Why has the Brazilian licence become “problematic”?

Digest of opinions

Brazil is anticipated to announce the final regulations for online betting licences in July, but only one application has been submitted thus far. With the market buzzing since the application window opened on May 21, 2024, the question remains: when will the rest of the requests arrive? The IGB publication delves into this issue.

The opening of the licensing window signifies a significant step towards the legalisation of bookmaking in Brazil, a market that H2 Gambling Capital predicts will reach $9 billion by 2028. Felipe Fraga, director of business at EstrelaBet, believes that operators are holding off on submitting applications until the final rules are published in July, creating a sense of anticipation in the Brazilian market.

Fraga highlights the need for further discussion on important topics related to the licensing process, particularly focusing on the strategies that companies will employ during the regulatory process. EstrelaBet is seeking clarification from the Treasury Department's Prize and Betting Secretariat (SPA) on how to establish a safe and responsible betting market before moving forward with their application.

While waiting for regulatory confirmations, Fraga emphasises the importance of understanding key points and concepts to ensure clarity on the steps required and expected outcomes for a responsible gaming environment in Brazil. Companies that submit their applications within the initial 90-day period ending on August 20, 2024, will receive priority evaluation and assurance of review by January 1, 2025. After this deadline, punitive measures will be taken against operators without a licence.

Monopoly Kaizen in Brazil

At the time of writing, Greek operator Kaizen Gaming is the only operator to apply in Brazil.

Hugo Baumgartner, CEO of Aposta Ganha, notes Kaizen's leading position in the country's grey market. “They want to be first,” he says.

This summer, Kaizen became a sponsor of the Copa America soccer tournament through its Betano brand to strengthen its presence in Latin America. In May, the company also struck a sponsorship deal with Argentina's top soccer league.

Uncertainty and compliance delay the process

In general, Baumgartner anticipates that 20 to 25 operators will seek licences before the deadline in August. He believes that the 90-day window provided by the SPA is adequate for companies to prepare. However, he notes that some smaller operators may struggle with the high licence fee and predicts that the grey market will persist.

Concerns have been raised about the complexity of the application process, potentially causing delays past the 90-day limit. Fabio Ferreira Kujawski, a legal expert, suggests that more time should be allowed due to bureaucratic hurdles. 

There is also confusion regarding the specific requirements for obtaining a betting licence. Kujawski proposes that companies that fail to apply by December 31, 2025 should be considered illegal.

Obstacles to overcome

One of the challenges for licence applicants includes the requirement of a local headquarters or branch with at least 20% ownership by a Brazilian citizen, as well as a financial reserve of BRL5 million on top of the licence fee. The licensing regulation also includes various technical and safety requirements. Baumgartner believes that the upcoming publication of online gaming regulations will be a crucial moment for licence applications, providing clarity on legal offerings. He defends the regulator's thorough demands as necessary for ensuring compliance. Fraga acknowledges the challenges in implementing a legal betting system but warns that delays could harm the industry and the country's potential tax revenue.

Requirements

• To obtain a licence, operators must meet a number of requirements set out in published regulations. These include:
• A licence fee of BRL 30 million must be paid. The licences are valid for five years.
• The operator's headquarters must be located in Brazil.
• Foreign companies must have a local subsidiary in which a Brazilian owns at least 20% of the share capital.
• Bookmakers must have documents confirming the legal right to operate in Brazil.
• Companies are required to submit a declaration of compliance with payment legislation with a certificate from the Central Bank of Brazil.
• A joint certificate is required from the Special Secretariat of Federal Revenue and the Attorney General's Office of the National Treasury for tax purposes.
• All key employees and beneficiaries must have a clean criminal record.
• A document of projected cash flow for the next two fiscal years, signed by the CFO or equivalent.

Early 2025 is the goal of launching

The regulator anticipates the commencement of legal online gambling in Brazil on January 1, 2025, coinciding with the implementation of penalties for unlicensed operators. Udo Seckelmann, the head of gaming and cryptocurrency at Bichara e Motta Advogados, foresees approximately 60 operator applications in the initial phase, with some feeling pressured not to miss the launch. He notes that while some operators may have reservations about entering the market, they are willing to start the application process and assess profitability before making a final decision to continue. Seckelmann predicts that foreign operators will dominate the first wave of applicants, with local operators taking the lead in the second wave. He estimates that around 70% of applicants for bookmaking licences will likely be international companies.

Confidence in Brazil remains

Despite Kujawski, Fraga, and Baumgartner attributing the current lack of applications to the ongoing regulatory rollout, there is optimism in Brazil that there will soon be a surge in licence requests. In January, the Treasury Department revealed that 134 operators, both local and international, had expressed interest in obtaining a licence by complying with preliminary regulations. 

Aposta Ganha plans to submit its application in early August, according to Baumgartner. EstrelaBet, on the other hand, will apply "when the timing is right," as stated by Fraga. Although the industry hasn't seen a rush for licences yet, there is anticipation for a wave of applications once regulations are fully established, marking the end of the arduous journey towards legalisation.