International edition
October 25, 2020

Edgar Lenzi, founder and Director of BetConsult

"It is clear that Brazil will take all necessary measures to not let the gambling market expectation lower"

"The Brazilian Supreme Court may recognize that the prohibition of gambling operations is unconstitutional," Edgar Lenzi says.
Brazil | 10/14/2020

In this article for Yogonet, the expert delves into recent moves based on which he believes sports betting will soon be regulated, and other opportunities can be expected in the near future, such as resort casino legalization, online gaming, prizes distribution over TV and Radio network, and privatizations possibilities. He sees a lot of new opportunities after the Brazilian Supreme Court ruling that ended the federal government's monopoly for the exploitation of lotteries in Brazil.

 

Edgar Lenzi has over 18 years of experience in the gambling market. He is founder and Director of BetConsult, a Company ... (+ Info)

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PORTS BETTING

Prior to the pandemic, the Sports Betting legalization has come a long way as Fixed Odd Sports Betting, as a lottery modality, were legalized via the Provisional Measure 846/2018 which was converted into the Federal Law 13.756/2018.

The matter however has not been regulated yet, and is currently under the process of being.

At first, the tendency was to have a Permission license granting model, with unlimited licenses. However, most likely now is that a Concession Type Model will be adopted, with a limited number of licenses, which could be 30 (thirty), but that can still be changed.

Recently, Waldir Marques Jr., undersecretary of Prizes and Sweepstakes (and Lottery products) at the Ministry of Economy, made it clear that the Government is interested in speeding up the start of Fixed Odd sports betting operations, saying: "We are working hard so that the regulation is ready by the end of the year so that the BNDES will be able to organize the bidding processes at the beginning of 2021."

He added: "The government will treat the issue as something strategic. Today the lottery industry is going through a very big crisis in Brazil due to the Covid-19 pandemic. We had a drop of more than 40% in the business. Currently, our physical operation represents 95% of the business and only 5% online. With sports betting, the online operation will grow substantially and will be good for everyone involved. If they were already regulated and in operation, our revenue would not have fallen so much".

In addition, Decree 10.467/2020 was issued by President Bolsonaro. This officially means that Fixed Odd Sports Betting has been given the status of a matter related with the PPI (Partnerships and Investment program) of the Presidency of the Republic. In addition, Fixed Odd Sports Betting has been included in the National Privatization Program, and that the execution and oversight of the privatization process will be conducted by the BNDES (National Bank for the Social and Economic Development).

This is a strong manifestation that the Federal Government sees the privatization of Fixed Odd Sports Betting with very good eyes, which can also be interpreted positively with regards to the Legalization and privatization of other types of gaming/gambling.

Also, recently, the Federal Government issued the Provisional Measure 984/2020 that provides the "financial health" of football teams. The Provisional Measure (PM 984/20) brings about a change to be implemented in the Pelé Law (Law 9,615/1998). This PM grants the exclusive right to the Home team of Soccer games to negotiate broadcasting rights on the games that take place in its stadium as a home team (the so-called "Arena right").

Some amendments were proposed to the mentioned PM, including one amendment by Evandro Roman, which was suggested by us. We have a good relation with Deputy Roman who is a representative from the state of Paraná, where we are based.

The amendment proposed by Deputy Evandro Roman provides for a change on Law 13,756/2018, excluding letters "a" and "f" of items I and II of art. 30, and also for the change of the wording of the 1st paragraph.

The current wording is:

  • Art. 30. The result from the collection of the fixed-odd Sports betting lottery will be allocated as follows:
    • I - in physical environment:
      • a) 80% (eighty percent), at least, for the payment of prizes and the payment of income tax on the prize; (...)
      • f) 14% (fourteen percent), at most, to cover the costs of maintenance and costs of the agent operating the fixed-odds betting lottery; and
    • II - in virtual environment:
      • a) 89% (eighty-nine percent), at least, for the payment of prizes and the payment of income tax on the prize; (...)
      • f) A maximum of 8% (eight percent) to cover the cost and maintenance expenses of the agent operating the fixed-odds betting lottery.

Paragraph 1. The percentages allocated to the award and to the cost and maintenance expenses provided for in paragraphs a and f of items I and II of the caput of this article may vary, provided that the annual average meets the minimum and maximum percentages established in those paragraphs.

The new wording excludes items "a" and "f" from both items I and II, and changes paragraph 1: The value of the prizes payed is not included in the collection amount.

In case the suggestion is accepted it would change the taxation in the way that the percentage of tax applicable would be calculated excluding the amount of prizes payed from the calculation basis as well as the payout percentages.

In addition to this movement from Deputy Roman, there have been two recent Court decisions about the taxation on the Jockey Club of Rio de Janeiro and also about the Brazilian Series of Poker in São Paulo.

