Loterj suspends state-licensed betting operations outside Rio de Janeiro following Supreme Court ruling

The State Lottery of Rio de Janeiro (Loterj) has ordered an immediate suspension of all state-licensed betting operations outside the state’s borders, following a ruling by Brazil’s Supreme Federal Court (STF). The decision, issued by Justice André Mendonça, requires Loterj to enforce territorial restrictions on accredited operators, referred to as “Bets”, ensuring that wagering activity is conducted strictly within Rio de Janeiro.

The directive, published in the State Official Gazette on February 13, mandates that only betting companies capable of proving the use of geolocation tools, as stipulated by Mendonça, can continue operating in Rio.

The ruling stems from a lawsuit filed by Brazil’s Attorney General’s Office (AGU), which argued that Loterj’s previous licensing framework permitted operators to function nationwide, creating potential regulatory conflicts. The AGU warned that allowing state lotteries to expand beyond their jurisdictions could undermine federal gaming oversight, impacting cybersecurity, responsible gaming practices, financial stability of operators, and efforts to combat money laundering.

Since January, Loterj has been engaged in legal efforts to overturn Mendonça’s injunction, which also imposes severe financial penalties for non-compliance. The court set a R$500,000 (US$87,000) daily fine for Loterj if the ruling was not enforced. Additionally, Loterj President Hazenclever Lopes Cançado faces a personal fine of R$50,000 (US$8,700) per day if he fails to uphold the Supreme Court’s order.

Loterj had previously licensed operators to conduct betting beyond Rio de Janeiro’s borders, arguing that since bets were consolidated on servers located within the state, they remained compliant with regulatory requirements. Under Loterj’s licensing terms, accredited betting companies paid R$5 million (US$867,000) in concession fees, considerably lower than the federal concession fee of R$30 million (US$5.2 million).

The Ministry of Finance’s new federal gaming regulations have also introduced an 18% Gross Gaming Revenue (GGR) tax for sports betting and online gaming operators, compared to just 5% in Rio de Janeiro, prompting concerns that Loterj’s lower tax rate could attract operators away from the federal system.

Following the Supreme Court ruling, Loterj has revoked specific provisions from its July 2023 Accreditation Notice, particularly those that allowed nationwide betting activity. Effective immediately, the use of electronic geolocation tools is mandatory, ensuring that wagers are placed exclusively within Rio de Janeiro.

The directive requires licensed betting companies to demonstrate compliance with geolocation mandates. Operators failing to meet these criteria will have their licenses suspended and face additional penalties under Loterj’s original accreditation terms. Loterj stated that the suspension of non-compliant operators will remain in effect as long as the Supreme Court’s preliminary injunction in Original Civil Action No. 3.696 is upheld.