On December 30, at the end of 2023, the much-discussed "regulatory framework" for sports betting and online gaming activities in Brazil, technically referred to as "fixed-odds betting," was published in the Official Gazette.
The figures for this market niche in 2023 are impressive and may explain the importance of debating it. On December 26, 2023, Exame Magazine reported that the Brazilian government estimated sports betting would generate around US$ 720 mi for football, including sponsorship agreements, jersey advertising, championship signs, and media spaces, not considering other sports segments. Overall, the financial movement is estimated to be around US$ 24.5 billion per year.
The involvement is so significant that in 2024, Corinthians announced a master sponsorship deal with VaideBet for around US$ 75,75 billion (!!). Considering all this, it seems indeed time to bring in some regulation.
And what does this have to do with compliance? Law No. 14.790 of 2023 introduced some regulations that, in my view, demonstrate the central concern for corporate integrity, especially due to various episodes of match-fixing. The idea here is not to comment on the law as a whole but to reflect on some specific points that caught my attention.
Conflict of Interests
Article 7, §2 seems to be a rule aimed at managing the risk of conflicts of interest, requiring that any partner or controlling shareholder of the fixed-odds betting company, which I will call a "bet" for simplicity, have no participation, even indirectly, in SAF or professional sports organizations, or even act in Brazilian sports teams.
This requirement seems to demand a series of control processes and procedures to map and monitor the possible existence of conflicts of interest in the bets. It requires, beyond a mere declaration, controls that range from demonstrating to the Ministry of Finance the absence of a conflict to maintaining others that unequivocally affirm that the risk is being managed.
Corporate Rules
Another, more important point is in Article 8, which deals with what the law chose to call "corporate rules." There are four subsections that significantly expand the scope of responsibility and demand. The law requires the following:
Items 1 and 3 seem clear. I believe the most significant challenge lies in items 2 and 4.
- Item 2: It imposes the well-known requirement from the financial market, especially regarding the need for an Anti-Money Laundering (AML) Program or Policy, especially measures like Know Your Client (KYC) and reporting suspicious activities to the Financial Intelligence Unit (Coaf).
-Item 4: It opens a range that, in our understanding, will need regulation. The law requires "proof of action and implementation of policies, procedures, and internal controls for the integrity of bets and prevention of match-fixing and other frauds," meaning an Integrity and Anti-Fraud Program in what is the core business of bets: betting.
Therefore, I understand that it is necessary to start with a risk assessment, think about policies, procedures, internal controls, whistleblower channels, and a series of measures typical of an Integrity System. Turning a blind eye to this is, at the very least, subjecting oneself to the non-management of compliance risks, which, in practice, turns all management into a question not of "if" but of "when" the risk will materialize.
Other Issues
Some other issues in the law are also related to integrity. The regulation to be issued by the Ministry of Finance brings items that seem strict rules of corporate governance, such as requirements for a kind of relationship director with third parties, including the Ministry itself, and criteria for taking and holding management positions in bets. It also demands security and integrity mechanisms in conducting fixed-odds betting lotteries, personal data protection, monitoring of sports integrity, among other issues that, in the end, result in the need to adopt compliance controls.
In summary, the law represents progress in regulating the sector, which has been a vector for the development of various businesses in recent years. However, this opportunity can turn into a nightmare if bets do not seek a specialized and qualified team to carry out this work of implementing control measures and compliance procedures to safeguard legal compliance.
Now, instead of praying, it is time to look inside your companies and find ways to adapt to the best market practices.
Rodrigo Desterro
Partner | Leadership in Compliance Management, Investigations, and Due Diligence at Ribeiro Desterro
