International edition
August 19, 2019

Exclusive analysis by José Magnho, Editor of BNL News

Analysis of sports betting regulation in Brazil

Analysis of sports betting regulation in Brazil
"Legalizing sports betting would be a way to bring transparency and benefits to the state, through a formerly stealthily developed activity. That is the point," stated Secretary of Taxation, Energy and Lottery Monitoring Alexandre Manoel Ângelo da Silva.
Brazil | 11/26/2018

In the aftermath of sports being legalised in Brazil as part of the Regulatory Framework of Gambling, José Magneto has crafted a detailed analysis of the scenario in the country from this milestone onwards, to understand pros and cons of the measure and whether or not the Brazilian administration is willing to move forward.

I

n the aftermath of sports being legalised in Brazil as part of the Regulatory Framework of Gambling, BNL Editor José Magnho has crafted a detailed analysis of the scenario in the country from this milestone onwards.

Analysis of sports betting regulation in Brazil

Still astonished at the speed of approval of MP 846/18 or PLC 73/18, several subscribers asked the newsroom: "What happens now?", "When does sports betting begin?" And will sports betting legalization hamper the processing of bills generated by the other modalities? ", among other questions.

Unfortunately, we do not have crystal ball for all the answers, but some can be answered in accordance with the current legal system and through the manifestations of the head of the government regulatory body, the Secretary of Fiscal, Energy and Lottery Monitoring of the Ministry of Finance, Alexandre Manoel Ângelo da Silva, during the public hearing held on October 30 in the Federal Senate to discuss MP 846/18.

The proposal to legalize sports betting was an old agenda of the Ministry of Finance, revealed in several interviews by the former Secretary of Economic Monitoring of the Ministry of Finance, Mansueto de Almeida. In addition, SEAE even sent a draft provisional measure to the Civil House to legalize this modality.

Deadlines

The deadline for the sanction of a law by the President is 15 days. If the president does not sanction the project in that period, this will be considered as tacitly sanctioned. If this is the case, the bill is promulgated by the President of the Republic or by the President of the Senate.
As of this Friday (23), the proposal will be on the agenda of the Presidential Parliamentary Affairs Sub-Office to be voted on by December 8th.

Regarding regulation, there is no deadline. However, Article 29.3 of PLC 29/2018 defines that the "Ministry of Finance shall regulate within a period of up to two years, extendable for up to the same period, as of the date of publication of this Law."

Lack of structure of SEFEL
 
During the public hearing held on October 30 to discuss MP 846/18, Secretary of Taxation, Energy and Lottery Monitoring (SEFEL), part of the Ministry of Finance, Alexandre Manoel Ângelo da Silva stated that the government would not have an immediate structure to regulate the operation of sports betting, but that it would be possible if there was a time.

"Today we do not have any immediate infrastructure to regulate sports betting. The Lottery area of the Ministry of Finance has 20 servers, out of which only four are state servers. The National Treasury is comprised by 16 commissioned servers. This activity requires high levels of intelligence and qualified staff to be operated so that it is carried out responsibly. If this House understands that sports betting should be regulated, it will provide enough time for the Executive Power to create regulations in a responsible way, so that this market takes a step forward without having to take two steps back. Take a responsible lead. Really, expanding the market and not simply deregulating without any responsibility. "

Asked by Senator Flexa Ribeiro when it would be reasonable for the Brazilian government to greenlight online gambling, Alexandre Manoel replied: "The ideal move would be for the House to replicate the instant lottery [Lotex] procedure, instead of following such a tight deadline and rushing to complete the whole process in time with the Executive Power. The best way forward would be through surveys, listening to all parts of the market involved in the process."

The model will be outlined by the new Minister of Finance

The regulation of sports betting is triggered by several reasons. In addition to creating an adequate infrastructure for this operation, the Ministry of Finance will be under new direction from January next year onwards.

