All systems go: the opportunities and challenges for Brazil’s regulated market

There is an air of optimism in Brazil as the New Year kicked off with the South American country’s regulated market going live on 1 January. The launch of a licensed framework for online sports betting and igaming was highly anticipated, considering its population of more than 200 million people and the nation’s obsession with football. Ranking among the top 10 online gambling markets globally, Brazil is the seventh-largest market by revenue, at $4.9bn including lottery, according to full-year 2024 data from H2 Gambling Capital.

To apply for a licence, operators had until 20 August 2024 to submit their applications to the regulator, the Secretariat of Prizes and Bets (SPA), that being the cut-off date to be included in the first wave of federal licences issued by 31 December 2024. At the time of writing, the SPA has approved 66 operators for 137 brands comprising 14 permanent licences (plus one additional licence for an operator that had requested to run more than three brands) and 52 provisional.

Approved operators received a five- year licence at a cost of BRL30m (£4m), allowing three brands per licence, with the Treasury having received BRL2.01bn in fees from the 67 approvals as of 31 December 2024. Licence holders face a 12.5% tax rate on gross gambling revenue (GGR) and are required to have 20% Brazilian ownership.

Published in the Official Gazette of the Union (DOU) last month, the Ministry of Finance stated that the 52 companies with temporary authorisation have a period of 30 calendar days from 30 December to meet final requirements such as certification of betting systems, online games or their integration, or the need for supplementary documents. The period can be extended by a further 30 days if the company was to present the necessary justifications. Failure to comply could result in authorisation being suspended for up to 90 days or revoked entirely.

However, 37 applicants did not meet the technical and compliance criteria, so the SPA has given those concerned 150 days to resubmit their documents or appeal the decision.

In total, 271 companies requested a licence, with 103 of those applications already evaluated as they were received before the 20 August deadline, while the rest will be reviewed within 150 days.

Aside from those that applied for a licence, others such as Betway decided to exit the market altogether. The Super Group-owned brand had initially been approved by the Ministry of Finance to continue operations in the country until 31 December 2024. However, Betway informed customers it was ceasingoperations on 13 December. Several other operators also withdrew from the licensing process before the end of the year, including Vera&John and Dafabet.

Despite those operators throwing in the towel, Bárbara Teles, lawyer at Brazilian DFS firm Rei do Pitaco, apermanent licence holder with its Kambi-powered online sportsbook, is optimistic about the potential of the market and believes the regulation will allow it to grow sustainably.

“The launch of the regulation and the complete legal framework in January marks a major milestone for the industry, providing clarity, structure and an environment conducive to responsible growth. All of the companies authorised to operate will be following the same rules, adopting responsible gambling practices, being supervised by the regulator and making it possible to collect important data for drawing up public policies for the sector,” she shares.

Know your customer

A note by independent research firm Regulus Partners, published in November, identified three distinct customer cohorts in South America’s largest economy: VIPs from the top 1% of the population economically who are richer than most US or European citizens and make up an estimated 40% of the market (around $1.4bn), an increasingly digitally savvy and football-mad middle class (worth around $1.6bn), and lower socio-economic groups with less access to digital and payments.

As part of the regulation, there are a few controversial elements. For instance, players are subject to a 15% personal income tax applied to net winnings of more than BRL2,824, paid annually by bettors when filing their yearly tax returns. Plus, deposits or withdrawals with crypto are not permitted, while welcome bonuses and free bets are also banned.

The previously mentioned Regulus Partners note highlights that these three reasons alone add up to motive (tax evasion), means (crypto) and opportunity (bonus touting through dotcom affiliate sites) for VIPs to avoid playing with licensed operators.

Marcio Malta, CEO, Sorte Online

In agreement is lottery operator Sorte Online’s CEO, Marcio Malta, who believes the personal income tax will hit high-value customers the hardest. His hope on the welcome bonus is that there will be a second wave of updates on the regulation. “It can be or should be reviewed when the market gains more maturity,” Malta says. “It’s quite hard to explain to the regulator that the problem won’t be the regulated market, but as you increase taxation, you open the door to the black market and channelisation will reduce.”

As well as offering lottery, the 21-year-old business has decided to expand into online sports betting and gaming and has been awarded a provisional licence. According to a study by media and communications conglomerate Globo in 2021, 69% of Brazilians play the lottery and 36% partake in online casino, meaning it opens up attractive cross-sell opportunities for the firm.

