Brazil Regulation: What developments have taken place and what does the immediate future hold for this dynamic market?

SBC Summit Rio’s In-Depth Exploration of Regulation: A Prelude

While the industry is still celebrating the chance to venture into the land of opportunity, following the much-awaited regulation, SBC Summit Rio’s conference agenda will meticulously examine exactly that — the potential impact of the new status quo on the Brazilian market. The first-ever industry event post-regulation, will facilitate discussions on the regulatory framework in the market through a series of informative sessions. Kicking things off, the ‘Regulator Panel: A Look Back at the First Months of Regulated Sports Betting, With One Eye on the Next Six’ will provide an excellent starting point.

In 2018, Brazil witnessed a momentous decision that would shape the future of sports betting in the country. 

The introduction of Law No. 13,756/2018 was a significant milestone, paving the way for both online and land-based fixed-odds sports betting. This law also entrusted the Ministry of Finance with the task of crafting precise regulations for this burgeoning industry within a four-year timeframe. 

However, as five years passed, it became evident that the wheels of politics were still turning, leaving numerous eager companies seeking entry into the market in a state of strategic and regulatory uncertainty. Fast-forward to December 2023, after much deliberation and back-and-forth, which included attempts to eliminate the provision concerning online games, Brazil’s chamber of deputies voted to approve online gambling, giving the green light for market regulation in 2024.

These developments set an encouraging precedent for SBC as it embarks on its journey into the region with the inaugural SBC Summit Rio, slated to take place at the Windsor Convention & Expo Center Hotel from March 5th to 7th, 2024. 

This timing couldn’t be more opportune. SBC Summit Rio is officially the first-ever industry event in Brazil post regulation.

Industry stakeholders find themselves in the position of needing to grasp and comprehend the proposed operating model in Brazil. In highly competitive sectors, seizing the opportunity to be an early entrant can be the defining factor between success and obscurity. Conversations like the ones that will transpire at SBC Summit Rio hold the potential to play a pivotal role in shaping a winning strategy for entering the Brazilian market. 

SBC Summit Rio is designed to feature a comprehensive conference agenda that delves deep into every facet of the industry in Brazil. Whether it’s gaining insights into the local audience, exploring the role of influencers and streamers in Brazilian culture, evaluating the potential for mergers and acquisitions in the country, or delving into the world of sports sponsorship, the agenda is tailored to provide SBC Summit Rio attendees with the knowledge needed to navigate the market effectively. 

At the heart of these discussions lies the foundational topic that underpins every other aspect of the agenda: REGULATION. What developments have taken place and what does the immediate future hold for this dynamic market?

The ‘Regulator Panel: A Look Back at the Six Months of Regulated Sports Betting, With One Eye on the Next Six’ discussion, is poised to delve deep into the intricacies of regulation and explore how a single market can transform the landscape of sports betting in the Latin American region. In preparation for this discussion, we’ve put together a concise overview of Brazil’s regulatory journey, complemented by insights from the Special Advisor to the Executive Secretary at the Ministry of Finance of Brazil, José Francisco Manssur.

Brazil’s History of Gambling

Throughout modern history, Brazil’s relationship with gambling has been turbulent at best. The 1920s ushered in a golden age for gambling, with over 70 operational casinos and a 60,000-strong workforce by the end of the 1930s. However, this moment of prosperity was short-lived when, in 1946, the then-president Eurico Gaspar Dutra, a devout catholic,  prohibited gambling in public spaces, abruptly destroying a flourishing industry overnight.

This blanket ban on gambling, with the exception of poker, which many believe is a game of skill rather than luck, continued for over 20 years. In 1967, state-owned lotteries were permitted to operate. A decade later, the 1980s saw the legalization of horserace betting, and in 1993, the ‘Zico Act’ legalized commercial bingo and slot machines. However, what seemed like a time of optimism for the industry soon took a turn when in 1998 the ‘Pele Act’ revoked commercialized Bingo, leaving non-commercial games permissible and the industry in disarray. 

So If the Market Was Unregulated, Did People Still Place Bets in Brazil?

Yes, in fact, the Brazilian market held 21.1% of the worldwide market share of online gambling traffic from December 2021 – February 2022, securing the top position on the list.

The initial sanctions on gambling in the 1940s were never modernized to encompass the use of the Internet or online betting and gaming. Consequently, operators could work their way around legislation that technically never made online gambling illegal.

On top of that, online gambling operators active in the unregulated market are based in countries where gambling is legal — thus wagers are technically made in foreign jurisdictions and are therefore not deemed illegal in Brazil.

The Downsides of Unregulated Markets

Although to many Brazilians, an unregulated market is better than no market at all, participating in an unregulated market presents a variety of risks to both players and the region as a whole. 

The crux of the problem lies in the fact that unregulated operators could deprive players of the protective measure that a regulated market would provide. Insufficient age verification procedures, inadequate identification checks, the absence of anti-money laundering safeguards, inconsistencies in enforcing self-imposed limits, and the lack of measures to protect player funds and data are just a few of the drawbacks that players may encounter when they choose to participate in an unregulated market that lacks player protection programs.

