BRAZIL – Regulatory Framework for Gambling in Brazil
By: Marcos Alves, Fernanda Burle y Barbara Teles*
Ever since gambling was forbidden in Brazil, the topic of re-legalizing the activity has been on and off the agenda of the various administrations.
A new regulatory framework for gambling is part of the Federal Government’s agenda. More than that, as an important tool to help boost the economy and raise tax revenue in a moment of crucial need, it tends to gain further support in Congress and face less resistance from those who have traditionally opposed it.
Lotteries:
Today, Lotteries have taken centre stage in the regulated gambling horizon of Brazil with issuing of Presidential Decree 10.467/2020, released on Wednesday (08/19), which has formalized the classification in the Programa de Parcerias de Investimentos – PPI (Investments Developments Programme), and the inclusion in the National Privatization Plan (PND) of the lottery service “Fixed Odds Betting”, better known as “sports betting”, which is an exclusive public service by the Brazilian State and which can now be transferred to the private sector through concession or authorization process.
With the reclassification of this service in the PPI portfolio and in the NDP, a deadline will be set for studies to be carried out for to choose the adequate privatization project model. The initiative helps expand investment opportunities, stimulate the economy, increase incomes and create jobs in the country.
One of the privatization models that can be adopted is the concession of the service in the same way that has already used in the successful tender of scratch cards product LOTEX, held in October 2019, which was awarded to the Italian-American consortium made up of IGT and Scientific Games, and which generated projected revenue to the State of R$817.9 million (US$ 147 million).
The decision to include the service in the PPI portfolio was discussed during the 13th IBP Board Meeting held on 10 June this year.
The current legislation determines that lotteries are an exclusive public service and the Ministry of Economy is responsible for authorizing or granting its exploitation. Federal Law 13.756/2018 authorizes sports betting to operate, but it is still waiting for a regulation setting important procedures.
The preparation of a regulation Decree had been underway since 2019. The Ministry of Economy promoted public consultations to discuss drafts of lotteries regulation. The third and last Public Consultation closed in March 2020, motivated by the change in the service’s exploitation model as a public concession.
There is an expectation that regulation of sports betting may pave the way for the legalization of other types of games, but we have to wait until it is finished to assess its real impact in this whole sector.
Gambling Regulation Background:
From 1920 to 1946 gambling was permitted in Brazil and the country had great casinos and job opportunities in elegant entertainment centres with restaurants, bars, ballrooms, and theatres. In April 1946, President Eurico Gaspar Dutra issued a Decree prohibiting gambling and casinos operation in Brazil.
Dutra had political and personal reasons to end gambling in Brazil: he wanted to eliminate all measures implemented by previous President Getulio Vargas (responsible for encouraging the operation of casinos in the country) and he was married to a fervent catholic woman, completely averse to the environment of the gambling halls, casinos and theatre shows.
At the time of prohibition, the interdiction had a strong economic effect in Brazilian cities that lived mainly from tourism based on gambling, such as Petrópolis, in Rio de Janeiro and Poços de Caldas and Lambari, in Minas Gerais.
Currently, even with the express ban on the exploitation of gambling, Brazil deals with its illegal practice, mostly in houses where bingo and betting machines are operated.
Legislative Proposals:
There are today two main bills of law being discussed in Congress to try to implement and regulate gambling in Brazil: Bill 442/1991 from the House of Representatives and Bill 186/2014 from the Senate. Both Bills legalize gambling and allow casinos to operate in Brazil, but there are relevant differences between the two proposals with regards to investment and business opportunities that would come out of their approval into law.
Despite the difference in the legislative process and status of the bills in both chambers of Congress, there are groups of congressmen pushing forward or obstructing the advance of the theme.
As an example of the strength of the group in favour of the legalization, in May 2019, a Joint Parliamentary Caucus for the approval of a Regulatory Framework for Games in Brazil was installed.
Small steps were taken, but there was no compromise between both houses to approve the bills or guarantee guidelines to the text. On the bright side, it means this is an excellent opportunity for foreign companies to share their best practices and engage in a debate to help set the new standard in Brazil and explore this market.
Our assessment is that the regulatory benchmark has to contemplate legal, social and political defences, based on minimum standards, including clear rules for the gambling operation defining the permitted games, tax rules, financial traceability and protection against money laundering, prevention of gambling addiction, compliance rules, and international control mechanisms.
