Five questions to understand what Lotex auction is about

1) What is Lotex?

The Government decided in August to grant the exclusive instant lottery (Lotex) to the private sector. Better known as " raspadinha", the instant lottery is a lottery mode in which the bettor knows, at the time he scratches the card, whether he won a prize or not.

The concession of Lotex, according to studies of the Secretariat of Economic Monitoring of the Ministry of Finance ( Seae), will result in increased competition, modernization and growth of the lottery market in the country. The share of lotteries in the Brazilian economy, today, regularly fluctuates around 0.21% of GDP.


2) Which are the other types of lottery?

Today, in Brazil, there are three federal lottery types: Lottery (Mega-Sena, Lotofácil, Lotomania, Dupla-Sena, Timemania and Quina), numbers (Federal Lottery) and sports prognostics (Loteca and Lotogol). Throughout 2016, the Federal Government raised approximately R$ 13 billion (USD 4.1b) with these lotteries. In the same period, social transfers totaled just over R$ 6 billion (USD 1.9b).

Part of the amount collected with federal lotteries is passed on, by legal determination, to social programs of the Federal Government. The funds are earmarked for education (Student Financing Fund for Higher Education), sport (Ministry of Sport, Brazilian Olympic Committee, Brazilian Paralympic Committee and football clubs), culture (National Fund for Culture), security (National Penitentiary Fund) and health (National Health Fund).


3) Which are the other types of betting games?

Three characteristics differentiate lotteries from other betting games, such as casinos and bingo. The main one is that part of the billing is earmarked for government social programs. There are historical accounts suggesting that lotteries may have emerged as an instrument of the state to finance a particular cause.

In relation to the characteristics of the betting games, the lottery has two other points that define it. First, neither the player's skill nor knowledge influences the outcome. Second, the probability of winning is known before and can not be altered by any external factor.

In addition to lotteries, the gambling market includes entertainment games such as casinos and bingo. Classified as "gambling" under Brazilian law, the operation of casinos and bingo halls is prohibited in Brazil. Although they are defined by law as "games of chance", lotteries are legalized in the country.

In the world, the lottery market generates about US$ 260 billion a year in business, according to data from the World Lottery Association (WLA). The entity, based in Basel, Switzerland, represents state-owned and private lottery companies in 80 countries. The amount destined for non-profit purposes, to the benefit of society, totaled US$ 76 billion in the same period. According to the same entity, the sector employs 112 thousand people around the world.

Among the other forms of gambling, the most representative is the casinos, which generates, per year, in the United States, about US$ 240 billion, according to the American Gaming Association (AGA).

Another highlight of the betting games is the fixed odd betting. This modality is not yet explored in Brazil. The Secretariat of Economic Monitoring of the Ministry of Finance has begun studies to regulate its offer. As there is no regulation for this type of bet in the country, today, many Brazilians place their bets on sites based abroad.


4) How does society can benefit from Lotex privatization?

First, the concession relieves the government from running the business, without giving up the profit it will generate. The government earns on the sale of the exploration right, with the payment of the grant. And it gains, over the next 25 years, with part of the billing (16.7%) and tax revenue.

The entry of a private player has the potential to increase the profitability of the business. The government is a partner and takes 16.7% of the billing, which is reverted to society through various social programs. The initial investment and risk of loss are all from the concessionaire. In the private sector, Lotex may have high profitability, with zero risk to the government.

International experience reveals that the private sector is more competitive than the public one in managing this type of business. The private alternative also tends to mitigate the risks of fraud and corruption involving public agents.

In addition, the government would not have the money to invest now .. More than that, it is not what the taxpayer expects from the government. With the scarcity of budgetary resources, the government should prioritize investments in essential services for the population, such as education, health and public safety. In fact, the sale of Lotex represents an extra revenue for the government to define its numbers for 2018 budget.

The minimum bid to secure the right to exploit Lotex will be around R$ 1 billion (USD 315m). Revenue from the grant value will have a direct impact on the primary result of the Central Government. The primary result is the difference between revenues and expenses, without taking into account debt interest. In 2018, the government predicts that this account will be negative by R$ 159 billion (USD 50b).

This means that the government can not pay its expenses just with the revenues it collects. The government has two alternatives: increase revenues or cut expenses. Except that most of the spending is compulsory expenditure, provided for in the Constitution. And at the other end, the tax burden in the country is already considered high, which makes it difficult to raise it.


5) How will the concession process be like?

On August 23rd, the Board of the Investment Partnerships Program of the Presidency of the Republic approved the concession as an operational modality for the privatization of the Exclusive Instant Lottery (Lotex) public service, with a term of 25 ( twenty five) years.

The Lotex auction will be held in public session. The first step is the call for public consultation. The bidding notice is scheduled for October. According to this schedule, the auction is expected to take place in mid-December, through the submission of bids in closed envelopes. The " raspadinha" is expected to be available for sale from the first half of 2018.

Lotex was created in 2015 and, by law, could be operated by Caixa Econômica or by concession. Following studies conducted by the Ministry of Finance, the Investment Partnership Program (PPI) and the National Bank for Economic and Social Development (BNDES), the Federal Government decided to make a public concession of the instant lottery service through payment of a grant.

The BNDES was appointed by the Board of the Investment Partnerships Program (PPI) to prepare studies on Lotex. The Bank concluded that the best model would be a common concession, since the lottery is a non-essential public service. The idea is that the public sector should focus on providing essential goods and services to society.

Source GMB / SEAE