The Brazilian market anxiously awaits the regulation of sports betting in the country and the opportunities that this sector can guarantee for the economy. Despite the imminence of the publication of regulations, mechanisms that can really promote the Brazilian economy must be taken into account in order to generate jobs and resources for the economy. In the midst of the installed fiscal crisis, the sports betting sector could represent a good source of revenue if exploited correctly, responsibly and legally.
The fixed-quota betting lottery, or sports betting, was created by Law n. 13,756, of December 12, 2018. Said Law determined that the Ministry of Economy would have 2 years extendable for an equal period to regulate the subject (§3 of art. 29). In other words, the deadline for us to have the regulatory rules ends at the end of this year, a deadline that is being strictly considered by the Government, due to political obstacles.
The Regulatory Decree will soon be published. Soon after, the Ordinance – or Ordinances – will come with more details of the operationalization of the procedures to guarantee the authorizations for the operators. Here, it is worth calling attention to a point of absolute relevance, which is confused with the very essence of the creation of sports betting in Brazil, namely, the promotion of the economy and the need to adapt the sector to successful international practices.
A few months ago, a last draft of the Decree was made available on Games Magazine Brasil website and determined that the betting company should have an operation with at least 4 positions established in the country, namely, a legal representative, a representative accounting, an ombudsman and a compliance officer. In addition, operators must establish, at least, a subsidiary in Brazilian territory.
Behind the good intentions of the Federal Government to try to keep the revenues generated from sports betting in Brazil, there is a lack of real mechanisms that can, in fact, promote the Brazilian economy and keep part of the resources invested in National territory.
If, on the one hand, it is true that the taxes will leave resources for the country, it is also true that many other resources generated in the operation will go directly abroad, failing to generate wealth for Brazil. What will happen, in fact, is that as the last published draft of the regulatory decree was written, sports betting operators will open a single branch in Brazil, most of the time with only the 4 positions indicated in the legislation, and its operation will continue to be, almost completely, offshore, with the resources generated here, directly remitted abroad, contributing little to the generation of direct and indirect jobs, as the Planalto reports aloud.
It should be noted that, as the text of the published draft decree is written, although the regulator is seeking to generate income in the national territory, the resources will not be kept here and there will be a real evasion of foreign exchange if the good international practices with mechanisms to maintain resources in the country that provides the license to operate.
Analyzing the legislative process of drafting Law 13,756/2018, conversion of Provisional Measure (MP) n. 846 of July 31, 2018, we can identify the real reason for creating the fixed-odds lottery. In the explanatory memorandum of this MP, there is the intention of the government to guarantee the raising of financial resources, mainly for the areas of sport and culture. The justification demands to enable “the potential growth of the lottery sector, essential to leverage resources for the aforementioned public policies.”
The illustrious Senator Flexa Ribeiro was responsible for including sports betting in the midst of the legislative text, he was the rapporteur of the Provisional Measure in the Mixed Commission - first legislative step, in normal times, for the analysis of Provisional Measures by the National Congress. In its first report, made available on October 30, 2018, in agreement with the former Secretariat of Fiscal Alignment, Energy and Lotteries (Sefel), it established the fixed-odds lottery modality as a “electronic game market on real sporting events, in which, at the time of the bet, the bettor knows the amount of the prize to win if the prediction is correct.” The justification, in addition to the lack of regulation of electronic sites hosted abroad, is the estimate of a market that could raise around R$4.3 billion (US$ 835m) in Brazil.
Currently, we are already observing even higher estimates, indicating a potential market of R$25 billion (US$ 4.9b), with around 2,000 small betting firms already operating in Brazil. It is estimated that the operators have a turnover of around R$3.2 billion (US$ 620m), after discounting the values of the prizes distributed.
These numbers show a great collection potential for Brazil through taxes, but this scenario could be even greater, if in fact the Federal Government and the Executive Power paid attention to the importance of implementing mechanisms that ensure the maintenance of resources generated with the operation in national territory.
Among the different paths that can be thought of by the Public Power, one possibility is to establish a minimum percentage of the operators' revenue that must be paid into the share capital of Brazilian companies. national territory, directly moving the economy and preventing them from promoting the growth of other countries.
As a reference, it is worth looking at sports betting markets at a more advanced stage of development, such as that of Gibraltar. The country is analyzing a new Gaming Law and one of the mechanisms being studied is precisely the requirement that operators have a sufficient “substantive presence” in the territory.
Currently, it is required that the servers that host the website and all data need to be physically present in the territory of Gibraltar. With the change in legislation, there will be some flexibility on this point, but in return, the local government will seek to ensure that not only are gaming technology providers located in Gibraltar, but also consider the number and nature of jobs to be created and maintained in the country, as well as the amount of tax revenue collected.[7] In Gibraltar, the online gaming industry is a benchmark, with 12% of its residents employed in this sector.
The intention is that the country can continue to attract good operators and maintain its reputation in this sector – today the licenses issued by the authority are for “blue chip” companies (large size, with a good reputation and a history of profitability).
As a quantitative reference, in the United States, just in the first full month of sports betting operations in New York, in February 2022, operator revenue reached US$82.4 million, while in the previous month it was US$124.1 million. We're just talking about a US state. It is estimated that in total in 2022, operator revenue in the United States will be US$7.2 billion, reaching US$15 billion in 2026.
We are aware of the great potential of the Brazilian market and, based on the representation of other countries, we can see the reach that resources from the sports betting sector can have in the country. Imagining the values we have today, we see the collection and attractiveness reflex that the sports betting sector has in Brazil, as well as the positive consequences that it can generate with rules that allow the resources from betting to stay in the national territory. Having a percentage of the revenues necessarily destined for the payment in the capital stock of Brazilian companies will generate, in the national territory, the circulation of these resources, and the generation of direct and indirect jobs.
Despite the short time to institute the regulation, the team at the Ministry of Economy is certainly committed to guaranteeing the best format for the operation of sports betting in Brazil. It is expected that all market players, whether consumers, investors, operators or affected third parties, will be able to enjoy the representative amounts that the sector will surely bring to Brazil. In order for the Brazilian potential to be exploited to its greatest potential, it is not enough to look at the tax revenues that must arise, it is also necessary to observe mechanisms for maintaining operational resources in the country, because only then will the Brazilian population really benefit from the opening of the sector.
Bárbara Teles
Regulatory and Public Affairs Lawyer at Rei do Pitaco, postgraduate in Law and Government Relations.