It is very important to engage and actively participate in the process of opinion-making to a better design of a regulatory framework. Depending on the interests that will prevail, the result may be a fair, compliant legal environment or not.
The Interministerial Committee for opportunities in the tourism sector:
On May 14th, President Bolsonaro issued Decree n. 10.349/2020 adding to the Government Program for Investment Partnership a group to assess policies for attracting private investments to the tourist industry aimed at the development of new business ventures on this sector and making use tourist, cultural and natural Brazilian resources. One of the purposes is to have an Interministerial Committee establishing priority for investments and assessing regulatory alternatives to encourage and promote private investment, providing legal assurances to the players, and analysing possible socioeconomic impacts.
This Interministerial Committee is composed by some nominee member of the Ministry of Economy, Tourism, and Environment. Those appointed agents are responsible for assessing the opportunities for the tourism segment which represents a great convenience to engage with the public authority to lobbying for the inclusion of some great investments, as casinos and gambling legalization. Researches on this option have already been made by those public offices, a topic considered at the beginning of Bolsonaro’s government in 2019 by political actors from the Legislative and Executive branches.
This Interministerial Committee has been meeting periodically for about a month and the project decisions will be studied by the Government Program for Investment Partnership. One of the topics under discussion is licensing of integrated resort casinos, enabling the casino activity as additional offering by the resorts, which are expected to be implement until 2023.
In a macro-political landscape, we observe a group in favour of legalizing gambling activities and others against it, but available to discuss and adjust points-of-view according to market demands.
Political and economic scenarios:
The political and economic scenarios around the legalization of gambling modalities in Brazil also have those in favour and those against its advance. The overrising view of those against is a conservative point of view based on the negative social impact that gambling could cause. On other hand, those in favour believe gambling may improve the economy of the country.
President Jair Bolsonaro is influenced by both groups. Despite strong resistance from some in the ministerial core – mention must be made that Minister Damares Alves, evangelical and conservative who has already announced her position against all gambling operations -, one of President Jair Bolsonaro’s sons is much in favour of the casino business. Senator Flávio Bolsonaro (Republicanos/RJ) was in an official mission and met with important players of the gambling sector to discuss the possibility of allowing casinos in Brazilian territory. As may be surmised, he is considered an important adviser to the Administration.
It is well known that as a consequence of the Coronavirus pandemic Brazilian economy has been greatly impacted on tax collection and the tendency is that this will get worse, and while Brazil ministerial staff is assessing all economic options, it has already stated that Brazil must redraw priorities and adopt alternative legal remedies to expand tax collection.
Changes and political ascendancy in Brazil’s Executive and the Ministry of Economy in the past few weeks along with resignations may have an impact and weaken economic policies that this Government is trying to implement, in particular those dependent of Congress approval.
However, great pressure to increase spending to mitigate the economic impact arising from the coronavirus crisis may have a major impact on the political structure closest to the President, especially in the relationship between the economic team and the Government, paving the way for greater influence by “centrão”.
The group named as “centrão” is an informal group of congressmen from different political parties who support the government in exchange for taking part in choosing political appointees. It has a more conservative base, largely composed of evangelical congressmen, and their main characteristic is that they are responsible for presenting and defending projects to increase spending. The leaders of “centrão” are moving to guarantee even more space in the main economic agendas and work side by side with the President, having more influence in economic policies.
On other hand, one of the biggest obstacles to the approval of a new Regulatory Framework for Gambling in Brazil is the evangelic caucus, a group of congressmen with great expressiveness in the Legislative branch.
The evangelic caucus represents one of the pillars of the current Government and one of the reasons why the President was elected to his current mandate. It represents conservative values and believes that gambling goes against good customs and traditional Brazilian family. This group represents a good part of the President’s supporters.
Therefore, the debate to approve any sort of gambling activities in Brazil must engage in the possibility of convincing this group and change their opinion or, at very least, compromise so that it remains neutral during the discussions.
Brazil’s fiscal situation is one of the points to be reassessed by the current Government and the Congress. With the weakening of the Ministry of Economy (owing to departure of part of his staff and Paulo Guedes’ image before Congress), more conservative in spending, there is a space that “centrão” might fill, showing their influence on setting priorities in the agenda.
