High hopes: can Brazil achieve its full potential as a regulated market?

With its elegant white façade and art deco styling, the iconic Copacabana Palace hotel is a landmark in Rio de Janeiro. Looming over the city’s palm tree-lined Copacabana Beach, the 100-year-old property has long been synonymous with opulence and glamour, welcoming the likes of Walt Disney, Ginger Rogers and Marlene Dietrich in the hotel’s heyday of the 1930s when its glitzy casino was a big draw.

Yet that all changed in 1946 when President Eurico Gaspar Dutra, a former military leader, outlawed most forms of gambling. And so, on the evening of 30 April 1946, roulette wheels across Brazil, including at Rio de Janeiro’s most famous and grandest hotel, gradually spun to a standstill for the very last time. The Copacabana Palace’s high-ceilinged casino was later repurposed as a theatre.

Prohibition in the decades that followed meant the Brazilian population was largely restricted to having a flutter on lotteries and horseracing, or there was the option of the illegal and widespread numbers game jogo do bicho (see box on page 30). More than seven decades after the crackdown, in 2018, fixed-odds sports betting was legalised as a form of national lottery, yet establishing a regulatory framework to oversee this burgeoning industry has dragged on for years in a country often criticised for its Kafkaesque bureaucracy. Jair Bolsonaro, Brazil’s previous president and a far-right populist with a large evangelical base vehemently opposed to gambling, failed to sign off regulations when he was in office between 2019 and 2022.

However, meaningful progress was achieved in July 2023 when Bolsonaro’s leftist successor and former incumbent, Luiz Inácio Lula da Silva, issued a provisional decree to regulate omnichannel sportsbooks. Then, on 13 September, the Chamber of Deputies (lower legislative house) took an important step on this journey by approving an amended version of PL 3626/2023. The Federal Senate has 45 days to approve the bill or make changes and send it back to the Chamber of Deputies to approve. Interestingly, lobbying on the part of the gambling sector’s key stakeholders means that the draft legislation now includes online gaming, although there is some ambiguity around what this entails as the Portuguese translation is ‘virtual event of online gaming’.

Does this broad definition encompass all forms of casino such as slots, table games and so-called ‘crash’ games, which are especially popular in Brazil? Is live dealer prohibited? Or will it end up being a watered-down suite of RNG games? No one is quite sure. Sources inform EGR that the terminology was left as broad as possible so as not to aggravate the evangelicals, in the same way sports betting was legalised as a form of lottery.

“The good news is that we are seeing progress,” says Andre Gelfi, managing partner of Betsson in Brazil and president of the Brazilian Institute of Responsible Gambling (IBJR). “Five years is a long period we’ve seen this new government take office in January and really focus on making things happen, which is good.”

The bad news though, Gelfi tells EGR on a video call from São Paulo, is that operators are “very concerned about the structure of the regulation that has been approved by the lower house”. 

Fit the bill

For those who haven’t followed the latest twists and turns in Brazil’s long and arduous road to regulation, one of the key takeaways from PL 3626/2023 is that licences issued by the Ministry of Finance will cost an upfront BRL30m (£4.9m) for a three-year period. Much to the industry’s dismay, this term was reduced by the bill’s rapporteur on 13 September from the previously proposed five years.

What equates to BRL10m a year for a licence is right up at the pricey end of what it typically costs elsewhere to enter a regulated online market. “They maintained the BRL30m but reduced the licence to three years – BRL10m per year is extremely expensive,” explains Neil Montgomery, founder and managing partner of law firm Montgomery & Associados.

He continues: “While it’s very positive that they approved an open licensing model where there are no limitations on the numbers of licences, raising the bar on the fee to BRL30m for three years means, to a certain extent, they are funnelling that market to only the big operators. Brazil seems to be accessed by hundreds of sports betting brands I don’t know how many of those would be able to afford this type of licence fee in addition to the high taxes.”

