Brazil’s betting industry is (almost) ready for takeoff

Brazil online gambling review

The fervor around Brazil is reaching a fever pitch, but many of those outside of Latin America are not fully in the loop on what has legally taken place in Brazil that led up to this point.

Jun Makuta is a partner at TozziniFreire and serves as one of the coordinators of TozziniFreire’s Japan Desk. His deep knowledge of Japanese legal matters is reinforced by his experience working in Tokyo, where from 2007 to 2008 he served as a Brazilian Law consultant within the legal department of one of Japan’s largest business groups. Makuta also has significant expertise in civil litigation, commercial law, and corporate restructuring and recovery. He runs down the history of gambling in Brazil and what to expect going forward.

In the 1940’s gambling was flourishing in Brazil. Reportedly more than 70 casinos operated across the country, employing more than 60,000 people. 

However, on Oct. 3, 1941, the industry suffered a severe hit when President Getúlio Vargas enacted Decree Law 3,688, which deemed all games of chance, except for federal lotteries and horse racing, as misdemeanors. Licensed casinos survived thanks to another decree law enacted in the following year. 

In 1946, Vargas’ successor, Eurico Gaspar Dutra, put a nail in the coffin. Influenced by his wife, a devout Catholic who was equally devoted to combatting immorality and protecting families, he applied a general ban on both the Communist Party and gambling.

Almost 80 years later, gambling continues to be surrounded by social stigma. The local regulated market is (still) minuscule, with the sum of wagers put on federal lotteries and horse racing not exceeding 0.25% of the country’s GDP. This is significantly lower than other major economies, such as the United States, where gambling and betting corresponded to more than 0.6% of the nominal GDP in 2022, or Italy, where the total value of wagers exceeds 5% of the nominal GDP.

Lawmakers have attempted to change the landscape in recent decades, and several bills of law have been proposed to regulate various types of gambling modalities, including casinos, bingos, online gaming, and lotteries. However, the scenario did not change significantly until 2018, when Federal Law 13,756 legalized fixed-odds sports betting activities as a public service and lottery modality overseen by the Ministry of Economy. The law also gave the Ministry of Economy four years to regulate the activity and start issuing licenses.

President Jair Bolsonaro spent his entire four-year tenure without taking any action on the law, and the gambling landscape in Brazil would probably remain stagnant until now. But two major events took place in quick succession in 2020 that would change all that: the COVID-19 pandemic forced people to stay home, and rates of online gaming skyrocketed across the world; the Supreme Court lifted the decade-long restriction on states and municipalities exploring lottery services, including fixed-odds sports betting, causing states to move quickly to legalize and regulate them.

Lack of federal regulation resulted in a growing number of offshore sports betting websites accessing Brazilian punters despite the risk of bookmakers being punished under criminal law. The exact number of sportsbooks available in Brazil is unknown, yet market analysts estimate that there are more than a thousand global and local brands offering services to Brazilian gamblers based on licenses issued in other jurisdictions.

Official numbers are virtually inexistent but recent market research gives a hint about the size of the Brazilian market. One study found that Brazilian bettors moved more than US$2.7 billion in the first quarter of 2023 and is expected to reach US$11 billion by the end of the year, an impressive number that is 2.5 times greater than the total sales of federal lotteries in 2022. Similarly, SimilarWeb surprisingly (or perhaps not so unexpectedly) reported that Brazil leads the world sports betting website visits, with 3.19 billion visits, or 22.78% of the total. This is more than traditional markets such as the United Kingdom (1.61 billion), Nigeria (1.29 billion), Turkey (948 million), and the United States (781 million). 

After a four-and-half-year hiatus, the legal scenario started to change in late July when President Lula da Silva issued Provisional Measure 1,182, which partially amends Federal Law 13,756/2018. A provisional measure is a legal act enacted by the President that becomes effective immediately and so remains for 120 days or until approved by the National Congress, whichever comes first.

The Provisional Measure addresses a number of important issues, including:

  • The confirmation that there will be unlimited quantity of licenses to run nationwide operations;
  • The allowance of foreigners to apply for a license, subject to the opening of a local entity, payment of license fees and compliance with requirements that are yet to be defined by the Ministry of Finance;
  • The provision of sanctions for non-conforming oddsmakers (a subject that had not been covered by the 2018 Federal Law), such as restriction on advertising and carrying out commercial activities, temporary suspension of activities, and fines of up to R$ 2 billion;
  • The requirement that licensed operators implement compliance and AML policies in accordance with guidelines to be defined by the Ministry of Finance, and impose reporting obligations, including with respect to match-fixing;
  • The granting of ample inspection rights to the Ministry of Finance, including access to data and information system, as well as power to request internet service providers to block access to unauthorized bookmakers;
  • Central Bank’s central role in regulating and overseeing the mechanisms to channel to the regulated market the bet-related money that currently flows from and into Brazil, a novelty that would give the monetary authority the right to supervise the activities that elsewhere would be carried out by player account management systems regulated by gambling authorities.

Along with the long-awaited clarity on the rules of the game, the Provisional Measure also brought provisions that have high potential of controversy. For example, when it states that bookmakers are compliant if they have federal license, it could potentially threaten the activities of state and municipality-licensed sportsbooks and expose them to the sanctions that would otherwise apply to non-compliant operators.

But certainly, the most criticized rule under the Provisional Measure is the cost that will be associated with the Brazilian operations. This includes the 18% rate on gross gaming revenue (GGR) as the amount destined for social beneficiaries, regular corporate taxes, and supervision fees that vary depending on the turnover.

More rules and novelties are to come in the near future, including the Ministry of Finance regulations detailing the requirements to obtain the license, the bill of law 3,626/2023, which brings more details on commercial promotion, compliance rules, and the administrative process that will precede the application of sanctions. It is also possible that the provisional measure itself could still be amended by the National Congress (Congresspersons from both the upper and lower houses submitted more than 240 amendment proposals, showing a strong commitment to participate in the law-conversion process) or even rejected in its entirety.

Brazil is not the next big thing; it is already happening. People will not stop betting, so the government’s challenge is to create regulations that will efficiently channel bets from the grey market to the regulated market. Upon consolidation of the legal rules, consolidation of players will happen, unleashing new and innumerable opportunities for businesses that can adapt. We cannot miss the next episodes and must be ready for its spin-off: the legalization of all gambling verticals.