Estimates of revenue loss during quarantine period show a gap in Brazil’s revenue. To recover it, the Government is studying mechanisms for expanding tax collection and had already submitted part of a tax reform.
Gambling activities seem as one of the viable alternatives that can expand tax collection, promote jobs, and attract foreign investments. In the current scenario, the casino alternative could be considered as an economic urgency to speed up studies on the matter.
Resorts infrastructure for casinos operation:
The possibility of implementing integrated resort casinos is under discussion at the Interministerial Committee for opportunities in the tourism sector.
On the matter of the infrastructure required for the construction and operation of casinos, the bills under discussion share different approaches, one with a more complete and comprehensive regulation and another with illustrated details. The new legislation enforces that they must operate in integrated resorts with high requirements imposed on gamblers.
The House Bill establishes important requirements as far as gambling surrounding infrastructure, such as a minimum number of hotel rooms, commercial, meeting, convention, sports, recreation and dining areas, clubs, and space to accommodate the machines.
However, the Senate Bill does not establish such requirements and allows for a few companies operating the casinos to provide this entire infrastructure (hotel infrastructure, restaurant, convention area, shows, and concerts).
IR Infrastructure and casino rules are in the current draft of the bills, and adjustments and revisions may be made during the assessment by both houses under legal and political provisions within the legislative process.
Under discussion is the establishment casino operation hubs as gambling centres. Imposition on the creation of hubs may be important since the demand would be concentrated in certain locations as opposed to some types of games that face great resistance (such as the “jogo do bicho” – lottery with animal figures game), to spread quickly throughout the national territory.
In a competitive aspect, this can be faced as a casino entrance barrier, but it is important to attract the right investments and companies. It is possible to advocate with lawmakers’ provisions for regional tax incentives and differentiated taxation for the development of those regions directly affected by the casino hubs.
Those hubs may also expand the tourist potential of some Brazilian regions, like the Northeast. Major players have already shown interest in investments and projects aligned with the Government to raise the level of tourism in Brazilian regions. Gambling provides a differentiated type of tourism, in which Brazil is very interested. And tourism is one of the priority development agendas for this Administration.
On other hand, there is a big concern from private investors that the Tourism Ministry may allow only one casino (as an integrated resort) to operate in Brazil, in only one city. This would be prejudicial to the legalization of gambling modalities as it would limit casino operations in Brazil.
Online gaming:
Although international online gaming sites (those hosted outside Brazil) are freely available in the country and gamblers do not face legal proceedings against its practice, this modality is not allowed. If legalized, the new legislation could provide security to the gambler and attract investors interested in developing online gaming in Brazil.
Although aforementioned bills address questions of online gaming, there is a possibility of a separate regulation for this modality. In this scenario, there is a Senate Bill specifically on electronic sports and a House Parliamentary Caucus in favor of Electronic Games.
Senate Bill 383/2017 aims to regulate electronic sports practice (limited to activities that use electronic devices, in which two or more participants compete, using round-robin tournament systems, knockout systems, or any other similar technology for the same purpose). We have noticed engagement by the private sector through some congressmen in order to make great changes in the current text under discussion. Since the end of 2019 this Bill has not had significant progress in the Senate.
In addition to this, the House Parliamentary Caucus in favour of Electronic Games was officially created in late 2019 and installed in March 2020. It aims to support e-Sports, but with the Congress activities reduced during the quarantine it did not have significant advances, and the event launching the Caucus had no engagement from the private sector.
In 2019, the House’s Sports Committee had a special subcommittee to assess online gaming and gambling aspects. Despite its installation, the subcommittee had not promoted meetings. Based on all of this, online games are one of the discussion items under the legislative agenda. Despite of that, there is no consensus on a text to move forward with its regulation.
The new regulatory framework for online games has to find a balance between a legislation hard enough to restrain money laundering and attract investments and allow the development of new interested companies. Public supervision is important, and also economic and social aspects must be considered to create appropriate legislation and guarantee wide access to online games. In this context, it is also important to discuss suitable taxation of these games to promote fair and transparent tax collection.
*MJ Alves e Burle Advogados e Consultores – Advocacy Brasil (MJAB) is the first Brazilian law firm specialized in Advocacy. The firm advocates fororganizations and companies on governmental matters in Brazilian Congress and Administration.http://www.mjab.adv.br/