Talking of taxes, the current legislation calls for licensed operators to hand over 18% of GGR as gaming tax. Using Europe as a comparison, an 18% levy would be on a par with Sweden, yet slightly below Spain (20%) and above the UK for sports betting (15%). However, 18% doesn’t paint the full picture in Brazil as operators will have to also pay corporate income tax, social welfare contributions and other taxes that could swell the total burden on revenue to above 30%.

The industry was also left frustrated to see a winnings tax was still in the bill when it passed in the lower house. A legacy of the country’s lottery laws, it means the government will take 30% of winnings above a threshold of BRL2,112, or around £340. In a note published on 14 September, boutique analyst firm Regulus Partners highlighted how online gaming specifically tends to be more Pareto-driven (80/20 rule) than sports betting, meaning a 30% winnings tax is “even more onerous”. For instance, the regulations as they stand would mean every winning spin of a roulette wheel where $200 or more is bet on an evens outcome like red or black would be subject to the tax since the stake element of the prize is also captured.

For Luiz Felipe Maia, founding partner of São Paulo-based law firm Maia Yoshiyasu Advogados, any winnings tax spells trouble for the channelling of higher-staking players. “It makes absolutely no difference whether it’s 30%, 12% or 10%. The fact that you have a withholding tax on winnings above a certain threshold will make a reasonable part of the VIP players look for black-market alternatives. When we talk about VIP players, it’s actually a sizeable chunk of the market.”

Furthermore, the bill prohibits the awarding of bonuses. “That, of course, hampers the market a lot,” Montgomery warns. With unlicensed offshore sites able to dangle bonuses and other promotional inducements under players’ noses, as well as trumpet the fact there will be no winnings tax to pay, it leaves the regulated contingent with one arm tied behind their backs. The hope, though, is that the Senate will listen to the industry’s concerns. For example, there are calls for the GGR tax to be reduced to 10%, while there seems to be quiet optimism that licences will revert to five years, or even be extended to a decade.

The industry hopes to persuade politicians to rethink the current regulations

Likewise, the aim is to persuade lawmakers that bonuses are part and parcel of acquisition and retention strategies the world over. As for the winnings tax, a compromise – if it isn’t ditched altogether – could be for it to only apply to withdrawals. Thomas Carvalhaes, MD of Brazilian operator VaiDeBob, says: “As operators, we’re very well connected; we’re connected as a group on WhatsApp and we’re connected when we see each other at conferences, but it’s unanimous that none of us are supportive of the bill as it is. It just doesn’t make financial sense.”

He adds: “We couldn’t be less happy with this whole situation we truly think that this is really going to encourage a black market to thrive in Brazil.” It’s a sentiment echoed by Gelfi of Betsson. “We will have a big challenge to make this a successful market because taxes are high and the alternative to high taxes is the offshore market. So, we are trying to convince the authorities that lowering the brackets will mean collecting more because channelisation will be higher.”

Corner the market

As opportunities go, Brazil is hard to beat. Its population of around 215 million makes it the most populated country in Latin America. It’s also the largest economy in that part of the world, although it just scrapes into the top 100 countries globally in terms of GDP per capita, according to the International Monetary Fund (IMF). “We’re talking about a huge country with mobile web penetration of over 80%,” says Carvalhaes. Brazil is also a sports-mad nation, particularly when it comes to football.

The country is proud of the fact Brazil has lifted the World Cup on five occasions, more than any other country. “Brazil fans are every bit as passionate about sports, particularly football, as their international reputation suggests,” says Nigel Eccles, founder of FanDuel and now chair of Rei do Pitaco, a leading Brazilian B2C fantasy sports platform that has a deal with Kambi to launch an online sportsbook.

Ascertaining the scale of online sports betting in Brazil – like any unregulated market – isn’t easy, although betting and gaming consultancy H2 Gambling Capital estimated GGR in Brazil’s non-regulated offshore arena was worth BRL1.98bn in 2021. The firm also projected the first full year of legal sports betting would achieve GGR of BRL3.7bn, although much will depend on the final regulations. If correct, that equates to around $600m. For comparison, New York’s online sports betting market achieved nearly double that, $1.36bn, in 2022, its first full year. Meanwhile, a study released in June 2023 by marketing data firm Comscore said there are 42.5 million online gamblers in the country, an increase of 281% on 2019.

