Gaming in Brazil: a bet for the future

The lottery in Brazil was given public service status in 1932; “jogo do bicho” was then forbidden in 1941 and casinos in 1946; which means that 46 years after the passing of the last gambling law the country still does not acknowledge there is a need for a legislative and regulatory up-date. 

“I cannot emphasize enough that the prohibitive legislation has not changed the illegal gaming scenario we have in Brazil where over us$ 7.84 billion in illegal gaming is generated by “jogo do bicho”, bingos, slot machines, sportsbetting, iGaming and online poker,” said Magnho José.

In summary, illegal gaming transactions in Brazil are worth almost double the us$ 4.83 billion generated by legal gaming (which is composed of us$ 4.53 billion generated by the Caixa Econômica Federal lotteries, us$ 174 million generated by the state lotteries and R$ 300 million by horse racing),  without bringing any benefit to the Government or society.

Of the 193 members of the UN, 75% have legalised gaming. Brazil is  part of the 25% that has not. Among the 156 country members of the World Tourism Organization, 71% have legalized gaming but it should be pointed out that of the 29% (45 countries) with no legalised gaming, 75% are Muslim and thus have religious motivations. Not all Muslim nations forbid gaming; Egypt or Turkey, where the majority of the population is Muslim, do allow gaming.

“It’s worth mentioning that of the 34 richest and most developed countries of the Organisation for Economic Co-operation and Development (OCDE), only Iceland doesn’t allow gaming. On the other hand, in the G20 group that Brazil is part of, 93% of members have legalized gaming in their territory (the 7% that haven't are Brazil, Saudi Arabia and Indonesia, with the last two being Muslim countries),” he said.

José further stated that all over the world, the proceeds from gaming and lotteries are used on social projects and it is up to the local governments to decide how to implement and control the games and what tax levels should be imposed on gaming related activities. It is also each country's government's decision how these proceeds should be allocated (e.g. Mexico spends the proceeds on health and education; Finland on sports, science and arts;, UK on arts, sports, social initiatives and health etc.).

The revenues of the global sports betting market in 2012 were us$58 billion, which made up 13,8% of the total gaming revenue. The global sportsbetting market will reach us$ 70 billion in 2016, according to the  estimates of the Global Betting & Gaming Consultants (with the UK, where gambling is a mainstream activity, generating a big portion of that revenue: us$ 4,7 billion in  2012, according to the Gambling Commission, the country’s gaming regulator).

The game of poker is also gaining popularity in Brazil, both online and in card rooms or clubs. 2.5 million Brazilian players are estimated to be registered online and out of that number at least 50% play every day.  Add to this the scores of Brazilians playing live poker, and you are left with a substantial poker player base in Brazil. The first tournaments had around 100 participants; today they attract 1 to 2.000 participants. The expansion of poker all around the world is due to institutional efforts to classify poker as a game of skill instead of chance. Despite the recognised status of poker as a game of skill in Brazil, the government representatives are now closing poker clubs in Brazil due to their unclear legal environment.

In spite of gambling being an illegal activity in Brazil, online operators earn more than us$ 200 million every year from Brazilian players, according to the iGaming Review magazine. Another study (“The Study of the illegal gamming market in Brazil” produced by the Brazilian BNL and presented in an international seminar in Argentina) estimates that Brazilians bet about us$ 800 million every year through the Internet.

While land-based gaming establishments are closed in Brazil, Internet is not. The web has brought down borders giving people access to virtual casinos and bingo. It continues to be unregulated and uncontrolled, which means that this activity is not bringing any financial benefit that could support social or health projects, like it does in other countries.

Could Brazil' Internet Steering Committee put in place legal mechanisms to control gambling, taking other countries' regulatory frameworks as a model for new legislation?  

Members of Secretaria de Acompanhamento Econômico (SEAE of the Ministry of Finance and Caixa Econômica Federal) have expressed the government's interest in developing legislation for sportsbetting in Brazil, especially due to the proximity of the World Cup and the Olympics, with the World Cup being the most bet-on event in the world.

Brazil is preparing to host 3,1 million foreign tourists next year who will attend the World Cup games and who, in many cases, will stay several weeks looking for activities to do in their spare time. Why not capture part of this demand locally? Regulated gaming that most of these visitors are used to enjoying back home would be another unique opportunity to offer entertainment, not to mention the revenues, jobs and investments it could generate.

The French knew how to take advantage of the World Cup in South Africa in 2010. The French government understood the opportunity and rushed to legalise and regulate sportsbetting. 48 licenses to 35 different operators were granted (17 before, 9 during and 19 after the World Cup). The French took advantage of the media coverage offered by the football championship that generated “free publicity for the industry” to structure their businesses and maximize the return.

Mahno José explained that it is the responsibility of the National Congress to approve the initiatives for regulation proposed by the government. The time we have to benefit from the World cup 2014 is running out. “We need to deal with the legalization of gaming in a pragmatic way as our neighbours did: Chile, Colombia, Peru and Panama, following the European model. This proposal should also include bingos, arcades, casinos and why not the centenary "jogo do bicho", which could potentially generate up to us$ 25 billion?”

He continued: “Preserving the current status quo would mean that not only  are we exporting our local gambling revenues but we are also losing market opportunities within the gaming supply chain. When bingos were legal, several software and slot machines companies based their production in Brazil, but the government's forbidding paranoia saw the Ministry of Finance creating restrictions to make the production of gaming equipment very difficult. After the  prohibition of gaming , some of these companies had to transfer their factories to other countries such as US, Spain, Mexico and others.

“ZITRO, FBM, Shock Machine, TIC TABS are some of the Brazilian gaming and entertainment companies that have succeeded abroad (it is fair to say that the main gaming manufacturers use the tupiniquim DNA, that takes its name from the city where a gaming factory was based). But the blind prohibition in Brazil resulted in a loss of jobs in the country.”

“Opponents of gaming in Brazil use the arguments centred around ‘pathology’ of gambling, money laundering and lack of control, but these are not more than lobbyists' arguments of those who want gaming to remain illegal. To state that the Government does not have the means to monitor and control this activity simply isn’t true. Caixa controls online, out of Brasilia, more than 34 million terminals installed in 12.000 lottery houses in over 4.5 thousand cities. “Receita Federal” (Federal Revenue Service) has one of the most advanced and efficient tax control systems in the world and the Electoral Justice monitors 420.000 electronic election points and announces the results in only 5 hours. So with all the available technology, it is rather ludicrous to claim that gaming activities cause money laundering. It is a statement of incompetence,” he said.

Brazil should learn from the example of other countries that have recognized the benefits of regulation. German deputy Jürgen Creutzmann stated in his address to the European Parliament Commission of Internal Market and Consumer Protection when referring to online gaming: “Illegal operators don’t pay taxes or contribute to society”, therefore there is the need to discuss the legalization and take it from the illegal operators' hands, which is what happens in the civilized world.

Government, parliament or society can no longer ignore the need to debate this topic and to legalise gaming in the country, following the example of the richest countries that embraced gaming in their legal systems because they realized that if there is a demand “someone” will provide the service.

Regardless of the current Brazilian legislation, experts are already studying the online sports betting market in the country. In fact, an in-depth analysis of the market potential and best practice in regulation will be taking place in November this year, at the Hotel Windsor Rio de Janeiro at the first Brasilian Gaming Congress, organized by Clarion Events.