After decades of waiting, 2021 seems to be the year for sports betting in Brazil. The activity is likely to be regulated later this year, and Brazilians have a great demand for these platforms, especially when it comes to their greatest passion: soccer. According to Betsson Group, 62% of Brazilians watch the sport weekly, and the country has an increasing digital penetration. Thus, online betting platforms, or iGaming, according to industry jargon, are increasingly targeting Brazil as a good ground for operations.
Wanna, which recently started to operate in the country, has taken advantage of a loophole in the law, which allows its operation, even though the regulation for online betting has not yet been established in Latin America’s largest country. The same goes for Betsson, which is licensed to operate in Brazil via the Jockey Club of the state of Rio Grande do Sul, a horse racing entity authorized by the Brazilian Ministry of Agriculture.
LABS reached out to the companies’ executives and experts to explain this new iGaming market that has not yet been fully addressed in Latin America. Colombia was the region’s first country to put the issue on the table, and it has already regulated online sports betting. Argentina‘s capital Buenos Aires also has a proper regulation for it. Now, all eyes are on Brazil, which has the largest market potential in Latin America.
Betsson operates as a traditional sporting bet firm, in which it is not possible to know who you are betting against. Wanna, in its turn, is an aggregating platform, which works like Tinder, but instead of bridging two people together for a date, the platform brings two players together. Soon, both companies’ operations will be subject to the new regulations in Brazil; they are already eyeing discussions on the topic to adjust as quickly as possible when that happens. But first, let’s put some light on the industry.
Is gambling prohibited in Brazil? Gambling with bingo, jogo do bicho (a lottery-type drawing gaming operated by mobsters known as bicheiros) has been illegal in Brazil since the 1940s. On Sunday, a famous Brazilian soccer player was arrested in an undercover casino in São Paulo, raising the debate about casinos’ criminal misdemeanor in Brazil.
“Brazil cannot effectively prohibit this market from developing; from the moment you do not have a regulatory framework, you let informality operate. [If] You do not have taxes; you do not have the gambler’s protection. [But] If the market exists, it is better to work with it in the best way. To create the rules and be able to make this a sustainable activity, properly monitored to mitigate damage,” comments André Gelfi, managing partner of Betsson in Brazil.
Ok, so casinos remain banned in Brazil. Yet, a Brazilian law in force since June 2019 allows online sporting betting on fixed-odds bets; that is, you can bet with the certainty of the amount that will be received if you win the bet. But the law is not yet regulated. Brazil’s Ministry of Economy has been working with the Brazilian Bank for Economic and Social Development (BNDES, in Portuguese) on the draft regulation.
Amid this legislative loophole, companies in the sector freely explore the activity, waiting for their limits to be set so that they can adapt. This permissibility ranges from online betting in soccer to horse racing, Esports, hockey, snooker, and even dog racing bets.
Witoldo Hendrich Junior, founding partner of Hendrich Advogados, explains that the new 2019 law did not specifically change the sport modality, nor does it mention horse racing bets. According to the lawyer, under the law of criminal offenses gambling is not allowed, and betting on horse races outside the racetrack is considered gambling. “If you go to the Jockey Club to place the bet, can you do it? You can. But if you do it on the racetrack website are you out of place? I think that was not prohibited by law and it was not regulated either.”
According to Luiz Felipe Maia, founding partner at FYMSA – Franco, Yoshiyasu e Maia Advogados, bets on horse racing depend only on the authorization from the Ministry of Agriculture, which is given through the approval of the General Betting Plan proposed by horse racing entity, the Jockey Club. This document must provide for the capture of bets over the Internet. “Now, there is another question that is whether operators of the fixed-odds bets provided by the law of 2019 will be able to accept bets on horse racing as well.”
This will only be answered after the regulation of online sports betting is finished. The undersecretary of the Secretariat for Evaluation, Planning, Energy, and Lottery of the Ministry of Economy, Waldir Marques, told the press that online sports betting might be regulated by July this year.
The law of 2018 (which entered into force in 2019) established that this type of bet is an exclusive service to the Brazilian government, so it is not a free activity, according to Marcelo Frullani, an attorney specializing in law and technology at Frullani Lopes Advogados. “[So] This legislation provides that this activity exists and that the Ministry of Economy has to regulate it.”
In contact with LABS, Marques said that the BNDES is contracting technical services to structure the privatization project of the lottery modality from the fixed-odd bets. As sports betting is considered a public service of the Brazilian government, it may be transferred to the private sector through a concession or authorization process. “The idea is to regulate how this service concession [to the private sector] will work. The bet will not be free; it will be a public service granted to companies that meet certain requirements,” adds Frullani.
Recently, BNDES opened a Request for Information (RFI) process, and 38 companies signed up to help structure the service with the government. The next step will be to validate the information presented in the RFI and the definition of the criteria for the companies’ selection, which will later be invited to the Request for Proposal (RFP), for the next steps of the consultant selection process.
Brazilian lottery law says that the lottery is an exclusive public service of the Brazilian government. But recently, Brazil’s Court broke the federal government’s monopoly on lotteries for the first time, which allows Brazilian states to operate their own lotteries.
According to Hendrich Junior, BNDES speaks of a model of privatization, but this can only be privatized if it belongs to the government. “They are privatizing something that is no longer the government’s issue, but the states”, he said. “What the BNDES needs to do, according to the current scenario, is to organize the house. They will listen to specialists in legislation, regulation, market, marketing, operation and everything that involves the industry worldwide, to map the interested players. In short: they will understand the whole subject.”