Once a notable friction point, the payments component in the online gambling customer journey has been transformed in Brazil by instant payments system Pix. Launched by the Central Bank in November 2020 during the height of Covid-19, Pix lets the population use their smartphone to scan QR codes to send money and pay for goods and services.

Money is transferred in seconds and there is no charge for individuals to use Pix, just businesses. This convenience, combined with the fact the system is state-backed and secure, explains why it was an overnight success. There are now 140 million individual Pix users in Brazil, or roughly two-thirds of the population, while almost BRL1.3trn, or around $260bn, was processed in September. This was from almost 3.4 billion transactions during the month. 

“Pix completely changed everything,” says Andreas Bardun, founder of sports betting and casino operator KTO Group. “It is also one of the reasons that some of the local operators managed to take a huge market share.”

According to online payment platform Pay4Fun, Pix accounts for a whopping 93% of all regular bank transfer volumes today in Brazil. What’s more, its ubiquity soon spawned Pix-related brands cashing in on the popularity of the payment service. Brazil-facing operators Pixbet, BetPix and BetPix365 are prime examples.

Furthermore, a 2023 survey by Panorama Mobile Time/Opinion Box found that one in four Brazilians with a smartphone has staked money on a mobile sportsbook. These bettors also tend to be “male, young and low income”, the survey revealed. It also showed the brands respondents “use the most for sports betting” to be bet365 (18%), Betano (13%), Blaze (8%), Pixbet (5%) and Sportingbet (4%), in that order. These findings are largely supported by web analytics company Similarweb, which shows bet365.com was the most visited sports betting website in Brazil during September 2023, followed by Betnacional.com, Betano.com, bet7k.com and Pixbet.com, in that order.

It is no big shock to see bet365 top of the pile given the power of the brand and its best-in-class product. In fact, Similarweb shows the online giant was the 31st most visited site overall in Brazil during September and that a staggering 34% of the 181.2 million visits globally to bet365.com that month originated from Brazil. Kaizen Gaming-owned Betano has made significant inroads in Brazil, propelled by high-profile sponsorships, Flutter Entertainment has a foothold in the country with Betfair, and Entain has long been a leading player with Sportingbet.

Over time, since online sports betting was legalised five years ago, Brazil has become more and more congested, to the point where there are now hundreds of brands – comprising international and local operators – competing for share of wallet.

One such operator targeting the country since its launch in 2019 is KTO Group. “Brazil feels like Europe in ’04, ’05 or ’06 – the early days of internet gambling,” says founder Andreas Bardun from his Malta office while seated beneath a framed caricature of former Brazil national team captain and head coach Dunga. “What I mean by that is there is still a lot of education to be done. They are obviously learning very fast, but betting is still new to a lot of customers,” the Swede adds.

This thought is backed up by Carvalhaes, a Brazilian national himself. “We’re not natural punters. In fact, it takes us a while to understand the odds. We were completely clueless as a nation before, although I’m generalising here.” 

This naivety, if you want to call it that, sparked a landgrab as operators launched marketing blitzes to acquire customers. The consequence is betting brands are now plastered around football grounds and across the front of shirts in Brazil’s top division, Campeonato Brasileiro Série A.

Brazilian football clubs have become a shop window for betting brands

In fact, 19 of the 20 clubs in the league have sponsorship deals with betting companies and many lower division sides display betting logos. “If you watch a football match you are going to see 10 brands,” Gelfi remarks. Online bookmakers have also been signing up ex-players for the Brazilian national side left, right and centre to be brand ambassadors. For example, Betfair International has Ronaldo, Betsson hired Zé Roberto, while domestic operator BetPix365 turned to Luis Fabiano.