On player demographics, Regulus Partners believes the middle-class mass market has considerable growth potential and is unlikely to be materially impacted by the winnings tax, with product and brand being a higher priority than bonusing.

Thomas Carvalhaes, Neil Montgomery and Fellipe Fraga (first three, left to right) at EGR’s Power Latam Rio Summit 2024

Stake’s country manager for Brazil, Thomas Carvalhaes, shares a similar view, highlighting the importance of having a strong product. “Of course, bonuses play a role as traditionally one of the ways to acquire and retain customers. However, it cannot be the only way. It’s mixed feelings but I’m actually glad because it will put an even bigger emphasis on the quality of your product and offering a good UX,” he explains.

While Fellipe Fraga, EstrelaBet’s chief business officer, doesn’t expect the winnings tax to impact his firm, he notes that the first year will be the acid test. “We will let the government know if it doesn’t work and say, ‘Let’s find another way for the country’,” he remarks.

One area of concern for the Brazilian market under its licensed framework is the potential for consumer claims to start rolling in. As regulated operators are Brazilian companies, it will be much easier for customers to take legal action against them because the service of process (a civil procedure that gives legal notice to a defendant that an action is pending against them) and enforcement will be quicker and more straightforward than before.

Neil Montgomery, managing partner at law firm Montgomery, tells EGR there could be claims from disgruntled players over issues such as withdrawal rejections and closed accounts. “If the claims are worth up to the amount equivalent to 40 minimum salaries (40 x the national minimum wage of BRL1,518 per month) then they can be processed before the small claims courts where they can be processed much more quickly than in a normal state court,” he adds. Though, Montgomery’s hope is that this “new reality shock” will not deter operators from staying in Brazil.

The sky’s the limit

In terms of the pecking order in Brazil, data by website traffic resource Semrush for November 2024 showed Kaizen Gaming-owned Betano leads the way as the most visited gambling website in Brazil with 88.4 million visits, while bet365 sits in second place with 45.6 million hits. Other notable international players are Entain’s Sportingbet and Flutter’s Betfair, both of which have been entrenched in Brazil for a number of years. Plus, the likes of Superbet and KTO Group have solid footholds, alongside a number of domestic operators including Betnacional, which Flutter took a 56% stake in last year.

As for verticals, H2 Gambling Capital forecasts sports betting to generate 55% of online GGR in 2025, with slots (including crash games) in second place on 27%. An estimated 36 million active online betting and igaming accounts are expected in Brazil by 2026, with an average GGR per account of $133, representing 9% of the total adult population, as referenced in an OpenBet white paper published in September 2024.

Fellipe Fraga, EstrelaBet’s chief business officer

Fraga at EstrelaBet has his sights set on at least a top five position in Brazil, though he hopes to take the top spot one day thanks to the operator’s local knowledge of the Brazilian consumer. One important consideration is how to appeal to customers in different parts of the country where the cultures vary. He elaborates: “Localisation is important, and the challenge is how we do this using one single site and one single account on social media? We cannot do EstrelaBet north and EstrelaBet south. It’s impossible.”

During the licensing process, game developers and operators had to adapt their products to ensure these are in Brazilian Portuguese and compliant with the country’s strict consumer laws as well as the Ministry of Finance’s regulations.

Montgomery echoes the need to cater for different player demands throughout the country: “To the extent that Brazil is a country of continental proportion and, therefore, with major cultural differences between states and regions, customer needs will vary throughout Brazil.”

Stop right now

In the months leading up to the regulated market launch, the SPA and national telecommunications agency Anatel have ramped up their fight against “negative” domains, those deemed by the SPA as not having requested authorisation from the Ministry of Finance. Through a technical cooperation agreement, the two bodies will look to expedite the blocking of websites still illegally offering betting services in the country.

In a meeting held on 10 December, the SPA’s president, Regis Dudena, disclosed that three batches of domains had been identified by the regulator, along with help from the federal police and other criminal prosecution agencies, resulting in 5,283 sites having been taken down until that point.

While it’s still a learning process in Brazil, Carvalhaes of Stake, which has partnered with Kambi for its online sportsbook in the South American country, sees “good intentions” from the regulator as well as efforts by Anatel and the Central Bank of Brazil on tackling the black market. “There are two possible ways to block the illegal operators: through mobile carriers and payment service providers. If you cut those possibilities from illegal operators, you’ve probably gone a long way already,” he notes.

