May 18, 2022 Sports Betting, Casino

Brazil’s winding path to regulated gambling

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Stephen A. Crystal, Founder and CEO, SCCG Management,looks at the tumultuous history of Brazilian gaming.

We have spent a lot of time watching the ebb and flow of efforts to legalize and regulate gambling in Brazil, the world’s fifth-largest country. Despite its criminalization at the federal level in 1946, the value of the Brazilian gaming industry is significant. It’s a challenge to understand the precise size of the Brazilian gambling grey market.
Land-based gambling activity consists primarily of sports betting, lottery games (including jogo do bicho), dog and horseracing, and poker. It is valued at nearly $6bn.

Legalization and Regulation of HorseRacing

On December 19, 1984, horserace betting was legalized under Federal Law No. 7,291/1984, with regulations defined by Decree No. 96,993, four years later, in 1988. This permitted the regulated operation of fixed-odds sports betting at authorized tracks. Horseracing is limited to non-profit organizations that own a racetrack and are licensed by the Ministry of Agriculture, Livestock and Food Supply.

Legalization of Fixed-Odds Sports Wagering

In December 2018, with Federal Law No. 13,756, Brazil legalized (but did not regulate) online fixed-odds sports wagering and was rewarded with four years of rapid growth. Still, demand is evident despite the absence of regulations, licensing and oversight. São Paulo and Rio de Janeiro are Brazil’s two largest fixed-odds sports betting markets, with nearly 19 million people.

Here, things get interesting. There isn’t a legal definition of gambling in Brazilian law, but bets and games are types of contracts covered under the Brazilian Civil Code. With this understanding, contracts between absent parties are executed in Brazil in the proponent’s place. This means that offshore operators, hosted in a jurisdiction where gambling is legal, are valid under the jurisdiction’s laws. The problem with this partial solution is that the execution of these financial transactions is not authorized under Brazilian law, exposing the operators to possible criminal action. With no attempts by any Brazilian law enforcement body to bring such action, offshore operators have been providing online sports wagering to Brazilians, with great success and strong year-on-year growth.

Entain reported in its Q1 trading update at the beginning of April that Brazil, one of its top countries for growth, achieved double-digit year-on-year growth for the first quarter. Entain’s $326m in revenue generated outside Australia, Europe and UK markets, was “predominantly driven by Brazil.” Operators serving Brazilian sports bettors include BetOnline and Bovada. Many other digital platform operators who currently provide sports betting markets to Brazil are taking a lower profile.

Operators such as bet365 and some fantasy sports brands are looking at the country’s market pending regulation. Still, there is a lack of clarity around how the Ministry of Economy will license the industry. Will there be a competitive process for a few high-value gaming licenses? Will the ministry open the door to all licensable operators and let the market choose the winners? These questions are currently unresolved.

Brazil’s Ministry of Economy hopes to close the rules and licensing gap in time for the FIFA World Cup in Qatar, which aligns with the law’s December 2022 deadline for the Government to establish gaming regulations and issue operator licenses. Once fully regulated, Brazil is likely to be a top-five regulated gaming market globally.

Legalization of Land-Based Casinos, Bingo, Jogo do bicho and Online Gaming

On February 23, 2022, the lower house of the National Congress of Brazil approved bill PL 442/91, legalizing land-based casinos, bingo halls, sports betting and jogo do bicho.

The bill affords São Paulo the right to license three casinos, the State of Minas Gerais and Rio de Janeiro to authorize two each, and one casino each in all other states -- a total of 30 casinos.

Taxed at 17% of gross gaming revenue (GGR), integrated resorts may house a casino if it has at least 100 hotel rooms, conference space, food and beverage operations and retail. Tourist casinos are also provided for under the bill, in high-density tourist destinations with sufficient infrastructure, including tourist services. These tourist casinos must be further than 100 kilometers from any other casino in a leisure complex or integrated resort.

The law also accommodates riverboat casinos, which are authorized based on the river’s length in which it is deployed. Three floating casinos are permitted in rivers longer than 3,500km, two floating casinos in rivers 2,500-3,500km, and one floating casino in a 1,500-2,500km river. These riverboat casinos must be mobile, not staying anchored in the same place for more than 30 consecutive days. These floating casinos must have at least 50 luxury cabins, restaurants, bars, event spaces and retail stores.

The Cultural Powerhouse: Jogo do bicho

Jogo do bicho operations licensable under this bill must run their operations through a computerized system that a Brazilian state agency may access in real-time, online, through a national audit and control system. Jogo do bicho, or “animal game,” is an extremely popular no-limit lottery-style game in Brazil, currently legalized in the state of Paraíba, but illegal throughout Brazil at the federal level.

Originating in the late 19th century, jogo do bicho is commonly played by betting on one of 25 animals. Each animal in the five-by-five grid is associated with four numbers in a series, from one to 100. This grid of animals and numbers gives the player the ability to bet on one or more animals in any position on the grid or in specific places on the grid. Players can also bet on numbers rather than animals. The permutation of possible bets based on animals, numbers, or even numbers and animals, creates the kind of lottery combinatorics that support huge payouts on even small wagers.

Beyond the mechanics of wagering, jogo do bicho, invented in 1892 by Brazilian nobleman Baron Joao Vianna Drummond, is a cultural fixture of Brazil. The game is filled with superstition and meaning tied to its animals and numbers. Bettors that dream of a friend or relative might wake up and place a bet on the numbers of their birthdate. The operators of jogo do bicho lotteries have given back to their communities for decades, contributing to social institutions such as hospitals, orphanages, sports teams  and the like. As expected, these activities go a long way toward maintaining their place in the culture, despite the violence associated with the organizations that run these lucrative lotteries.

Don’t Count Your Roosters Until They’ve Hatched

With PL 442/1991 to be taken up in Brazil’s Senate, a substantial bloc of senators strongly opposes the bill, arguing that legalizing these gaming operations will lead to money laundering and other social ills. Among the senators in opposition is the Deputy Leader of the Government, Carlos Viana. In opposition, President Jair Bolsonaro has publicly stated that he will veto it if presented to him.

However, many senators are defending the bill, including Senator Angelo Coronel. They rightly push back against the argument that the legalization of gambling in Brazil will bring social ills. Everyone knows that illegal gaming is ubiquitous and visible on every street in Brazil today.

Still, Brazil’s Senate created an anti-gambling group, “Parliamentary Front Against Gambling,” through a single-round vote. Senator Angelo Coronel was the only no vote against the motion. Senator Eduardo Girão suggested the group’s passage indicated that the Senate might not be able to override a presidential veto.

To further confuse the issue, the Supreme Federal Court of Brazil is pending a ruling on a lower court case that argues the legislature’s 1946 prohibition on gambling is unconstitutional and unenforceable. This Extraordinary Appeal No 966,177 to the Supreme Federal Court was scheduled for April 7, 2021. Still, it was not taken up in the session by the court as there wasn’t enough time to discuss the appeal in the time afforded. A new date for review has not been set by the court, leaving the motion in limbo.We believe this process will continue to move forward and that regulated gambling will come to Brazil. The entrenchment of illegal gambling institutions such as  jogo do bicho, combined with the substantial successes enjoyed by the iGaming grey market, will continue to build momentum; forcing the door open for legal gambling.

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