The window for prioritised licence applications in Brazil has now shut with 113 operators submitting requests ahead of the deadline and excitement is building ahead of the market going live.
By applying before the 20 August deadline passed, the 113 operators have ensured their licence applications will be processed by 1 January 2025, the forecast launch date of the legal market in Brazil.
The 90-day initial window of preference opened in May. For a while, it appeared the number of applications would fall well short of industry expectations with just Kaizen Gaming-owned Betano applying by the end of June.
However, the publication of the remaining ordinances sparked an acceleration of requests, with 108 of the 113 applications coming after the final ordinance on sanctions was announced on 31 July. Notably, the much-awaited Normative Ordinance No 1,207 on online games clarifying which games would be allowed was one of the last to be published.
The total number of applications fell short of the 134 operators who expressed their interest in gaining a licence earlier this year. However Neil Montgomery of Brazilian law firm Montgomery & Associados believes the government will still be delighted with the figure.
“The prizes and betting secretariat (SPA) of the ministry of finance must have released fireworks in Brazil when the tally of applications for a federal licence comfortably surpassed 100,” Montgomery tells iGB.
“The total number of applications exceeded multiple times the SPA’s expectation of receiving around 40 applications. This is, therefore, very good news for the federal government, since it will show a sound interest in the Brazilian regulated market.”
Significant interest in Brazil betting market
The Brazil gambling industry is set to be one of the most exciting in the world, with a recent International Betting Integrity Association (IBIA) report predicting the market could hit $34bn (£26.8bn/€31.1bn) in sports betting turnover by 2028, with an onshore gross win of $2.8bn.
The high number of applications is made even more significant by the obstacles facing operators, including a BRL30m (£4.2m/€4.9m/$5.5m) licence fee and intensive regulations on accreditation and maintenance.
Such regulations caused some industry concern over whether there was a place for smaller operators in the market. Yet Bichara e Motta Advogados’ head of gambling & crypto, Udo Seckelmann, believes the tally of requests indicates the potential is just too vast to ignore or delay entry.
“This clearly shows that the igaming industry in Brazil craves for a professional environment, with clear rules and legal certainty,” Seckelmann says.
Will the review process run smoothly?
However delays have often slowed Brazil’s journey to legal betting. It’s therefore understandable the industry holds some reservations over whether the application review process will complete by the 1 January 2025 launch date.
The final regulations were published within three weeks of the 20 August deadline, and the large tally of applications will need to be processed within just over four months.
According to Montgomery, the SPA has plans to deal with the sheer number of requests.
“In a recent meeting I had with the federal regulator and his team, I was informed that the SPA will reach out to applicants within 35 days of their applications being submitted to let them know whether the documentation submitted is in order or whether anything needs to be adjusted or supplemented before the ministry of sports receives the application to give its opinion on the same,” he explains.
Seckelmann believes there may also be flexibility over the “transition period” for operators to gain authorisation so the regulator can apply the necessary scrutiny to applications.
Challenges and concerns
In addition to how the Brazilian government handles the review process, some in the industry are also concerned over whether the regulation will stamp out the black market.
IBIA’s study warned stringent market restrictions in Brazil could lead to $18bn a year being wagered offshore, to the detriment of player protection. This could also result in over $1bn in lost tax revenue between 2025 and 2028.
Seckelmann is keen to see how effective the Brazilian government will be at handling offshore operators. Normative Ordinance No 827 clarifies those active without a licence by the start of the New Year will face sanctions.
“We will have to wait and see whether the federal government will stick to its promise of fiercely enforcing the current legal framework against the black market as from 1 January 2025,” Seckelmann states.
“The SPA has publicly said that it will have the necessary tools to do so. We will simply have to wait and see.”
Ongoing opportunities
Montgomery was shocked by the large number of applicants due to the “very demanding compliance structure”. One of his clients, a large multinational group, decided not to progress its application due to the high costs and licensing requirements he says.
Operators will still be allowed to apply for a licence, although they may miss out on the initial betting interest that usually comes with the launch of a legal market, especially one the size of Brazil.
Montgomery feels some are simply biding their time, preferring a patient approach.
“We are bound to see important players not having applied at this point, which does not necessarily mean that they will not apply at all,” Montgomery continues. “It may well be that they will wait to see what happens next before taking the decision to file their application.”
Are Brazilian state lottery licences an alternative?
An intriguing alternative to the federal licence is a state lottery licence. While states including Parana and Paraiba have certified sports betting and gaming operators, Rio de Janeiro’s state lottery Loterj dominates these discussions.
Loterj has come under fire from some in the industry for what is seen as overstepping its reach. It allows those with a Loterj licence to operate nationally through what Montgomery describes as a “much cheaper and less demanding licence”.
Montgomery feels it’s an attractive route that some operators will take. And Loterj reportedly received close to 50 requests by the time its latest application window shut last week, despite an ongoing court case contesting the legality of the lottery’s actions.
“While Loterj’s ‘extraterritoriality’ is currently being challenged in court, it may well be that a long time will pass until the matter is definitely settled by Brazil’s high courts, which could well mean that such a state licence has the potential of providing its holders with the expected returns,” Montgomery explains.
“For those not interested in the federal licence, it may be that Loterj will be opening another licensing window in the near future, especially to attract such type of operator.”
Brazil government’s revenue targets
Amid evangelical opposition and fears over gambling addiction, one of the key points for proponents of legal betting in Brazil lies in the economic benefits.
While the tax revenues won’t be fully experienced until 2025, the licence fees alone will prove beneficial for the government.
“In general terms, if all licences are ultimately approved and issued, this will represent a significant financial contribution to the federal government’s coffers still in 2024,” Montgomery says.
“I am sure the Brazilian government will be pleased with the number of applications and the initial revenues they will generate, remembering that each licence costs BRL30m.”
For Montgomery, the number of requests is an indicator of the effectiveness of the implementation of regulation, especially in regards to the objective of generating state contributions.
“This is confirmation that the Brazilian government has done a good job in attracting as many players to the regulated market as possible,” Montgomery suggests. “They will certainly be on the right track to meet their tax revenue targets.”
This is only the start, though, and despite the excitement over the Brazilian legal market, the US may act as a cautionary tale. High profile operators such as 888, Super Group, Wynn and Kindred, are now tapping out after heavy investment did not translate into a profitable share of the market. This should serve as a helpful warning that exciting new markets don’t always play out as smoothly as predicted.
“Now, we have to wait and see whether those operators will be successful and maintain their operations in Brazil,” Seckelmann concludes.
