Neil Montgomery, Founding and Managing Partner at Montgomery & Associados, a Brazilian law firm with offices in São Paulo and a footprint in Rio de Janeiro and London, analyzes for SBC what 2020 brought to Brazil’s gambling industry.

2020 started with a lot of excitement with the Brazilian discussion table at ICE attracting most of the attention from attendees to the LatAm session, so much so that one table was not enough and soon became three tables with people standing all around since all chairs were taken.

I was very pleased to be one of the speakers at the Brazilian table, where I represented the IMGL – International Master of Gaming Law. At the time, while Deputy Secretary Waldir Marques was unable to attend the conference, the excitement was created by the expectation of the regulations for Law No. 13,756/2018 (which legalized fixed odds sports betting as a form of lottery) being in the imminence of being released.

After returning to Brazil following ICE, where the country had indeed been the hot topic of the event, the market had to deal with a third round of publication consultation, conducted by the Secretariat of Evaluation, Planning, Energy and Lottery (SECAP) – which comes under the Ministry of Economy – in March, on the future regulations.

The third round saw a second draft of the future Presidential Decree released to the public for comments. To the industry’s surprise, the draft decree depicted the “concession” (and no longer the “authorization”) as the business model to be adopted by the Federal Government, which is based on the establishment of a public bidding process to obtain a license and with only a limited number of licenses being made available to interested operators (at the time, rumors had it that only 30 licenses were to be issued under such model, which is rather insignificant since it is estimated that approximately 450 operators currently access the Brazilian market).

Many stakeholders submitting contributions in such public consultation, including Montgomery & Associados, vociferated fierce criticism to such concession model, since the authorization model, where an unlimited number of licenses would be made available to all operators satisfying all legal, financial and technical requirements, would be more compatible with the “competitive regime” depicted in Law No. 13,756/2018.

Pandemic creates complete standstill

Then came the pandemic and everything came to a complete standstill. Later in the year, SECAP announced that the regulations for Law No. 13,756/2018 would be released by the end of 2020 or in early 2021, probably to coincide with ICE 2021, which was to occur in February 2021, but has now been pushed back to June 2021. 

Coincidentally, Deputy Secretary Waldir Marques earlier this month granted an interview to the Brazilian press where he confirmed that the regulations will now only be released by July 2021. Given the new date for ICE and the recent Brazilian Supreme Court ruling breaking the federal government’s monopoly on lotteries in Brazil (and which can impact the regulation and exploitation of fixed odds sports betting in Brazil, potentially also by Brazilian States and not only by the Federal Government), this announcement does not come as a total surprise.

In relation to the above, while the legalization of other forms of gaming and betting have gained momentum during 2020, especially as a viable source of revenues for the country and government following the massive government expenditure this year due to the pandemic, probably the greatest concrete development this year was indeed the Supreme Court ruling.

The decision, the full content of which is still to be published in the Official Gazette (which has so far only published the extract of the judgment session held at the end of September) and from which publication date the parties involved may file a motion for clarification against the same, has put a full stop to the lengthy discussions regarding the coexistence of state and federal lotteries.

Now that Brazilian States are authorized to exploit their own lotteries, provided the lottery forms have been legislated at federal level, a rush by the same to reactivate or enact their own state laws and decrees on the topic has been felt. The impact of the Supreme Court decision is still to be felt insofar fixed odds sports betting is concerned. While such activity was established as a form of lottery by Law No. 13,756/2018, the question remains as to whether Brazilian States will also be able to regulate and exploit such vertical. The next steps in the legal proceeding should shed some light on this.

The above-mentioned Supreme Court decision has also delayed the studies by the BNDES following the inclusion of fixed odds sports betting in the Federal Government’s Investment Partnership Program (PPI) and the National Privatization Programme (PND). In his interview, Deputy Waldir Marques mentioned that the Ministry of the Economy and the BNDES were to sign a contract “in the next few days” so that such studies could commence.

Complete Federal Government U-turn

The complete U-turn by the Federal Government moving from the “authorization” to the “concession” model has been explained as having resulted from guidance given by the National Treasury’s Attorney General in that only the “concession” model would be able to regulate the imposition of penalties on licensed operators and that the “authorization” model contemplated only the cancellation of the license as the only penalty that could be applied to licensed operators. The market, therefore, will have to wait and see whether the BNDES is indeed going to recommend such model or revert to the “authorization” model.

Finally, the Federal Government still needs to focus on the tax issue, since the rates contemplated in Law No. 13,756/2018 are seen by the industry as being too high, especially since they are based on turnover and not GGR. In relation to the foregoing, important court decisions were issued in 2020, in cases pertaining to horse racing bets and poker, in which GGR was seen to be the basis for calculating taxes. This should influence the Federal Government to try to convince Congress to adjust Law No. 13,756/2018 to make its tax related provisions more attractive to the market, by switching from turnover to GGR.

  • Did the industry reach the goals that it had set at the beginning of the year?

I do not think so, since the general expectation was that the regulations for fixed odds sports betting were to be released in 2020 and now the news is that it will have to wait another 6 to 7 months.

Further, while, as previously mentioned, there has been greater momentum in the drive to legalize other forms of gaming and betting, no concrete developments have been made in 2020.  

  • How the pandemic affected the industry in 2020

The pandemic ended up delaying the process of having Law No. 13,756/2018 regulated. Moreover, the lack of sporting events in the first months of the pandemic led to a drastic reduction of market activity at that time and the rise of other forms of betting, such as on esports, virtual sports and non-sporting events, all of which are being considered by the Federal Government, since Law No. 13,756/2018 contemplates fixed odds sports betting only for real sporting events.

  • The goals for 2021

See the regulations for Law No. 13,756/2018 finally being released, resolving the high tax issue currently embedded in Law No. 13,756/2018, see other forms of gaming and betting being legalized, setting up and running State lotteries, etc.

Studies suggest that once Brazil has become a regulated market, it should probably occupy third place in the global industry.

  • Can Brazil top Colombia and gain the status of Latin America’s most powerful country when it comes to online gambling?

I really hope so, it being noted that Colombia has properly done its homework to gain such status. We now need to do ours. At the end of the day, Brazil continues to be a sleeping giant in many sectors, one of which is online gambling. We need to wake up to new times, shake off any inefficiencies and occupy the position we deserve in the region.