Gambling groups hedge their bets as Brazilian market opens


Brazilians in search of a flutter for a long time had the odds stacked against them.

Due to a decades-old general ban on gambling, punters were mostly limited to state-run lotteries and scratch cards, horse wagers at authorised racetracks, or an illegal but widespread numbers game — jogo do bicho — based on picking different animals.

Yet thanks to a law passed at the end of 2018, anyone with an internet connection and electronic payment method in Latin America’s most populous nation now has another officially sanctioned option: online sports betting.

The activity has taken off in popularity since it was legalised and is already estimated to collectively generate hundreds of millions of dollars for digital bookmakers. Entain, the UK-listed owner of Ladbrokes and Sportingbet, this month said its betting revenues in Brazil more than doubled in 2021. Exact figures are not disclosed but revenue of £259mn derived beyond its key markets of the UK, Europe and Australia is “predominantly driven by Brazil”.

Peter Jackson, chief executive of Flutter, the world’s largest gambling group and whose Betfair brand offers also betting there, said the country presented “a very significant opportunity”.

An absence of regulation and formal licence awards has however deterred some operators who are wary of the legal uncertainty and costs, according to sector executives.

For example, says one, “you have to do your banking outside of Brazil and so you are faced with exchange rates going in and out”.

But as the government in Brasília races to draft rules for the budding industry in time for a deadline set by the original legislation and December’s soccer World Cup in Qatar, international gambling companies are eyeing Brazil as a major growth market.

Brazil fans celebrate after their side won 4-0 against Paraguay. The country’s obsession with football is an enticing prospect for bookies © Andre Penner/AP

The expectation is that a clear regulatory framework will open the door to new entrants, set standards and boost the public coffers.

Following liberalisation by multiple US states, which have permitted online gambling to help plug pandemic-induced budget holes, the South American country is tipped as one of the next big frontiers. A population of 214mn people and national obsession with football are enticing prospects for bookies.

Entain plans to apply for a Brazilian sports betting licence “as soon as it is available”, said its senior vice-president for American regulatory affairs, Martin Lycka.

“It’s a very exciting opportunity and the regulation is now finally getting there,” he added. “As the overall tax burden will be around 19 per cent of gross gambling revenue, compared to some European jurisdictions the market will be more welcoming.”

Mature European markets typically take upwards of a fifth of gross gambling yield — the amount retained by operators after winnings have been paid out. In Greece, the tax rate is around 34 per cent of GGY, while in it Italy it is 24 per cent.

Bet365, another UK group which like Entain has Portuguese-language sites, is exploring setting up a company in Brazil and is recruiting local executives.

“In terms of legal gambling, Brazil is absolutely a sleeping giant,” said James Kilsby, managing director of Americas at industry researcher Vixio. “[It] has the potential to become a top-five regulated market globally along with the likes of the UK, Australia and then New York, Italy and France.”

The excitement has been stoked by progress in efforts to effectively overturn the prohibition on games of chance that dates back to the 1940s.

Lawmakers in Brazil’s lower house of Congress recently voted in favour of a bill that would allow bingo halls, casinos and slot machines, among other activities.

However, relaxed attitudes to gambling are not universal. Far-right president Jair Bolsonaro has threatened to veto the legislation — although this can be overturned by the legislature — and there is also opposition from an influential caucus of evangelical Christians, who warn of the risk of addiction.

Several gambling companies, including some which operate digital platforms that offer bets to Brazilians from outside the country, did not respond or declined to comment for this article.

For now, the lack of any legal guidelines to accompany the 2018 statute that decriminalised fixed-odds sports wagers means many of the hundreds of active websites remain based in jurisdictions such as Gibraltar, depriving Brazil of tax revenues and employment.

Data provider H2 Gambling Capital estimates that the gross gambling revenue (GRR) in this non-regulated and offshore “grey market’ reached R$1.98bn ($400mn) last year. If regulations are introduced on schedule, it estimates overall GRR in the first full year of legal sports betting in Brazil could hit R$3.7bn in 2023, rising to R$5.5bn by 2026.

The drive for new audiences is evident on football pitches. Nineteen out of 20 clubs in the national top division have some form of sports betting sponsorship, whether long-lasting or one-off deals, according to market researchers Ibope Repucom.

Last season, internet bookmakers occupied the centre of the jersey of six teams, considered prime advertising real estate, more than any other single category of sponsor.

“They are becoming one of the main ones,” said Arthur Bernardo Neto, business development director at Ibope Repucom. Covid-19 lockdowns and restrictions had contributed to more people trying out online gambling while stuck at home, he added.

Casa de Apostas, which sponsors Esporte Clube Bahia in the northeastern state of the same name, is one of the homegrown brands.


$990m


Estimates gross gambling revenue by 2026, according to H2 Gambling Capital

“Brazilians are learning how to bet,” said relationship manager Anderson Nunes. “We have a vast field of opportunities. The World Cup will bring a big increase in our activity.”

As in the US, fantasy sports operators are also eyeing up a move into sports betting once the regulation is firmed up. Nigel Eccles, co-founder of the US gambling company FanDuel and chair of Brazilian fantasy sports start-up Rei do Pitaco, said that it will prove fertile ground.

“Their level of passion for football is off the charts. They follow lots of different leagues — the Campeonato Brasileiro, but also the Premier League, Copa Libertadores and more international stuff. I think over the long term it could be one of the biggest markets globally”.

However, an unresolved question is what kind of regulatory approach Brasília will take.

The two broad options are an authorisation model with unlimited licences issued to every operator satisfying legal, financial and other requirements; or a concession scheme, where companies bid competitively over a finite number of permits.

Neil Montgomery, founding partner at law firm Montgomery & Associados, argues that the former could “be a big catalyst for growth”.

“The best thing for government is to work on scale and regularise as many operators as possible. I think that will generate more [tax] revenues.”

Anderson at Casa de Apostas said he hoped the incoming regulation would establish best practices and help to avoid problem gambling. “With the rules of the game defined, it will give more security to the consumer, for us operators and to the state”.

Even if a more permissive version is adopted, some believe certain operators will be unable to meet the conditions or costs of a licence, resulting in a shakeout in a sector which counts an estimated 450-odd websites.

But larger players who can shoulder the burden see an attractive prize. “We’re excited about it,” said Jackson.

Additional reporting by Carolina Ingizza



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