Last September, the Chamber plenary approved Bill 3626/2023, which amends Provisional Measure (PM) 2158-35/2001, Law 5,768/1971, Law 13,756/2018 and establishes guidelines and rules for the operation of the fixed-odd betting lottery, thus regulating the activity of betting companies in Brazil. The Bill also incorporated PM 1182/2023, which has been regulating the topic to date.
The relevance of the online sports betting industry to Brazilian sport, especially football, is undeniable. “Betting” companies are omnipresent, with their logos appearing in commercial breaks on open and closed television, digital media, social networks, advertising boards in stadiums, naming championships and present on the shirts of clubs competing in Series A, B, C and D of the Brazilian Football Championship. Of the 124 teams competing in a national division in 2023, approximately 70% are sponsored by a betting platform, many with master sponsorships that occupy the most noble space on the teams' shirts and companies in the segment, ranking among the largest advertisers in Brazil.
The size of this industry is palpable, but the absence of systematized and organized official data resulting from the lack of regulation in the sector makes it difficult to determine certain data that we commonly come across, such as the volume of bets and prizes paid, which supposedly range between R$120 (US$ 25) and R$ 150 billion (US$ 30) by the end of 2023 – which would qualify Brazil to become one of the largest global markets – or the real number of operators, among “white labels” and priority ones, which can vary from a few hundred to a few thousand depending on the source consulted.
Whatever the real number of operators, it is superlative and many times greater than the number of companies operating in more mature markets, which results in a high dispersion of revenues. A certain study shows that 35% of companies have annual revenues between R$5 million (US$ 1m) and R$50 million (US$ 10m), while only 15% have revenues of more than R$50 million.
Data that, if correct, supports the market's widespread criticism regarding the grant value of R$30 (US$ 6m) million for each electronic channel (or internet domain) to be operated, to be paid every three years and the 18% on the Gross Gaming Revenue (GGR) intended for social security and other beneficiaries, which could make it impossible for the vast majority of betting houses currently in operation to continue operating. From the perspective of the high costs for regularizing Brazilian operations, an immediate effect expected from regulating the activity is the beginning of the market consolidation movement, whether through mergers and acquisitions, with many of them involving large global players, or contributions by funds of investment.
In this movement towards market regulation and consolidation, a factor that will be decisive in the definition of sports betting companies, which will continue to operate regularly in Brazil, will be the implementation of policies, procedures and internal controls required by the Bill.
Acting on the basis of licenses issued in jurisdictions where the required internal control mechanisms are often less restricted than in Brazil, the overwhelming majority of betting firms that wish to continue operating in the country on a regular basis will need to adapt to the global standards of internal controls required by the Bill.
In this sense, the challenge of the betting operators seems to be greater than that imposed on Brazilian companies working in other industries – which for the most part are also still in their infancy in the process of implementing effective internal control policies – given that the spectrum of areas to be covered under article 8 is broad, encompassing policies, procedures and internal controls for customer service and ombudsman service (section I), prevention of money laundering, terrorist financing and the proliferation of weapons of mass destruction (section II ), responsible gaming and prevention of gambling disorder (section III), in addition to betting integrity and prevention of manipulation of results and other frauds (section IV), which must include reporting mechanisms to public authorities (article 35), in addition to the need for continuous availability of technical, operational, economic-financial and accounting information, data, documents, certifications, certificates and reports to the Ministry of Finance (article 34), in addition to being in compliance with Law 13,709/2018 (General Law of Personal Data Protection – LGPD).
Violation of such obligations will expose fixed-odd betting operators to the administrative sanctions provided for in article 41, which include a warning, a fine of up to R$2 billion (US$ 405m) per infraction, the suspension of operations for up to 180 days, the revocation of authorization, among other penalties and precautionary measures that may be imposed before the finalization of the sanctioning administrative process, which include, among other things, the possibility of keeping the company temporarily inoperative.
For the company to build a corporate integrity system in accordance with the standards required by the Bill, it requires its own budget, teams, equipment and software. It should, however, be borne in mind that the value involved in its creation is considerably lower than the costs of non-compliance, as non-compliance could even mean the discontinuation of the bookmaker's activities in Brazil.
The matter is even more sensitive in the case of global players, given that sanctions applied in Brazil, even if they are not so serious as to cause the closure of Brazilian activities, can result in losses in operations in other jurisdictions that may go beyond of reputational damage.
Setting up the appropriate corporate integrity structure, therefore, should not be seen as a cost, but an investment to avoid the loss of even more significant values.
CAIO LOUREIRO
Partner in the Gaming & E-sports area of TozziniFreire Advogados
JUN MAKUTA
Partner in the Gaming & E-sports area of TozziniFreire Advogados
MARCELO ZENKNER
Partner in the area of Administrative Law and Government Projects at TozziniFreire Advogados
