Brazil is close to passing new gambling laws, generating debate and speculation. The draft bill, which includes the legalization of sports betting and online casinos, has been approved by the lower house of Brazil's parliament. The Senate will review it by the end of October.
Our Senior Consultant Dmitry Hotsyn provides a comprehensive overview of the situation. Below is an analysis of the draft bill's key points and what they mean for the industry.
Market Entry
The key license requirements are the following:
The high license fees and stringent controlling-person requirements could push existing grey-area operators to seek partnerships or buyout options. This could create attractive investment opportunities for foreign operators focusing on compliance.
Taxation
Contrary to rumors, the 18% GGR (Gross Gaming Revenue) tax rate for online gambling remains, with total taxes estimated at around 30%. This will challenge business plans for foreign operators, particularly given the high license fees.
Additionally, players will face a 30% tax on prizes exceeding approximately €400, a controversial move for market relaunch.
High license and tax fees may deter local and international operators from entering Brazil's legalized market, particularly when competing with offshore operations with fewer restrictions.
Advertising Bans
Bonus bets and credit lines are prohibited and cannot be part of any promotions. Advertising will be limited to licensed operators and must follow new guidelines. Claims about winning odds or potential earnings cannot be exaggerated, and celebrity endorsements promoting betting as a path to wealth or social status are strictly off-limits. No specific advertising restriction periods have been outlined.
The industry has already reacted negatively to these stringent regulations, but it remains to be seen how rigorously they will be enforced. Yet, if any kind of bonus bets are unavailable, this would make the marketing efforts of the legal operators extremely problematic, effectively reducing the attractivity of the Brazilian market.
Controlling Measures
Only institutions approved by the Brazilian Central Bank can offer payment services for gambling activities. Local and Brazil-administered banks are the sole entities that can legally handle deposits from players' accounts.
Internet service providers must also block access to illegal websites.
Despite these measures aimed at dismantling the grey market, international precedents suggest that illegal gambling will persist unless balanced legal options to operate are available.
Next Steps
Tagged as urgent, the bill is moving quickly through Senate hearings. Although there has been vocal opposition and pledges to resist its adoption, it seems increasingly likely that the regulated market will be relaunched. The final version of the bill could become law by the end of October.
Given that the main impetus for legalization is increasing tax revenue, operators can expect some level of government support when considering entry into the Brazilian market. Coupled with the possibilities to buy-out existing grey-area operators or their key assets (e.g. marketing assets and business insights), this creates exciting opportunities for interested parties to be first and greatest in a market with tremendous potential.
Our Senior Consultant Dmitry Hotsyn provides a comprehensive overview of the situation. Below is an analysis of the draft bill's key points and what they mean for the industry.
Market Entry
The key license requirements are the following:
- Local company. Only domestic companies can apply for a gambling licence; international operators must establish a local presence. No specifics about economic substance requirements have been released, but it's reasonable to assume hiring local staff will be obligatory for entering the market as a licensed operator.
- License fees. The license fee remains approximately €5.69 million but only permits operation through a single app / website. The license term has been reduced to three years from five, effectively increasing the license fees by 65% relative to earlier expectations.
- Number and transferability of licenses. Licenses will not be capped in number or freely transferable, described as "of a highly personal nature" in the draft bill. Regulatory oversight will accompany any change in control, such as buyouts or takeovers, focusing on the reputation and financial standing of new controllers and upper management.
- Controlling persons. In line with other regulated markets, a clean record, verified funding sources, and a sound business plan are crucial for approval.
The high license fees and stringent controlling-person requirements could push existing grey-area operators to seek partnerships or buyout options. This could create attractive investment opportunities for foreign operators focusing on compliance.
Taxation
Contrary to rumors, the 18% GGR (Gross Gaming Revenue) tax rate for online gambling remains, with total taxes estimated at around 30%. This will challenge business plans for foreign operators, particularly given the high license fees.
Additionally, players will face a 30% tax on prizes exceeding approximately €400, a controversial move for market relaunch.
High license and tax fees may deter local and international operators from entering Brazil's legalized market, particularly when competing with offshore operations with fewer restrictions.
Advertising Bans
Bonus bets and credit lines are prohibited and cannot be part of any promotions. Advertising will be limited to licensed operators and must follow new guidelines. Claims about winning odds or potential earnings cannot be exaggerated, and celebrity endorsements promoting betting as a path to wealth or social status are strictly off-limits. No specific advertising restriction periods have been outlined.
The industry has already reacted negatively to these stringent regulations, but it remains to be seen how rigorously they will be enforced. Yet, if any kind of bonus bets are unavailable, this would make the marketing efforts of the legal operators extremely problematic, effectively reducing the attractivity of the Brazilian market.
Controlling Measures
Only institutions approved by the Brazilian Central Bank can offer payment services for gambling activities. Local and Brazil-administered banks are the sole entities that can legally handle deposits from players' accounts.
Internet service providers must also block access to illegal websites.
Despite these measures aimed at dismantling the grey market, international precedents suggest that illegal gambling will persist unless balanced legal options to operate are available.
Next Steps
Tagged as urgent, the bill is moving quickly through Senate hearings. Although there has been vocal opposition and pledges to resist its adoption, it seems increasingly likely that the regulated market will be relaunched. The final version of the bill could become law by the end of October.
Given that the main impetus for legalization is increasing tax revenue, operators can expect some level of government support when considering entry into the Brazilian market. Coupled with the possibilities to buy-out existing grey-area operators or their key assets (e.g. marketing assets and business insights), this creates exciting opportunities for interested parties to be first and greatest in a market with tremendous potential.
