Brazil is facing a rapidly growing market in the world and is facing the challenge of regulating online gambling platforms. These popular ‘bets’, as they are called in the country, are mainly related to football matches.

The government is laying down the rules that will formalize the sector in the country from January 2025, including the provision on tax collection approved by Congress.

The experiences of other countries that have done this before show that the government can indeed generate billions in revenue with this regulation. But also that setting up control rules and safeguards to minimize risks can create jobs and businesses.

The trend should be for small companies in the sector to be acquired by larger companies and even by global giants, which could be even more attracted to the promising Brazilian market.

The numbers are compelling. According to estimates from the Statista data platform, online gambling will generate no less than US$45 billion worldwide this year, reaching US$65.1 billion in 2029, an annual growth rate of 7.4%.

In Brazil, assessments are carried out by national consulting firms, so the figures should not be compared. It is estimated that online gambling will total R$120 billion (US$21.5 billion) in 2023 and could reach R$150 billion (US$26.8 billion) this year, points out Ricardo Bianco Rosada of brmkt.co, a strategy and business development consulting firm.

But the figures are only an estimate, since even the total number of companies operating in the country is imprecise: it varies between 200 and 1,200, depending on the source. Only when the market is regulated, with bets based in the country, will it be possible to reach a number closer to reality. Nevertheless, experts point out that the Brazilian market is very attractive for betting.

Analysis of figures from countries including the UK, Italy and Spain shows that governments are expecting significant tax revenues, while job opportunities have opened up for professionals in customer service, website management and technology.

These are positions that must be internalized with the obligation for betting to establish themselves in Brazil. Until now, they have operated from structures abroad.

“The rules provide legal certainty for investments, guarantees for gamblers and a search for responsible gambling. And of course new tax resources,” say Ricardo Bianco Rosada, from brmkt.co.

The UK is seen as a benchmark for the formalisation of online betting, with tax collections reaching £4bn a year 19 years after regulation.

UK betting has a tax rate of 15% on the so-called Gross Gaming Revenue (GGR), the platform’s gross income after paying out prizes. However, winning gamblers do not have to pay income tax.

With strict rules and surveillance of suspicious activity, the UK has banned players or referees from betting on football, for example. Athletes are also prohibited from giving information to people who could benefit from betting, such as their team line-ups. Authorities are discussing a new advertising code for betting.

The country has more than 60 thousand direct jobs related to the sector, consisting of 1.6 thousand betting sites, but this number has already exceeded 2.4 thousand. Another trend that shows the international experience is this concentration of a market that is currently very dispersed.

Experts point to mergers in countries with older regulations, such as Spain and Italy, that created large, global companies in the sector.

In 2020, for example, British companies Flutter Entertainment and The Stars Group joined forces to form the world’s largest online betting company, with brands including PokerStars and Sky Bet. It is estimated that there are 400 betting sites operating worldwide, with 25 of them already considered giants.

Legal no man’s land

The same movement is expected in Brazil. Since the market is not yet regulated, the number of companies is imprecise: it varies between 200 and 1,200, depending on the source.

“Maintaining a bet requires a large investment in technology, cybersecurity and marketing. The expectation is a consolidation of the market in Brazil and the world, with smaller companies being acquired or merged,” say lawyer Caio de Souza Loureiro, partner in the field of Gaming & eSports, at TozziniFreire Advogados.

In Brazil, a 2018 law declared online gambling a type of lottery, but no additional regulations were established, leaving the activity in a kind of legal limbo.

The recently approved federal regulation set a rate on GGR of 12% and bettors must pay 15% on prizes as income tax. Betting must be conducted in Brazil and pay a subsidy of R$30 million (US$5.35 million) to operate for 5 years.

The Ministry of Finance is working on a new regulation for the sector, which should be published soon. This regulation is considered essential by the bettors, so that they can estimate their profits in a new regulated market scenario.

The document also establishes whether crash games (such as the Aviator game) and slot machines (such as the Fortune Tiger game) can operate in Brazil, as long as the sites show the gambler a table predicting progressive winnings throughout the game.

In other countries, these two types of online games generate the largest share of the sector’s revenue. For some bettors, it may not make sense to pay the concession to stay on the sports field alone.

In countries that are further along, the control models differ. In Canada, regulation began in 2021 and in the US in 2018. In both states, states can create their own rules for online gambling.

In Latin America, Colombia took the lead in 2015 with regulations on website operation and taxation, but opted to create a federal oversight body. In Argentina, this is up to the provinces.

In Spain, betting revenue has tripled since regulation in 2011. The country has a 20% tax on betting. In countries with federal regulations, a large portion of the revenue goes to healthcare. Where there are state regulations, the money generally funds infrastructure, education and poverty reduction.

In Italy, the rules are also from 2011, but new projects are being discussed, such as creating a wagering fee to finance the treatment of young people addicted to betting. A similar idea is being discussed in the United Kingdom. In Germany, where the rules are from 2021, fears of fraud have led to a ban on betting on ongoing matches, with betting only on the final result.

In Brazil, a July regulation required betting platforms to identify, qualify and classify the risk of gamblers, identifying patterns that could indicate abuse. In addition, gamblers must report suspicious transactions to the Financial Activities Control Council (COAF), which combats money laundering.

Pandemic accelerated sector

Among the factors that have boosted online gambling on the planet, experts point to the social isolation of the pandemic and the advancement of smartphone technology and payment methods. Here, Pix has helped to boost this behavior even further.

To discourage abuse, countries such as Spain and Italy have already restricted sponsorship of bets on football shirts. In Brazil, 19 of the 20 Serie A clubs have a betting sponsor, but restrictions in this area should come later, experts say based on international experience.

It is a segment that is still in transformation, says Heather Wardle, Professor at the University of Glasgow, Scotland, sports betting specialist and author of the book “Games without borders”:

“The recent development of online games is related to the change in technological infrastructure, which has led to a multibillion-dollar entertainment product. Games reflect broader societal trends and reach previously unknown dimensions.”

Mariana Tumbiolo, partner at Madruga VAT Advogadossays Brazil’s potential is huge. According to the lawyer, estimates are that the market could reach somewhere between 1% and 2% of the gross domestic product (GDP).

Finance Minister Fernando Haddad estimated that at least R$2 billion (US$358 million) would flow into state coffers this year through the regulations, but so far only three companies have applied for subsidies and handed over the documents to the Ministry of Finance: Superbet, Kaizen Gaming Brasil, owner of the Betano brand, and MMD Tecnologia (Rei do Pitaco).

In addition to these, the Betting Management System registers four more brands in the process of sending documentation. Each order can contain up to three brands and must be placed before August 20. Authorizations will be issued by the Secretariat of Prizes and Betting (SPA) by the end of the year, so that the regulated market can become operational on January 1.

Source: João Sorima Neto / Ana Flávia Pilar — O Globo