Over the more than four years that we have been waiting for the sector to be regulated and operating licenses to be issued, since the approval of Law Nº 13,756 by the National Congress and its sanction by the President, our optimism with the potential of the Brazilian market has been tested.
In addition to the legal uncertainty inherent in the rapid growth of the unregulated market, we have the following concerns:
*The rigorous cumulative taxation regime proposed for Brazil (which results in one of the highest tax burdens in the world) may make it difficult, if not impossible, for companies to operate sustainably in the country (example: 28% effective charge on revenues in the Brazil X 15% in the United Kingdom).
*The proposed license fee (R$30 million), if approved, will be the highest in the world.
*High taxes on the licensed market will result in less attractive value propositions for players when compared to those offered by the parallel market. In this scenario, we would have two very different contexts: the regulated market, with high taxes and limited products, and the parallel market, with minimal taxes and product diversification (such as casinos and other games).
*The government's ability to eradicate unfair competition is not clear to us. There is talk of control of the parallel market, ambitious ideas, still unknown.
*In this context, the most likely outcome is fewer licensed operators, less revenue for the government, an ongoing threat to sporting integrity from match-fixing, and minimal protection for bettors.
In the opinion of the IBJR members, the ideal regulatory model for the country should contain, among other topics:
*Maintenance of billing taxes pursuant to Law 13.756 that legalized sports betting, approved in December 2018.
*Adjustment of the Individual Income Tax (IRPF). Go from the 30% on winning bets, withheld at source, to monthly calculation, in a compensatory way. It makes no sense to compare traditional lotteries (low winning frequency X high profitability) with sports betting (high winning frequency X low profitability).
*Freedom for operators to decide on markets, maintaining a competitive value proposition in the face of international competition. Manipulation happens abroad, limiting local markets to authorized operators in Brazil would not prevent manipulation.
*Compulsory adoption of international best practices regarding Responsible Gaming, Advertising, Anti-Money Laundering Controls and Sports Integrity.
*Strict prohibition of all games not authorized by the approved regulation.
We insist that regulation is the right answer to face the social and economic challenges of this industry. However, regulation must be coherent and must be in line with sustainable, successful international markets that have been operating for decades.
The IBJR has been collaborating with relevant stakeholders in the Executive and Congress to share global best practices and successful regulatory regimes to ensure a market that works for all.
As the regulatory process enters its final stages, we are still not convinced that decision makers understand that legitimate institutional investors will not seek licenses in Brazil without the guarantee of sustainable and fair regulation, which enables fair competition between operators.
Brazil is not an attractive market at any cost.
Source: IBJR
