Analysis of sports betting rules in Brazil

The Secretariat of Evaluation, Planning, Energy and Lottery has published the draft of sports betting rules in response to the forthcoming changes in gambling regulation submitted to the Brazilian Senate.

Key points

Who will regulate betting?

• Ministry of Finance.

What will the tax rate be?

• At the moment, the taxation rates are not clear, however, the final amount that is decided upon will have taken into account the operator's revenue.

How long is the license valid for and how much does it cost? Is there a limit?

• There is no licenses limit. The license is valid for 5 years. License fee is ~ €4.2m.

What else do we need to know?

• Operators already active in the Brazilian market will have a six-month "amnesty" to make their operation compliant with new rules.

• Foreign operators must set up a subsidiary in Brazil, and have ‘Sufficient’ Capital.

• To determine what is ‘Sufficient’ will depend on the ratio between the operator's authorised capital and the amount of bets that it accepts and this will be greater for Foreign operators.

Sports betting rules in Brazil

The publication of the sports betting rules is an important step towards concentrating the general regulation of betting in Brazil. As we see from various sources, the sports betting rules define, among other things, the following important aspects:

• Cost of the license;

• Terms of the license;

• No monopoly;

• Some rules over responsible gambling;

• Financial requirements.

It is important to note that the published draft rules for betting have not yet been adopted, and therefore although it is unlikely slight adjustments are possible. Despite this the current information gives hope for the creation of an attractive regulated market for foreign operators.

The Entrance ticket

Relatively cheap entry into a particular market is an important factor in attracting a large number of operators. When considering Brazil, even not ‘quite cheap’ entry should be a stumbling block for most operators. Why? Let's try to briefly explain this in the paragraph below.

The license cost of ~ €4.2 million may at first seem quite a burden for operators to enter the Brazilian market, but before jumping to the conclusion that it is expensive to enter the market, we would suggest looking at the estimated size of the Brazilian market. With an estimate of the Brazilian market at $1.4 billion, the cost of a license at ~ €4.2 million is justified.

In addition to the point above, I would like to say that determining the tax rate based on the revenue of the operator is the main idea under consideration (previously the tax was calculated from stakes). This approach to taxation is used in a number of European countries (Sweden, Italy and Malta) and is more efficient and attractive for operators, however, it is necessary to wait and see what the percentage will be.

Also, an issue that may affect the entry of operators to the Brazilian market is the financial stability of the operator, which will be determined by the ratio of its authorized capital to the volume of accepted bets, instead of determining a clear amount of authorized capital, which guarantees the fulfillment of obligations to the players, which for example is implemented in France. At the moment, it is not entirely clear in what proportion the operator's authorized capital will be determined in relation to the amount of accepted bets.

And the last thing I would like to mention in terms of the costs of foreign operators entering the Brazilian market is product adaptation. To be successful when entering the Brazilian market, a foreign operator will have to adapt their product to the habits and preferences of local players, which can be very different to players, for example, from Europe. Based on our experience, operators who attempted to enter the market without adapting the product, but simply buying up traffic, did not get a positive result in the development of the new market.

Prospects for the Brazilian market

The Brazilian market is undergoing big changes aimed at more clear and transparent betting regulation, with an attempt to apply European practices in regulation, which, if fine-tuned, can have a positive result, including an increase to the volume of an already large market. To give you an idea of how big the Brazilian market is, the population of Brazil is around 220 million people, plus we can add here that a very large proportion of the country's population, compared to other countries, is not averse to betting.

Since all legislative initiatives are under consideration, we will observe the change in such initiatives and what will eventually happen to the market.