Gonçalves Alves: “Publication of regulations will bring legal certainty to attract foreign investment”
Last June 10 an important step was taken by the Brazilian government to finally take the gaming market out of the shadows and regulate a new gaming model – more modern, safer, and with parameters similar to the rest of the world.
As part of an effort to continue Brazil’s investment agenda, the 13th meeting of the Investment Partnership Program Council (initials in Portuguese: CPPI) classified several priority projects. Amongst them, the concession of what is called “fixed odds bets”, which in fact is Sports Betting. This has now been included in the National Privatization Programme (PND). The diary for the project has not yet been released or included on the PPI website but should follow shortly, as it is in its initial phase, with studies to support public disinvestment.
As it is well known, gaming is prohibited in Brazil, with the exception of gaming controlled by the State, which falls under “sistemas de consórcios e sorteios” (item XX of Art. 22 of the Federal Constitution), or Association lotteries.
With sports betting concessions, the Government intends to “i) restrain the State’s participation in an area with high levels of innovation; and ii) improve the business environment and generate jobs,” according to CPPI, which added that the resolution on qualification states the “need for redefining the strategic position of the State in the economy, and transferring to private initiatives such activities improperly exploited by the public sector.”
Brazil’s legislation for Sports Betting (“apostas de quota fixa”), is described as the betting modality on real sports-themed events where the prize for the bet is determined at the moment the bet is placed; although with a high football content, these bets are not restricted to this sport. The characteristic of this gaming model is the exact prize that the bet can receive the moment that the bet is placed.
The inclusion of the sports betting project in the PND followed its recommendation to the President of the Republic via CPPI Resolution No. 134/2020, published on June 19 in the Official Gazette. The National Bank for Economic and Social Development (BNDES) has been designated as responsible for supervising the privatization process in coordination with the Ministry of Economy, much in the same way as it did for the privatization of Loteria Instantânea Exclusiva (Lotex). Nevertheless, the calendar with additional information and dates is pending publication on the PPI website.
Current regulations determine that lotteries are exclusive public services of the Federal government, and it is up to the Ministry of Economy to authorize or grant its exploitation (Law no. 13,756/2018). Brazil Federal Law establishes the allocation of the betting format in relation to its format physical or virtual environment.
Although regulations for sports bets are still pending, drafting of the Decree has been in progress since 2019, with some Public Consultations promoted by the Secretariat for Evaluation of Public Policies, Planning, Energy and Lottery (SECAP) of the Ministry of Economy, on an open basis for the purpose of discussing the regulatory draft. During the Public Consultations, many contributions were received from various industry agents, associations and individuals.
The third and last SECAP Public Consultation was closed in March this year, and was driven by the change in the model of exploitation of the service, which previously would have been granted by authorization and, following further study by the Attorney General’s Office at the National Treasury (PGFN), the need to address the issue by public concession was approved.
Last month, the Undersecretary responsible for the portfolio at the Ministry of Economy declared that the intention is for regulations of sports betting to be ready by the end of this year. Also, the new recent Public Consultation was affected by the pandemic and a delay in the conclusion of the Decree ensued.
There have been some uncomfortable issues generated for foreign investors owing to delays in the sports betting regulation process. One of them is the tax issue, as the Decree must be adapted to the tax rate provided for in law, because in the past there have been contradictions on this matter. Another point of attention is the fact that there are some sports betting operations in some Brazilian states that are supported by injunctions granted through lawsuits, and they would not be able to operate under new regulations.
Some existing controversies that existed on sports betting were addressed during Lotex’s troubled auction. State lottery Lotex was included as part of the PPI at the 1st Council Meeting at the end of 2016 and, following BNDES studies, the concession of the instant lottery was approved at the 3rd Council Meeting as a privatized business.
The Lotex privatization project began in 2017 and was only completed in October 2019 after several postponements owing to the lack of interest in the proposals. Finally, the concession was granted to Consórcio Estrela Instantânea, a society formed by global gaming leaders, International Game Techology (IGT), of Italian origin, and Scientific Game International (SGI), of American origin.
“Legal certainty to attract foreign investment”
The Lotex privatization was a first step towards the opening of the Brazilian lotteries market. Even with a complicated procedure, it was demonstrated in practice the possibility of progress in this sector, and with this the first discussions on the subject were promoted. A good point of reference was the recent decision by the Federal Court of Auditors (TCU) which reviewed the second and third stages of the process of denationalisation of that public service, and attested that the formal requirements in the sale of Lotex were met, as per Judicial Decision no. 1.421/2020.
“We believe that in order to remedy existing flaws, the publication of the Decree for the Regulation of Fixed Quota Sports Betting (Decreto de Regulamentação das Apostas Esportivas de Quota Fixa) will bring legal certainty to attract foreign investment as a guideline for the continuity of the gaming project,” said Marcos Joaquim Gonçalves Alves*, founding partner at Sao Paulo law firm M.J. Alves e Burle Advogados e Consultores.
One of the points of great importance is regulation in communications and marketing directives in sports betting. The Law indicates that they should be guided by the best practices of social and corporate responsibility but does not indicate other guidelines or ways for doing so – which should be part of the Regulatory Decree.
Gonçalves Alves, added: “Also, there are other points for consideration that can simplify the system and create control mechanisms, ensuring rigidity in tax collection, assessing possible investors and requirements for exploitation, establishing penalties for companies that practice irregular gaming exploitation, defining client targets, establishing clear rules of compliance and prevention of illicit activities, and compliance using best gaming international practices. The Government’s commitment on this shows seriousness on the social impact by the lotteries and gaming sector in Brazil.”
Bárbara Teles**, partner at M.J. Alves e Burle Advogados e Consultores, said: We would like to reiterate the opportunity to rethink a legal and regulatory framework for the Gaming in Brazil with a view to bringing regulation to allow the exploration of other gaming modalities also (not only the official games promoted by the Federal Government today) but the big gambling games, differentiating them from skill games (poker, for example). This new framework should include other aspects such as problem gambling prevention and other behavioural disorders which are important social aspects for the development of gaming investments in the country. “
Sports betting concessions demonstrates, once more, the Brazilian government’s intention to rethink the exploitation of gambling in Brazil in other modalities and formats. As part of an investments attraction agenda (tourism, gastronomy, hotel infrastructure, etc.), such concessions will deliver the best exploitation of this type of gaming (games of luck and games of skill), and the opportunity to make use of the best and most secure international practices.
*Marcos Joaquim Gonçalves Alves. Founding partner of M.J. Alves and Burle Advogados e Consultores. Author of article “18-A of the Pelé Law that modernized the sport in Brazil.” He has extensive legal experience and corporate law, mainly in public pratice, recognized by publications in Chambers Latin America, The Legal 500, Leaders League, International Tax Review, Benchmark Litigation, Best Lawyers, among others.
**Barbara Teles. Partner at M.J. Alves e Burle Advogados e Consultores, works in all aspects of Advocacy and was recognized in the 2020 edition of the international publication Leaders League.