According to the Brazilian Supreme Court, the service tax (ISS) applicable to the Jockey Clubs happens because the distribution and sale of tickets and other products must be considered a service. Therefore, the calculation basis should, in principle, be the amount paid for the provision of said services. Then, the service tax calculation base should be the amount to be remunerated for the provision of the service, regardless of the ticket charge, and cannot correspond to the total bet amount.

As for the Court decision regarding São Paulo's BSOP, the Organization has won a lawsuit filed against the City of São Paulo to annul the collection of service tax (ISS) over the amounts allocated to the prizes of the tournaments held during the stages of BSOP (Brazilian Series of Poker) in the city. The City of São Paulo had drawn up five tax assessment notices against the company, alleging the non-payment of ISS and imposing fines on the alleged tax debt, of a tournament held by BSOP. In the opinion of the City Hall, the tax should be applied on the total amount of the amount that each participant paid by way of registration.

However, the Court understood that the revenue that belongs to and can be used as the basis for calculating the ISS and therefore the ISS cannot be calculated on the players' prizes, as it is a third party's revenue.

Both decisions can be interpreted as a tendency that should also be followed by the lawmakers when analyzing the amendment proposal presented by Deputy Roman.

At last, we believe that the schedule proposed by undersecretary Waldir Marques Jr is appropriate and should be followed.

In another way, with the recent Supreme Court Decision regarding the Federal Lottery Monopoly (which we will explain below), the regulation model can be changed, and maybe the States Lotteries could follow the Sports Betting regulation/exploitation as well.

CASINO LEGISLATION

Since the Pandemic began, nothing much has evolved in the legislative side of the Casino legalization. However, some recent movements have occurred in favor of the legalization, including new proposals.

The expectation is that the Integrated Casino Resorts would become legal, especially after Senator Flávio Bolsonaro took the matter on his own hands, joining The Chamber speaker Rodrigo Maia and other deputies, and important names such as the Mayor and Governor of Rio de Janeiro and São Paulo.

In addition, in a recent government meeting, the Tourism Minister Marcelo Álvaro Antonio came forward in favor of the Resort Casinos. He spoke for the demystifying of tax evasion, money laundering and drug trafficking. According to him: "But what needs to be done, President, is really to demystify the issue of currency evasion, money laundering, drug trafficking and, for that, I would suggest that in this debate we could count on the Ministry of Justice, through the Police Federal, the Public Ministry, the Federal Revenue, the control bodies, but obviously, the president, an agenda that we would only take forward if we manage to pacify, or make ourselves understood by the evangelical group, by the Catholic group, so that there is a distortion in the communication of that. It has to be a very well done project that I believe can be a great opportunity for Brazil to attract large complexes of which only three percent are used for casinos. And another, this has no direct impact on the family of Brazilian workers."

Also, the Tourism Minister Marcelo Álvaro Antonio said he wants to "present a project of integrated resorts with casinos for Brazil that has the capacity to hold at least eight thousand jobs". For him, the discussion will be deepened in the second semester of 2020, which has been happening.

Following the same tendency, the Secretary of Tourism of the State of São Paulo Vinícius Lummertz has also come forward in favor of the legalization of Resort Casinos: "The most appropriate model seems to us to be Singapore, where you had seven million tourists and that number jumped to 20 million with just a single large development with a theme park, casino and area for congresses and fairs. I went with Beto Carrero to Las Vegas once, because he wanted to find that kind of hotel for Parque Beto Carrero. We need to look for these alternatives to attract investment of this type."

"The casinos and gambling represent 17% of the revenue in Las Vegas. The rest are congresses, fairs, concerts and other activities. I gave a lecture at the biggest tourism event in the east, which takes place in Macau every year. I was invited and stayed in one of the hotels in a complex where one of them represented more than US $ 3 billion in investment. The brother of this businesswoman was also the result of investments of US $ 2 to 3 million."

In this same way, Senator Irajá presented the bill 4.495/2020, which allows the implantation of Casino resorts. In the project, integrated resorts are defined as "tourism complexes with casino operations that combine hotel facilities, convention centers, spaces for fairs, exhibitions, corporate events, congresses and seminars, incentive meetings, ecumenical centers , in addition to different entertainment and convenience options offered to the visitor, such as restaurants, bars, spas, shopping centers, art galleries, museums, theaters, golf courses, theme parks, water parks and other options."

It is indeed an optimistic scenario that awaits support from President Bolsonaro, which we believe won't have obstacles.

Having in mind all ways to legalize Casino operations in Brazil, we believe that finally it can gain force and will go ahead.

LOTEX – BRAZILIAN INSTANT LOTTERIES

IGT and Scientific Games (Estrela Instantânea consortium) officially announced they have left the LOTEX concession in Brazil.

In the official statement, the representatives of the companies affirmed that the decision is due to the fact that CAIXA failed to comply with deadlines to authorize the use of its lottery network, and also due to the STF's decision to authorize states to explore lotteries, forcing everyone to rethink the original deal.