And when it comes to the digital aspect of marketing, the industry received a boost recently when Google said it would allow PPC ads in Brazil for DFS- and sports betting-related search terms. The new policy was effective from 28 August. “Everyone’s gonna be buying keywords like crazy,” Carvalhaes remarks. Bardun suggests the size of the Brazilian opportunity would have had a large bearing on the search giant’s decision. “Google is usually quite conservative until everything is regulated, but I think they have allowed PPC because they realise how big the market is. They are being more flexible than they would if it was a country the size of Paraguay.”

Friends in high places   

Brazil was already touted as a top-five regulated online market with just sports betting, so add igaming to the mix and the country looks set to leapfrog to a position in the top three behind the US and the UK. “Casino is a big thing right now in Brazil,” Gelfi comments. Where Brazil sits in the pecking order of regulated markets will largely depend on the final regulations, particularly whether the GGR tax is reduced, whether the winners’ tax is modified and if operators can offer bonuses. Industry stakeholders are lobbying politicians but, as we’ve seen in other markets like the US, it boils down to education. Otherwise, you end up with regulations not conducive to a competitive industry that creates jobs and generates as much tax for state coffers as possible.

Carvalhaes of VaiDeBob says: “My overall sense is that the government and the politicians we’re dealing with don’t understand the matter. So, our job is to educate and show them – if they show the humility to learn as well, of course.”

The aforementioned IBJR, which represents the likes of bet365, Flutter, Entain, Betway Group and LeoVegas, has said that if the text in PL 3626/2023 is approved by the Senate in its current form it will make it “impossible” for companies to create competitive and attractive products, with “prizes unable to compete with those being offered on the illegal market”.

The body has urged the government to “change course” and points to France and Portugal as countries where, it says, “almost half of bets are placed on unregulated sites, the vast majority of which are based in other jurisdictions”. On the challenge of trying to reshape the regulations, Gelfi says: “It’s like we are at a football match; we can shout and we can cheer but we don’t kick the ball the process is controlled by the government and Congress.”

On the sidelines

Of course, the potential consequence of bad or unworkable regulation is that a long tail of tier-two and tier-three brands decide to sit out of the regulated arena and continue to serve Brazilians. Many are already balking at a BRL10m-a-year licence fee, not to mention the fact licensed operators will be required to be based in Brazil.

Montgomery says: “We want a healthy, regulated market where everyone is happy. The way things are drafted today doesn’t make everyone happy. And the first news that I received once it was passed is that many main operators said they would not apply for a licence because of the harsh standards included in the bill of law.”

In the meantime, we wait to see what the Senate will do. It’s highly likely changes to PL 3626/2023 will be made based on the fact dozens of amendment requests have been filed. From there, it’s back to the Chamber of Deputies. “Nobody has a crystal ball,” says Montgomery. “Things change by the hour, by the day, so you never know exactly the outcome, and the odds of you getting it right are against you.”

He adds: “One way or the other the text is then submitted to the President of the Republic for sanctioning. He can also partially or fully veto it. If there is a veto, Congress can then attempt to overturn the veto.”

One of the most popular forms of legal betting are state and federal lotteries. Brazilian bank Caixa, which took control of the federal lottery after a 1961 decree, reported that Lotterias Caixa enjoyed a record-breaking year in 2022 as revenue leapt almost 26% year on year to BRL23.2bn.

Another option for Brazilians looking to chance their arm is parimutuel betting on horseracing, a tradition that stretches back to the early 1800s. Bingo is also widespread, yet it has to be run as a non-profit venture since commercial bingo is currently prohibited.

Another game that has flourished is poker, as it is classed as a game of skill. Most major poker sites run live poker tours; PokerStars has the Brazilian Series of Poker (BSOP), and its Latin American Poker Tour (LAPT) stopped off in Rio de Janeiro earlier this year in March. 

Finally, there’s the illegal but wildly popular lottery-style jogo do bicho, which translates as ‘animal game’ and involves 25 animal symbols corresponding to groups of numbers. Regulus Partners estimates jogo do bicho to be worth around $10bn a year. 

