The São Paulo government is preparing for the state lottery concession auction on the São Paulo Stock Exchange (B3), scheduled for September 13th. The exploitation of the lottery market, considered profitable, began to be allowed to states and municipalities after 2020, when the Federal Supreme Court (STF) unanimously decided that the Union does not have a monopoly on the exploration of the business.
Despite the STF's decision, at the end of 2023 the National Congress approved Law 14,790/2023, which regulates sports betting and online games. It bothered the governments of São Paulo, Minas Gerais, Acre, Paraná, Mato Grosso do Sul, Rio de Janeiro and the Federal District for preventing the same economic group from obtaining concessions in more than one state to explore lottery services. In practice, this would benefit the Union, since the granting and payment of a federal grant would allow the company to operate throughout the country.
Behind this discussion is the dispute between the states and the Union both over the billion-dollar revenue from concession sales and the sector's tax collection. The approval of Law 14,790/2023 was a priority of the Minister of Finance, Fernando Haddad, and the Lula (PT) government to increase tax revenue.
Contrary to parts of the legislation, the six states and the DF entered the STF with a Direct Action of Unconstitutionality (ADI), which has not yet been judged. "We are awaiting the decision, very optimistic about what is to come, as the STF has been very thoughtful in this regard, the decisions have been technical and positive," Edgard Bezonatti Neto, CEO of Companhia Paulista de Parcerias, tells Gazeta do Povo.
Regarding taxation, the São Paulo project was made based on the 2020 STF decision and determines that the incidence of tax on the betting operation will occur depending on the location where the user will make the purchase. "The interpretation that the state of São Paulo is making of this, which is reasonably pacified, is that the player needs to be in São Paulo to be able to bet on our lottery," he says.
To do this, the lottery website is obliged to identify the user's geolocation through the IP or services of the mobile device. If the player is outside the state of São Paulo, he will not be able to place bets.
The director believes that the ADI, which is in the hands of minister Luiz Fux, will be judged before the auction and that there is little chance of the decision being more favorable to Caixa Econômica Federal and contrary to a freer competitive environment between states. Still, he states that the São Paulo lottery concession project is prepared for "unpleasant surprises."
"We have very positive prospects, regardless of ADI's decision, because we have put some mechanisms into the contract that would allow a later decision to be accommodated. But we hope that the decision comes sooner, there is still a reasonable amount of time until the auction," he believes.
Expanding betting market sparks interest from investors and states
A report published by XP Investimentos in January this year, based on estimates from the betting platform BNL Data, shows that companies in the sector would earn R$13 billion (us$ 2.35bn) in Brazil in 2023, an increase of 71% compared to 2020. Estimate on the value of total bets in the last year would be between R$100 billion (US$ 18bn) and R$120 billion (US$ 21.5bn), which represents approximately 1% of Brazilian GDP.
Ricardo Bianco Rosada, partner at brmkt.co, a strategic and marketing consultancy with experience in the betting market, states that in 2024 the market's numbers will grow. "This year we think that all the bets that exist in Brazil will generate R$ 250 billion (US$ 45bn), with 37% of this value coming from the state of São Paulo," he says.
To compete with federal licenses, which allow brands to operate with consumers throughout Brazil, Rosada states that state management has to offer a very good product and with favorable conditions for the company to accept operating only in the state and exclusively for local players. “If the grant and taxation are too high, it is not attractive to companies,” he adds.
According to the CEO of Companhia Paulista de Parcerias, the São Paulo lottery attracts a lot of interest from investors due to its size and concentration of income in the state of São Paulo. “It is a market that, in terms of transaction volume and revenue values, is close to the market in England or France, so it is a very attractive asset for the sector,” he says.
Edson Lenzi, executive director of PayBrokers, a financial institution specializing in iGaming and lotteries in the national market, states that the fact that the state is the richest in the country "is reflected in betting, with 30% of total transactions in the sector coming from São Paulo."
São Paulo lottery project predicts R$3.4 billion (US$ 610m) in revenue over 15 years
The Tarcísio government's concession project estimates an initial fixed grant, that is, the minimum amount paid to the State for the right to explore the contract for 15 years, of R$260 million (US$ 47m). The variable grant, of 35% of the concessionaire's gross operating revenue, is estimated, in a conservative projection, at R$3.4 billion (US$ 610m), an amount that will be allocated to investments in the health sector.
Details of the São Paulo lottery concession notice:
Five types of service can be explored, in physical locations or online.
- Specific prediction lottery (predictions of various games, such as football and winners or eliminations in reality shows)
- Sports prediction lottery (trying to predict the number of goals scored in matches, such as Lotogol, Loteca)
- Numerical prediction lottery (players choose numbers and win if they match a number of drawn numbers. Example: Mega-Sena, Quina)
- Instant lottery (cards that are scratched to find out if they have won a prize, such as Scratchcard and Lotex)
- Passive lottery (pre-printed tickets with specific numbers, such as Federal Lottery and Christmas Lottery)
At least 31 exclusive "concept store" style points of sale must be installed in all regions of the state of São Paulo.
The locations must be in busy areas, but at least 300 meters away from daycare centers or teaching units.
Non-mandatory implementation of 11 thousand non-exclusive points of sale.
Among the concessionaire's obligations is to present a money laundering prevention plan, in addition to a responsible gaming plan with restrictions on minors.
Companies must have certifications such as WLA, which aims at the quality of the operation in relation to information security and commitment to responsible gaming; the GLI, which consolidates an armored system in relation to money laundering and game manipulation; ISO certification, to ensure that it complies with the best parameters on the market.
The Public Services Regulatory Agency of the State of São Paulo (Arsesp) will be responsible for supervising the contract, while an independent verifier will support the inspection.
According to Gazeta do Povo's findings from market sources, the São Paulo concession has been attracting large international players that already have operations in Brazil, such as IGT and Scientific Games, which operate the lottery in the state of Minas Gerais. In addition to them, the process arouses the interest of companies such as Intralot, Hebara - which has already worked in the lottery in Rio de Janeiro - Jogo da Sorte, Lottoland and Idea Maker.
Source: Gazeta do Povo