Under the current rules, Stake, which is known primarily as a crypto gambling operator, is not permitted to work with cryptocurrencies in Brazil, despite 24% of Brazilian adults owning a crypto-asset or digital token, according to a study by Sherlock Communications. Though Carvalhaes doesn’t foresee crypto being allowed within the next year or so.

“Although Stake and a few other operators are traditionally known for being mainly crypto-based, for stake.bet.br, which is going to be our operating brand here, crypto is out of the question for now,” he explains. “We’re educating and instructing our customers to do what needs to be done so we’re all compliant and following the right path.”

For Sorte Online’s CEO, one of the main challenges is making the public aware of the economic impact of the regulated online gambling sector. “I think what you face currently is something of an identity crisis, as pre-regulation some companies were operating offshore,” says Malta. “So, it was hard for customers to understand where the companies were based. But now, under the new regulation, everything is more visible and brings in more credibility.”

Animal instinct

Alongside the popularity of crash games, Brazil is also well known for its love affair with jogo do bicho, an illegal animal-style lottery game. Regulus Partners considers jogo do bicho to be worth around $10bn-$20bn across the country and it is thought to be played by at least 40 million Brazilians.

Indeed, there could be an opportunity here in the future to convert these players to legal online gambling, thereby moving jogo do bicho into the regulated arena. However, approval of law 2,234/2022, which seeks to legalise land-based casino, bingo parlours and jogo do bicho, was put to a vote at the Senate’s plenary in December but subsequently withdrawn and postponed due to uncertainty that it would pass.

Nevertheless, Montgomery sees the potential should the game become part of the regulated sector in the future. He adds: “Given the popularity of this form of lottery, which was born in Rio de Janeiro in 1892, there would indeed be a massive opportunity for including the game in the regulated market. This would also allow those working with the current illegal game to have their employment relationship formally recognised and for taxes to be collected by this profitable game.”

As Brazil starts the turn of the year under a new regulatory regime, Dudena welcomed the completion of the first round of authorisations and the beginning of a new era for gambling in Brazil. “We will start 2025 with strict and clear rules, in addition to mechanisms to demand their compliance and operators to be held accountable. The imposition of these rules and their implementation are the result of a huge effort by employees of the Ministry of Finance, under the command of minister Haddad and president Lula ,” he said.

There are certainly high hopes for the Brazilian market with the potential player pool available to operators. As the market matures, there is an expectation that the rules will be adapted to ensure best practice and a fair market for all. But the online gambling industry will have to work closely with the authorities to ensure the fight against the black market continues in order to maximise the wealth of opportunities available for licensed operators, both local and foreign alike.

Industry experts share their expectations for the Brazilian market

Andreas Bardun, CEO, KTO GroupBrazil has always been a market with tremendous potential – both in size and passion for sports – making it one of the most exciting gaming markets globally. The introduction of clear regulations will bring much-needed structure and trust to the industry. Ultimately, regulation is a gamechanger. I expect Brazil to quickly become one of the top regulated igaming markets in the world.

Alvaro Martins, country manager for Brazil, Betsson GroupWith intense competition expected, our focus will be on understanding the market dynamics and making smart decisions about where and when to invest. We won’t rush in with aggressive marketing campaigns. We’ll take the time to adapt, leveraging our existing strengths and partnerships to meet players’ needs.

Neil Montgomery, managing partner, MontgomeryAs I have been saying since the enactment of law 14,790/2023, I expect to see increased M&A activity in the regulated market. In addition, foreign operators not yet having applied for a licence or having pulled out of the market earlier in the process will be looking for licensed operators to purchase or do joint ventures with.

Graham Tidey, CEO, MarketLaunchOnline gambling operators will need to adapt to the new rules while facing unregulated competition. Certification bottlenecks will also persist. There will be concerns surrounding customer litigation, high marketing costs and the feasibility of non-federal licences. I expect some last-minute partnerships to fail and new players to continue to arrive into the second half of the year.

Bárbara Teles, lawyer for regulatory and public affairs, Rei do PitacoWe will now be able to see the real size of the sector, protect gamblers and combat the illegal market. We expect a significant influx of players who will benefit from consumer protection, integrity and security. The market is primed for innovation, and the legal clarity will drive investment and technology adoption.

Thomas Carvalhaes, country manager for Brazil, StakeThe expectations couldn’t be better. We are really looking forward to the enforcement because this is really going to be important so we can ensure a fair market. Of course, it’s going to be competitive. There are a lot of big players on the stage here. We’re really looking forward to a very promising and productive market.