Another issue arises from the fact that unregulated markets do not generate tax revenue for their respective governments. As numerous operators provide their services from locations outside of Brazil, there is presently no legal framework obligating these companies to pay taxes to the Brazilian government. Consequently, offshore operators retain their earnings outside of Brazil without making any contribution to the country’s economy, be it through taxes or the potential job opportunities that a regulated sector could generate.

Speaking to Isadora Marcante from SBC Leaders, Special Advisor to the Executive Secretary, Ministry of Finance of Brazil José Francisco Manssur said:

We do need to take into account the Government’s interests around Health, Education, Food, and Security, and serving the most vulnerable. So we have to collect [taxes], it’s not fair that the market moves billions and doesn’t generate anything for the taxpayer and the citizens.”

The Road to Regulation

In December 2018, then-president Michel Temer, with the backing of the senate, voted in favor of federal law 13,756, which legalized fixed-odds sports betting activities as a public service under a lottery-style model. This change in sports betting legislation would be overseen by the Ministry of Finance which was subsequently given four years to regulate the activity and start issuing licenses.

However, since 2018, the movement on regulated sports betting has been slow at best. In 2020, there were some promising signs with the legalization of non-commercial bingo; however, the broader legalization of sports betting has since been delayed, sidelined and revised.

The law gave the Federal Government a deadline to come up with a regulation, and this deadline was not met. It was a two-year period, extended for an extra two, which was not fulfilled. The new Government had the task to fill this gap through a Provisional Measure.” Manssur added. 

For many in the industry, 2023 was going to usher in the full rollout of regulated sports betting and licensed operators in Brazil. After various pushbacks in Congress and government recesses, Brazil finally witnessed a string of encouraging developments on its path towards launching a sports betting market in late July 2023.

President Lula issued Provisional Measure No-1182, an interim measure granting Congress a 120-day window to scrutinize the proposals and pending reforms outlined in this provision measure. 

The provisional measure addressed a variety of important issues such as:

  • Confirming the sanction of an unlimited quantity of licenses for nationwide operations
  • Allowing foreign companies to apply for licenses 
  • Restrictions on advertising and commercial activities
  • The requirement of all licensed operators to implement compliance and AML policies established by the Ministry of Finance
  • Ministry of Finance must have access to data and information systems, as well as the power to request internet service providers to block access to unauthorized bookmakers
  • Central Bank’s key role regulating and overseeing financial activities that would otherwise be carried out by player account management systems regulated by gambling authorities.

Although the legislative developments were seen as a positive step in the right direction, these measures also received heavy criticism, particularly concerning the cost of operating in the region.

“Authorization will be costly – companies will need to pay a certain amount of money to operate in Brazil… Many operators and sponsors approached us when we took over to ratify their interest in being regulated. So that’s the main point. No one came here and said they didn’t want sports betting to be regulated, but no one said “We don’t want to pay taxes,” Manssur added. 

September 2023 brought further amendments to legislation when the country’s lower house – the Chamber of Deputies – approved the passage of Bill 3626/23 which would regulate sports betting and online gambling. These included the highly controversial and criticized reduction of license terms, reducing operator licenses from five years to just three. Additionally, the expense for unlimited licenses would amount to R$30 million, approximately 6.1 million USD. As a result, operators would be obligated to pay an annual licensing fee exceeding US$2 million, along with a 30% income tax on player winnings surpassing a specific threshold.

In late October, the Ministry of Finance made a noteworthy move by releasing Ordinance No. 1330. This ordinance set forth comprehensive requirements for businesses seeking to operate within the market. All prospective operators keen on entering this arena were mandated to declare their intentions within a 30-day period. This measure was designed to expedite the government’s authorization process and streamline the entry of new players into the market.

In late November, the Economic Affairs Commission (CAE) of the Senate of Brazil concluded its review of the tax and fiscal modalities of Bill 3,626/23 – submitted by the government to regulate a federal fixed-odds betting market.

Final changes saw the CAE revise the tax framework, confirming that Brazil’s federal market would apply a 12% tax on licensed operators and a 15% tax on player prizes, lowering the 18% operator and 30% prize tax recommended by the Ministry of Finance. The CEA also extended the grant period for licenses from three to five years.

When it came to online casinos, despite the prolonged period of indecision, it was decided that a review of online casino modalities must be undertaken, leaving deputies with the choice of extending the Bill’s remit to cover online casino games. The efforts of the Evangelical deputies to eliminate the provision concerning online games proved unsuccessful as a majority voted in favor of retaining online games.

On Saturday, December 30, President Lula da Silva signed the Bill, with this endorsement completing the legislative process.

“It is very clear to us that regulation will only solidify the market, making it more predictable and it will increase the interest of these companies. Once the regulation is in place, new companies will enter,” José Francisco Manssur said.

Make sure to attend the “Regulator Panel: A Look Back at the First Months of Regulated Sports Betting, With One Eye on the Next Six’ discussion on March 6 to gain more insights from José Francisco Manssur (Special Advisor to the Executive Secretary, Ministry of Finance of Brazil) and Martin Lycka (SVP American Regulatory Affairs & Responsible Gambling, Entain), who will be joined by Rafael Marchetti Marcondes (Chief Legal Officer, Rei do Pitaco) and will be moderated by Tiago Gomes (Socio, Ambiel Avogados) to discuss all things regulation.

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Want to know more about Brazil? Follow SBC Noticias Brasil for fresh industry news from the country.

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