What is the potential of the online betting market in Brazil?
While it is unknown what the requirements that the Brazilian regulation will bring, or how much the company will have to pay to the government, “this lack of tax regulation certainly represents a very violent tax gap,” says Spencer Sydow, an expert in digital law and chairman of the Digital Law Commission at the Brazilian Bar Association (OAB) in São Paulo.
Data from Betsson shows that according to the current projections of the offshore market (Brazilian players with operators based in other countries), the Brazilian government could raise an equivalent to BRL 1.5 billion in a year, if online bets are regulated. This shows that, with a regulated market, Brazil can become one of the largest countries in the online sports betting sector in Latin America. H2 Gambling Capital states that the regulated sports betting market can be worth up to BRL 2.5 billion in five years of operation.
As long as operations are not regulated, all that money will go away from Brazil. Frullani said that “often these companies are based in tax havens [countries or territories with low-tax and flexible jurisdictions].”
Among the most famous sports betting companies operating in Brazil today, some are based in Malta, like Betsson Group, others in Gibraltar. Wanna, although headquartered in Chicago, operates from Curaçao. “Malta has become a kind of global iGaming hub; that’s where the major global players operate from today,” comments Gelfi. In Latin America, the Swedish Betsson Group has offices in Brazil and Colombia.
To LABS, Wanna’s co-founder and CEO, Carson Coffman, explained that the firm didn’t begin operations in the United States because some states allow online betting and others do not.
“The many things stopping us from operating in the U.S. is that we have to get a license for every single state that we want to operate in, and then you have to partner with a land-based casino to operate. The license just to operate in Illinois costs $ 20 million, and you have to get a license into every single state you want to operate in; it’s just like not happening right now,” he said.
The choice to expand to Brazil, where the executive forecasts 1 million potential users, was because Coffman has Brazilian friends in the United States and noticed how passionate they are about their soccer teams. “That friendly trash-talking making fun of each other, Brazil is just like the passion that Wanna wants, the friendly competition. Argentina is the next country we are targeting. By Copa America [in June], we hope to start it with Argentina, and then Colombia will be the following country after that. Once we get those two, I think it would be a pretty nice path to expand to the rest of Latin America, ” he said.
Uncertainties and legal intricacies for the operation of betting websites in Brazil
Sydow points out an issue surrounding the activity in Brazil: how to force betting platforms to comply with payment obligations. “The problem of online betting in Brazil is not necessarily legal, but there is a circumstance of legal uncertainty when it comes to non-compliance,” says Sydow. Since they are based in tax havens, these companies ’contracts generally follow these other countries’ and territories’ rules.
“The person who bets in Brazil is like he or she had bought something on a foreign website and asked to deliver it in Brazil. These platforms say that they are not subject to Brazilian legislation because the people who bet are going to their website, based abroad. Yet, it is possible to contest this argument because it is clear that they are promoting this service in Brazil through advertising on soccer teams, “adds Frullani.
Luciana Hendrich, an associate lawyer at Hendrich Advogados and founder partner at Hendrich Digital Content, says that it is the same concept of casinos like Enjoy (former Conrad), in Uruguay, that used to advertise in Brazil’s television. “They are only advertising in Brazil, it doesn’t mean they are operating here.” Her company mediates media contracts and marketing and translation of sports betting companies contracts based abroad that want to advertise in Brazil.
According to Frullani, even after the regulation, the problem of “how to financially punish foreign companies” will continue because there will be companies that will not want to comply with the requirements that the Ministry of Economy places or that will find it more advantageous not to comply and continue exploring the market with a website based abroad.
“It may be that some companies, even after this regulation, remain in limbo. And then we will have to see how the government will regulate this; if it will provide for punishment; if this punishment will be effective since the companies are not based in Brazil. There are several points that I think will not be resolved by this regulation, “he says.
Companies are willing to comply
Gelfi was a partner in the first authorized betting platform in Brazil, Suaposta, in which the company operated in partnership with the Jockey Club of Rio Grande do Sul. Suaposta’s platform was based on the Brazilian domain and authorized by the Ministry of Agriculture, and in 2019, Betsson merged with it.
Today, Betsson offers an online betting platform with horse racing. This week, it is launching BetssonFC for the Brazilian market, a Fantasy Soccer game in which participants choose the team with real professional players of the sport. The game works per round, according to each soccer championship, and the players who choose the best teams take the prizes.
The Brazilian regulatory framework is extremely restrictive; everything that is not expressly authorized, is prohibited, according to Gelfi. “The activity of games is prohibited unless it is allowed. In our sector, the main driver is to have a license; there is no business without a license. In our case, a publicly-traded company, if we do not have our compliance up to date, there is no business, so we strive to work with due legal certainty. “
Wanna is also willing to comply with the regulations once they are established. “I think that having the regulated market will give us an advantage; only one of the things that we are focusing on Wanna is that we are player-friendly. We want the player to have the best experience, we want them to win, and we feel like it because of the platform’s public nature, where it is just like social media. You can see my name and who I am; it keeps the player safe,” argues Coffman.
“In Brazil, one of the things regulators and politicians are concerned about is ‘I don’t want the people in my country becoming addicted to sports gambling.’ So I feel like Wanna has the best model to prevent that,” he states.
“I heard this from a pastor one time: he said addiction grows in secrecy. Right now, sports betting is very secret and very private, so it’s easy for people to get addicted, and that’s what everyone is scared about. But with Wanna, we want to be friendly to the player, so you are less likely to go rogue or become addicted when it’s all public, and everyone is watching, “Coffman stresses.