The next government will define the competition model established by law and how the Ministry of Finance will grant approvals to the fixed-rate betting lottery that can be traded in commercial, physical and electronic distribution channels.

Lotex must not be affected

The technicians of the Ministry of Finance know about the risks of eagerness when it comes to sports betting operations, and how this could compromise the strategy.

"It is an arithmetic issue to sell the approval of fixed-stake betting as something that will bring large tax revenues to the state. State revenues will be low. These lotteries operate with sky-high payouts (90 and 95% on average, out of which 12% goes to the operator. At most what the state would receive is 3%. In a billing of $ 4 billion, if so, you would have something around R$ 120 million for the Brazilian state, very little against other lotecas. To sell this as a form of revenue increase for the state is an illusion. This is arithmetics, not an opinion. The prize pool is proportionately too high. There is good basis for approving fixed bets, the world is speaking about them and bets exist, whether the Brazilian State approves them or not. Many people bet on English or European sites and do not know that they are betting in a legal way. Additionally, some of them may develop an addiction and the Brazilian State will have to address this public health issue, without any benefits."

Low collection of taxes with sports betting

"Legalizing sports betting would be a way to bring transparency, in addition to benefits to the state, through a formerly stealthily developed activity. That is the point," Alexander clarified.

Asked by Senator Flexa Ribeiro about sports betting income taxes, the secretary replied that most of the premiums are below R$ 1,903.98, so they should be exempt from taxation.

"Income taxes only apply on amounts above $ 1,903.00. The average ticket of these operations is low, and it does not entail large prizes. The game that does make folks dream of becoming a millionaire is  traditional lottery and instant lottery. But these other types are regarded as entertainment games, done more out of fun than the desire to get rich. What I wanted to say to you, Senator, is that no one can sell the approval arguing that fixed-rate bets will raise state revenue, because that is not going to happen. "

Helping or disrupting?
 
One of the questions is whether the legalization of sports betting will disrupt the release of the other modalities. It's still early to risk a guess, but like everything else in life there are pros and cons.

We will list some factors, but subscribers who wish to add suggestions to this list, can feel free to send the messages to [email protected] or to WhatsApp: 21-99995-6873.
 
Pros
- The introduction of sports betting will spark debate on the legalization of other types of gambling.
- The same arguments used now towards regulation of fixed odd betting can be used to pass a more general Regulatory Framework of Gambling.
- The Ministry of Finance will have to create a control structure that can be adapted to other modalities in the near future.
- The operation of this modality can prove that gambling is not conducive to money laundering nor to an irresponsible gambling outbreak.
- The legalization of this modality thwarts the plans of Las Vegas Sands lobbyists, who work frantically for the exclusive legalization of integrated casino-resorts (IRs). Now, in addition to unregulated gambling competition, IRs will have to compete against sports betting.
- It ends with the hypocrisy of overseas operators picking bets in Brazil without contributing to the Brazilian state and society.
- It reduces the shame of Brazil being the eighth economy to maintain the ban on gambling and state control on this activity.
 
Cons
- Low collections and reduced number of jobs generated by sports betting could create the false impression that legalization is not worth the social cost.
Some experts even shared with BNL that Lotex's own grant value would be another counter-argument. At the beginning of the process, Lotex was said to be R$ 8 billion, and was reduced to R$ 642 million or four installments of R$ 162 million.
- Lobby and resistance towards sports betting operators so that other modalities are not legalized in the future.
 
At BNL this Thursday, we commented that we started the house on the roof due to legalizing sports betting first, which should be only after the physical market was fully matured.

Legalized but not regulated

With presidential approval, sports betting will be legalized but not regulated. Further information on the legalization of sports betting is featured in a six-minute video edited by BNL, with the participation of the Secretary of Taxation, Energy and Lottery Monitoring of the Ministry of Finance, Alexandre Manoel Ângelo da Silva, during the public hearing held on October 30 to discuss MP 846/18.

Leave your comment