The Brazilian market for sports betting and online gaming has spent years without proper regulation and is facing an attempt at professionalization that could attract investments. Estadão states that oversight will be a challenge and points out what has already changed and what lies ahead.
The regulation of sports betting and online gaming in Brazil is beginning to put an end to the spread of companies that have exploited the national market almost unrestrictedly since 2019.
Under the new laws, companies not only need to pay taxes, follow strict rules about paying out prizes to bettors and ensure protections against money laundering and terrorism, but also pay for a sector exploitation license starting in 2025.
With the legislation, the expectation is that this will mean the end of the "Wild West" in the sector. For this, however, the new "sheriff" will need to be tough on oversight, a challenging task. The responsibility will be of the Secretariat of Prizes and Bets, linked to the Ministry of Finance. Not surprisingly, the number of thousands of companies, initially, will be reduced to just over a hundred. In 2023, the sector's revenue was estimated at R$ 100 billion.
The online betting market was authorized by former President Michel Temer (2016-2018) in the last month of his term, with regulation being required from two years later, a deadline extendable by another two years.
With this, the government of Jair Bolsonaro (2019-2022) spent four years without addressing the agenda, which ended up in the hands of President Luiz Inácio Lula da Silva and the Minister of Finance, Fernando Haddad.
In Law 14.790, dated December 29, 2023, the government established a series of measures related to the payment of tax, 12% on the turnover of bets, detailing the destination of the funds, and also determined protections for bettors, who must receive their prizes within a maximum period of 120 minutes.
The companies, previously foreign by rule, now need to have a Brazilian partner, owning at least 20% of the business's social capital. Advertisements promising easy gains or targeted at minors have been banned. With taxation, the government's estimate is to collect R$ 12 billion in 2024.
The entry barrier from 2025 will be R$ 30 million for the operation of three brands in Brazil for five years, in addition to companies needing R$ 5 million as a bank guarantee for the business. Those operating without the grant next year are subject to a fine of up to R$ 2 billion.
“Before, companies could exploit the market, but they could not be in the country. All companies used licenses from abroad. The money passed through Brazil, but it did not stay. Moreover, the consumer did not have the same protection as from a national company”, states lawyer Leandro Pamplona, founding partner of Bonetti, Krugen & Pamplona Advogados Associados.
According to a study by PwC, for every bet, the “house” keeps an estimated 12% of the value bet – part of this is used to keep the operation running, and the rest is profit.
For Magnho José, president of the Legal Game Institute, the betting market will change completely in Brazil starting January 1. “All the problems we see today will cease to exist. What happens today is due to the lack of regulation. The R$ 2 billion fine hurts any company's margin”, he states.
The institute estimates that more than 90% of bets are made via Pix or bank deposit, but a decree from the Secretariat of Prizes and Bets already bans the use of credit cards to avoid indebtedness, an issue that concerns the Brazilian Federation of Banks (Febraban).
Companies in the betting segment see the legislation as positive for the development of the market, which, despite the new impositions, can continue to exist in Brazil.
“The rules will bring order to a market that grows every day, but in an unbridled way. Many people believe it is a market where you can risk and create a betting site overnight and it is not like that. And, of course, the one who suffers the most from this is the bettor himself”, says, in a statement, the betting company NossaBet, which operates in Paraná.
Ueltom Lima Gomes, CEO of H2, which was born in the poker market and holds H2Bet, states that, although Brazil took many years to regulate betting and online games, the market offers many opportunities. But before, they were only taken advantage of by companies with a greater appetite for risk, and this is expected to change, especially from 2025. “Revenue hurts the entrepreneur, but it is vital for the rules. It filters those who want to work seriously”, he says.
Gomes bets on the 20-year history of his company in the Brazilian market to differentiate itself in the online betting sector, which has many companies coming from countries like the United Kingdom or based in tax havens.
“We have a relationship with the Brazilian market that already has a consolidated history and we have knowledge about the country. The internationals wage an air war. It is important to have the operation on the ground, to know Brazil and the Brazilian”.
The CEO of Sorte Online, Marcio Borges Malta, states that the company has been operating in Brazil for 21 years, intermediating bets in the lottery, and has started to operate in the segment of sports betting and online games. The business, he says, has the potential to be the main one of the company, which is still that of lotteries.
“We hear many criticisms about betting, but there is a very big difference in the products of bet and games for lotteries in the return to the player. The consumer is smart. They wouldn't be betting so much if there wasn't a quality of entertainment. People bet more on bets because the return is greater. In online games, Tigrinho or Aviator, the prizes pay an average value of 95% of the total bet. Many people win and many lose”, says Malta.
Entrepreneurs emphasize that betting is meant for fun, not investment, despite the possibility (not guaranteed) of obtaining gains.
According to professor at the School of Applied Mathematics of FGV (FGV EMAp), Moacyr Alvim, sports betting has an unpredictability factor inherent to competitions, such as football games, making the probability model of each match unknown.
“We have some idea of the operation through the odds. What the house pays reflects to some extent the probability of victory and defeat. If the odds are 3 to 1, the inferred probability is ?. This is a hint of how the probability is inferred by bettors. But the real probability of a team winning no one knows for sure. In roulette, the probability of winning is known exactly. If it's red and black, the probability is almost 50% red, a little less because of the zero”, he states.
Alvim remembers the importance of seeing the game as fun, not as an investment, and knowing when to stop. “If a person plays for a long time, the expected profit is negative”.
A recent decree from the Secretariat of Prizes and Bets also determines that bets must monitor the behavior of users who may become dependent or pathological gamblers. The fine for infringement of up to R$ 2 billion is also applicable in this case.
Mergers and acquisitions
According to experts, the new laws provide more stability and security to unlock investments in the betting sector in Brazil, both for a consolidation among the current market leaders and for acquisitions of foreign companies.
“Brazil achieved a regulation that allows investment, collects tax, creates jobs, and removes the amateur from the market, who normally has a bad history in the country, closing doors and disappearing. From 2025, this market will be able to contribute to Brazil and bring more seriousness”, states Brunno Galvão, CEO of the American risk investment fund Cronwstone Ventures, who says he has up to R$ 300 million to invest in the sector in 2025 in the national market.
Currently, the fund operates with R$ 50 million and has the companies NoHype, affiliate marketing for bets and other brands, and Elisa.bet, from the betting segment.
For Galvão, initially, Brazil will go through a phase of combating illegal companies before starting a stage of sector consolidation, with mergers and acquisitions, which should leave the national market with some major businesses in this market.
The economist Adam Patterson, partner at Redirection International, states that Brazil has unique conditions for the growth of the betting sector, which, he estimates, will see a 50% annual increase in turnover until 2028. Therefore, the legislation should attract investments to the national market. But this should not be the only factor. As the competition for customer preference requires large volumes of investments in marketing, the union of operations will be a way to reduce expenses and have more profitable businesses.
“With the new regulatory costs, there will be a boost in M&A operations. But this will also happen because of the cost of operation and marketing. We will see internationals buying nationals and also see mergers”, he says.
Patterson recalls that deals have already been closed in the country even while the legislation was taking shape and beginning to be applied. Two examples, he says, were the acquisitions of Torcedores.com by Better Collective, last year, and the Loyalty Group by Esportes da Sorte, earlier this year.
Source: Estadão
