Brazilian market “doomed” unless concessions are made, warns industry lawyer

Brazil’s gambling industry will have to agree on several concessions if the market is to survive, according to legal experts, with the ban on online sports betting and igaming coming into effect on Tuesday, 6 October.

During a panel at the SBC Summit in Lisbon, several industry insiders gave their reaction to the Provisional Measure to ban online gambling ​brought in by President Luiz Inácio Lula da Silva on 25 September. 

​Despite coming into effect today, it must be ratified by Congress within 60 days to remain valid. 

Fellipe Fraga, chief business officer of EstrelaBet parent company Stellar Gaming, remarked on how operators must prepare for the market to change in the wake of the “unfair decision”.  

He said: “That Friday [25 September, when the Provisional Measure was first announced] was one of the saddest days of my life. Not only was it an unfair decision, but we did not understand legally what was going on. However, as an operator, we had to comply.  

“We got everyone online together to hold deposits, control the site and do everything else we had to do to comply with the Provisional Measure. Now is the moment to rethink and consider all the possibilities we’re faced with.   

“We don’t know what’s going to happen next week. Hopefully we’re back to working normally, but we must prepare for and start to think about another market. It’s a pivotal moment for the company.” 

Brazil’s presidential election took place on Sunday, 5 October, with no candidate receiving the required 50% voting threshold to become president in the first round.

The incumbent Lula received 45.16% of the votes, while rival Flávio Bolsonaro received 47.03%. The election will now advance to a second-round run-off on 25 October to determine a definitive winner. 

Bolsonaro has indicated a willingness to allow online sports betting to continue, but not online casino. He labelled the president’s measure “desperate”.

Luiz Felipe Maia, founding partner at law firm MYLaw Advogados, suggested the industry was blindsided despite discussions taking place with the government in the days prior to Lula’s announcement. 

He said: “We can summarise the measure as the worst example of legal stability Brazil could provide to the world.

“It was very hard for clients to understand what was happening – how could the president, in a single stroke of a pen, destroy the entire industry? That’s despite the investments made, all the new jobs created and the government itself sending representatives to industry events to attract companies to Brazil with the expectation for stability for at least five years.

“Five days before the Provisional Measure was published, we already knew something was coming. We had expectations that it wouldn’t be the nuclear option that was taken, but that we would have some restrictions or at least that there would be a transition period.

“Now basically we are underwater, and we need to be able to wait until the wave is fresh and we can go back up and see what is left of the ship. We had 85 licensed operators in Brazil. Out of the 85, I dare say more than 50 were already struggling to survive. I don’t know if they will be able to recover – even if this Provisional Measure is rejected by the Congress or suspended by the courts.

“On its merits, the Provisional Measure should not stand. It should not stand because it was not an urgent matter; it lacks the study of fiscal impact and, when the government said it would not refund the licences, that is against the Brazilian constitution.”

Trade body weighs in

Bernardo Cavalcanti Freire, legal council at Brazil’s National Association of Games and Lotteries (ANJL) confirmed the body is in talks with both Congress and the Brazilian Supreme Court as it seeks to overturn the “completely illegal” measure.

Freire expressed confidence the decision would be reversed in some capacity, arguing President Lula didn’t have the evidence to justify introducing it in the first place.

“We are beginning to discuss the Provisional Measure in Congress, working towards potentially introducing a new regulation,” he said. “We are also discussing with the Brazilian Supreme Court two measures to either suspend the measure or secure an injunction and get the market working again.

“When the Provisional Measure was introduced by President Lula, he didn’t have the technical reasons to do so. When he mentions gambling-related deaths in the population, he doesn’t use data to back it up, he uses studies. Same for when he mentions gambling-related illnesses in the population.

“We have strong reasons to believe we are going to get a good decision, at least to guarantee a transition period in the market. I don’t think this will pass by Congress without some changes being made. What happened is completely illegal, but if we can get an injunction, then all the licences can return automatically.”

Maia also warned industry stakeholders will need to collaborate to make concessions for Brazil’s gaming market in order for it to survive in the long term.

He continued: “In Brazil, what we saw was that the operators and the associations didn’t play a collaborative game. On the contrary – everybody was trying to maximise their own gains, and we have the result right now. For the first time, we are starting to see some collaboration between the associations and the operators now.

“At this stage, we as an industry need to be discussing what we are willing to let go because if we go to Congress now and ask them to keep everything as it was, we’re doomed. We have to give something away.

“Are we willing to have higher standards of responsible gaming? Are we willing to have stronger restrictions on advertising. Are we willing to not allow certain kinds of games that have a very bad perception? This is the kind of discussion we need to have as an industry now if we want to continue.”

Data published by H2 Gambling Capital estimated between BRL20bn (£2.9bn) and BRL30bn would be funelled towards Brazil’s black market should the ban remain in place, while boutique analyst firm Regulus Partners forecast there is an 85% chance the ban will be reversed within the coming weeks or months.