATTLEFIELD WHERE ONLY THE STRONGEST WILL SURVIVE AND TRIUMPH
From her point of view, Jhuana Lamas, Head of Business Development of the betting software provider Sportingtech, thinks the unease around the strict tax regime proposed in the South American country is understandable. The fear is that high taxes will deter foreign investment, hinder innovation, or jeopardize business profitability, as well as boost illegal gambling. Despite this, Lamas believes that “leading operators will have the necessary infrastructure to grow, regardless of market conditions.”
Knowing the business culture of Brazil and adapting to the local idiosyncrasy is one of the biggest challenges for brands. “Sportingtech has a solid and well-earned reputation in the country because it put a great emphasis on the market and built on firm foundations for regulation. It’s about constantly engaging with partner operators, knowing first-hand what players expect and delivering a highly personalized experience. Platforms cannot take a one-dimensional approach; players demand variety and we need to capitalize on cross-selling opportunities between sports betting and casino,” she expressed.
Precisely, to discuss the current situation in this market, Sportingtech will be the main sponsor of the next webinar that iGB will organize, entitled Brazil: The long road to legal betting, which will take place on Wednesday, August 9th (Time: 3PM BST; 11AM UTC). Industry leaders, including operators, suppliers and legal experts, will participate. Those interested can register for free at this link. For more information, you can contact Robin Harrison at robin.harrison-millan@clariongaming.com.
In short, between delay and progress, good decisions and mistakes, groups in favor and against, fixed-odds sports betting is a legalized reality in Brazil. There will be time now to discuss modifications to the PM so that Congress gives the final approval to the text. Operators are now ready to move forward and start working within a regulated system by the end of this year (according to estimates). Finally, the global gaming industry will no longer look at Brazil as a sleeping giant, but rather as a huge awake market, which will seek to become a territory of enormous investment and progress opportunities for gambling in the coming years.