Brazil: Supreme Court restricts Loterj-licensed operators to Rio de Janeiro

The Brazilian Supreme Federal Court (STF) has dealt a blow to the Rio de Janeiro State Lottery (Loterj) by ordering its licensed operators to cease accepting bets outside the state.

This decision, issued on January 2 by STF Minister André Mendonça, comes amidst an ongoing legal battle over regulatory authority between Loterj and the federal government. After six years of a process to legalize online sports betting, Brazil, as of January 1, became a regulated national market for fixed odds betting.

The court's preliminary injunction comes in response to Original Civil Action No. 3,696, filed by the federal attorney general's office (AGU) in October 2024. It challenges Loterj's five-year licensing framework, introduced through Accreditation Notice 01/2023, which allowed operators to conduct public lottery services nationwide.  

Under the ruling, Loterj-licensed operators must implement geolocation tracking systems to ensure their operations remain confined to Rio de Janeiro. The decision, effective from January 7, grants Loterj a five-day compliance window.  

Minister Mendonça criticized previous amendments that had removed geolocation requirements, arguing they undermined Brazil's regulatory integrity. "The relaxation of the criteria weakens the supervision and control of lottery activity, potentially harming the federative pact," he stated. While affirming the states' right to offer lottery services, he emphasized that ultimate oversight lies with the federal government.  

Loterj's move to issue its own online gambling licenses in 2023 predated federal regulations enacted this year. The state regulator positioned its licenses as a cost-effective alternative to federal licensing, charging BRL 5 million for a five-year term compared to the BRL 30 million fee mandated by the federal regulator SPA.

Additionally, Loterj imposed a lower tax rate of 5% on gross gaming revenue (GGR), significantly below the 12% rate applied to federally licensed operators.  

This disparity made Loterj licenses appealing to operators, some of whom chose to bypass federal requirements. However, the national government’s intervention has now curtailed this practice, effectively reinforcing the authority of Brazil's federal online gambling framework, which launched on January 1.  

The STF’s preliminary injunction will undergo further scrutiny during a virtual plenary session scheduled from February 14 to 21. Loterj retains the right to appeal the decision and present its arguments before the court. Following this, the AGU will provide its response, potentially setting the stage for a protracted legal battle.  

The ruling complicates the operational landscape for Loterj licensees who had previously capitalized on less stringent state regulations. These operators must now reassess their strategies or seek federal licenses to maintain nationwide operations.