As we already comment above and will report better below, with the recent Supreme Court Decision regarding the Federal Lottery Monopoly, the Instant Lottery can be regulated and exploited by the States, which excluded the Lotex monopoly, and opens a big opportunity in the States.

PROVISIONAL MEASURE Nº 923/2020 – LAW 14,027/2020 - PRIZES DISTRIBUTION BY TV AND RADIO NETWORK

Recently, President Bolsonaro has emitted a provisional measure for prizes distribution over TV channels. It is the Provisional Measure Nº 923/2020, sanctioned by the Law 14,027/2020. In summary, it authorizes the free distribution of prizes for advertising when carried out by drawing, gift certificate, contest or similar operation by television or radio networks. The substitute Project presented by the rapporteur extended to the national and also regional radio and television networks the possibility of making free distribution of prizes for the purpose of advertising, carried out by drawing, gift certificate, contest or similar operation.

The mentioned Law was voted recently approved by the Chamber of Representatives and by the Senate. Some general rules are the prohibition of gambling and bingo, only those over 18 can participate in the drawings, prior registration of the participant will be required, either electronically or by telephone, and confirmation of the Individual Taxpayer Registration.

The Ministry of Economy regulated such draws, and one rule in no money distribution shall be allowed.

The Law 14,027/2020 revokes art. 84-B of Law No. 13,019/2014, which allowed the distribution or promise of distribution of prizes, through sweepstakes, gift certificates, contests or similar operations, in order to raise additional resources for their maintenance or funding to Civil Society Organizations (CSOs) or charity entities.

ONLINE GAMING

During the vote session of the PM 923/2020, the Chamber of Representatives speaker, Rodrigo Maia, came forward and spoke in favor of the legalization of Online Gaming.

He said: "Internet Gaming already exists, there is only no collection of taxes in Brazil because there is no regulation and the topic needs to be discussed as soon as possible."

"I just wanted to say that I think we should discuss this issue in due time. That's because, today, in Brazil, between 9 and 10 companies are already operating these electronic games. And there is already a dispute with the evangelical bench, which I think is creating some difficulties with this amendment. This dispute already exists. These firms are already operating here, they just aren't paying tax. Therefore, the idea of this amendment is to regulate electronic games for Brazil to collect taxes," explained the deputy.

Therefore, there is an effort to push forward the legalization of online gaming, which could happen through Bill 442/1991.

The recent Supreme Court Decision regarding the Federal Lottery Monopoly also can implement other types of Online Lottery Games, which can open other opportunities by the States.

IMPORTANT WIN FOR STATE LOTTERIES AT THE BRAZILIAN SUPREME COURT

The Brazilian Supreme Court unanimously decided to end the federal government's monopoly for the exploitation of lotteries in Brazil.

Now, the States may also conduct lottery operations.

The Brazilian Lottery market changes substantially, assured that the 26 states and the Federal District are from now on able to explore lotteries.

A lot of new opportunities will happen considering this Supreme Court decision, both Online and Land Based, since the States will be able to exploit, authorize or delegate these activities.


MINISTRY OF ECONOMY AIMS NEW PRIVATIZATIONS

The Minister of Economy, Paulo Guedes, pointed out that major privatizations should occur in 2020.

He indicated the intention of privatizing four public companies to the private sector and mentioned Caixa Econômica Federal as an example. "There, there is R$ 30 billion, R$ 40 billion or R$ 50 billion in a large PSO (primary share offering)," he said.

The public bank has already placed an order to offer Caixa Seguridade shares and could do the same later with the cards' area and also Caixa Loterias and the Asset Manager.

SUPREME COURT DISCUSSION ABOUT THE CONSTITUTIONALITY OF THE PROHIBITION OF GAMBLING

A political Party (PHS) filed a Lawsuit (ADPF 563) at the Supreme Federal Court to restore the right of any individual to legally exploit betting. The Party understands that Decree-Laws 3,688, of 1941 (Law of Criminal Misdemeanors) and 9,215, of 1946, offend Fundamental Rights, Freedoms and Constitutional Principles. This ADPF is also pending of analysis.

According to recent news, it is possible that the Supreme Court will analyze this matter soon, and if the Court decides that the Decree is unconstitutional, Gambling will not be a misdemeanor anymore, and it will be only necessary a new Decree to regulate, or each State can use this to make its own regulation.

CONCLUSION

Although Brazil is experiencing many difficulties because of the COVID-19 pandemic, it is clear that the Country will take all necessary measures to not let the gambling market expectation lower.

Sports Betting will soon be regulated, and other opportunities can be expected in the near future, such as a possible Resort Casino legalization, online gaming, prizes distribution over TV and Radio network, and also the privatizations possibilities.

The Integrated Resort Casinos possibility may also become true via the approval of bill 4.495/2020, especially considering the support this matter has been receiving.

The State Lotteries will also be a very interesting possibility.

Also, the Brazilian Supreme Court may recognize that the prohibition of gambling operations is unconstitutional.

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