“It’s a cultural tradition here and people love it,” says Thomas Carvalhaes, MD of VaiDeBob. “Unfortunately, jogo do bicho doesn’t have the best reputation because of the people who got involved with it; a lot of drug dealers or corrupt politicians have used it to launder money.” 

The thinking is that Brazil will have a regulated market up and running in H1 2024. Only then will we see who has stumped up for licences as industry observers attempt to ascertain the channelisation rate.

With the bill stipulating that only payment institutions authorised by the Central Bank (Banco Central do Brasil) will be allowed to process transactions, Regulus Partners believes this “leaves crypto and offshore wallet solutions wide open”. Crypto bookmakers and casinos already have a solid foothold in Brazil, one of the largest and most prominent being Blaze. The Curaçao-licensed operator has even signed a partnership agreement with Brazil forward Neymar.

Regulus Partners wrote in the previously referenced note that if Blaze, which the firm described as a “local Stake”, a nod to crypto gambling behemoth Stake.com, were to ever become licensed in Brazil, “another unlicensed operator will likely take its place”. When you consider that the number of Brazilians who hold crypto was said to have doubled between 2021 and 2022, it seems there are always likely to be crypto sites operating outside the country’s regulated online gambling space and rolling out the welcome mat for Brazilians.

Either way, Brazil is poised to be one of those markets that will continue to generate an abundance of headlines in the near future. M&A is probably likely, too. For instance, it wouldn’t be a massive surprise if European operators try to turbocharge their growth in Brazil by acquiring a ‘local hero’. We’re specifically thinking here about Flutter, given its international expansion ambitions and CEO Peter Jackson’s fondness for buying things.

Bardun has this simple warning for any brand considering planting their flag in the country: “It’s extremely competitive it is going to be very expensive to enter Brazil right now.” Based on the fact the regulations are for omnichannel sports betting, along with the mass-market opportunity, Regulus Partners suggests Brazil could replicate Germany in that a brand akin to Tipico, with its extensive network of shops and solid online product, will emerge as a strong local hero.

On the other hand, Carvalhaes, who spearheaded LeoVegas’ entry into the market in a previous role, believes that Brazil – despite being a football-crazed country – will turn out to be dominated by casino. Based on his experience with various operators down the years, he estimates more than 70% of the money staked on gambling websites tends to be ploughed into casino games.

“Brazilians are superstitious by nature,” he insists. “We like trying our luck and we like seeing what can come from a guess or something. So, I think the market will thrive much more with RNG-based games than sports betting. Sports betting is an entry door, but from the moment a customer registers, he normally bets on RNG-based games.”

Ultimately, industry opportunities don’t come much bigger than Brazil. Eccles says: “As a country of more than 200 million people, it is easily the most exciting opportunity for legalised sports betting since the US opened up.”

So, operators will be keeping their fingers firmly crossed the goose can lay that golden egg.

In May, Brazilian state prosecutors charged 16 individuals, including seven professional football players, with alleged match-fixing, in what was one of the largest scandals to rock Brazilian sport.

Charging documents alleged a criminal gang paid players to manipulate matches. This included offering up to BRL500,000, or around £80,000, as an upfront payment to players from clubs including Fluminense, Santos, Cruzeiro and Internacional.

It was suggested in the documents that players were offered bribes to spot-fix during games. For example, the documents said Santos defender Eduardo Bauermann accepted BRL50,000 to deliberately receive a yellow card in a match against Aval in 2020. Santos terminated his contract in June. Furthermore, the lead investigator in the case told the media he had also discovered potential evidence of match-fixing by players in other countries.

All this negative publicity came amid the process to regulate sports betting in Brazil, although Andre Gelfi, managing partner of Betsson in Brazil and president of the IBJR, believes the scandal helped convince politicians of the merits of a properly governed market.

“It helped the process to move quickly and was the final push for the government to issue the provisional measure in July,” he explains. “The government is now convinced that regulation is the most effective way to tackle match-fixing, which was a positive outcome from this whole scandal in Brazil.”