Overview of Brazil’s New Sports Betting Regulation

April 16, 2024 | Legislature

BRAZIL (April 15, 2024) — Comprehensive overview of Brazil’s sports betting regulation under Law No. 14,790 offering insights into the legal, operational, and consumer protection aspects that define the new landscape. As the industry moves forward, it will be fascinating to watch how Brazil leverages this regulatory framework to cultivate a responsible and thriving sports betting market.

Introduction To Brazil’s Sports Betting Landscape

Brazil’s sports betting landscape has transformed, propelled by significant legal developments. Historically, the country’s stance on sports betting was characterized by stringent restrictions. However, recent legislative changes have paved the way for a regulated betting environment, notably marked by the enactment of Law No. 13,756 in 2018 and further solidified by Law No. 14,790 in December 2023. These laws represent a paradigm shift from a largely unregulated betting landscape to a structured legal framework.

The introduction of Law No. 13,756 was a foundational step, recognizing fixed-odds betting as a legal form of gambling, thus breaking away from decades of prohibitive gambling policies. This law laid the groundwork for developing a regulated sports betting market, acknowledging the potential economic benefits and the need for a controlled environment to safeguard the interests of all stakeholders.

Law No. 14,790, enacted in December 2023, was a landmark moment, establishing a comprehensive regulatory framework for sports betting in Brazil. This law detailed the operational, financial, and legal requisites for sports betting operators, signifying the government’s commitment to creating a robust and sustainable betting industry. It addressed key aspects like licensing, tax obligations, consumer protection, and responsible advertising, ensuring a balanced approach to regulation.

These legal reforms have opened a new chapter in Brazil’s sports betting narrative, positioning the country as a burgeoning market in the global sports betting industry. The shift towards regulation reflects a changing societal perspective towards gambling. It highlights Brazil’s strategic move to tap into the economic potential of sports betting while ensuring ethical practices and consumer protection.

TYPES OF PERMITTED GAMING AND BETTING

Brazil’s Law No. 14,790 introduces specific guidelines for gaming and betting activities that are legally permissible. This clarity is pivotal for operators to align their offerings with legal standards and for bettors to understand their legal options.

Fixed-Odds Betting: The law’s centerpiece is the legalization of fixed-odds sports betting. This form of betting, where odds are agreed upon at the time of the wager and do not change, is now formally recognized and regulated. It includes a range of sports, allowing bettors to place bets on the outcomes of various sporting events with predetermined odds.
Online Gaming: It is important to note that the new law does not encompass all forms of gambling. For instance, casinos and virtual gaming platforms must only be offered online. This decision reflects a cautious approach by Brazilian lawmakers to limit the potential social harms associated with more addictive forms of gambling.
Fantasy Sports: Another significant inclusion is fantasy sports betting, which has gained popularity globally. Participants create virtual teams based on real players and score points based on these players’ actual performance in sports events. This type of betting combines skill and knowledge of the sport, offering an alternative to traditional sports betting.

The law’s current scope primarily focuses on sports-related betting activities. However, there is potential for future expansion as the market evolves and matures. Any such expansions would be subject to additional legislative processes and regulatory oversight to ensure continued alignment with Brazil’s commitment to responsible gambling and consumer protection.

LEGAL AND OPERATIONAL REQUIREMENTS FOR OPERATORS

Entering Brazil’s regulated sports betting market necessitates a thorough understanding of the legal and operational prerequisites defined by Law No. 14,790. The law outlines stringent conditions for obtaining and maintaining a sports betting operation license, ensuring market integrity and participant protection.

Licensing Process and RequirementsThe cornerstone of legal compliance in Brazil’s sports betting industry is obtaining a valid license from the Ministry of Finance. Operators must demonstrate an unblemished legal record and adhere to Brazilian and international laws. This process involves submitting a detailed business proposal outlining operational strategies, financial projections, and commitment to responsible gambling practices.A pivotal requirement is that at least 20% of the operator’s share capital must be held by a Brazilian national or a legal entity based in Brazil. This ensures a degree of local investment and interest in the ethical management of betting activities.
Financial Stability and CapabilityTo engage in the Brazilian sports betting market, financial robustness is essential. Operators must pay a non-transferable application fee, which currently stands at a maximum of R$30 million. This fee and the mandate that licenses must span at least three years indicate the significant capital investment needed for market entry.Operators are also subject to a 12% gross gaming revenue (GGR) tax, independent of other corporate taxes. This financial burden necessitates a careful balance in pricing and payout strategies to maintain profitability while remaining competitive.
Compliance with Technical and Cybersecurity StandardsIn today’s digital age, robust technical and cybersecurity measures are non-negotiable. Operators must ensure the integrity of betting activities and safeguard user data through sophisticated systems. These systems must be certified for compliance by accredited institutions. The requirement extends to user verification processes, including Know Your Customer (KYC) protocols, to prevent underage gambling and ensure legal participation.For global operators, compliance doesn’t end with Brazilian laws. They must ensure that their practices in Brazil are harmonious with regulations in other jurisdictions where they operate, such as GDPR for European users. Adherence to international standards showcases an operator’s commitment to global best practices and enhances their credibility in the Brazilian market.The robust framework reflects Brazil’s commitment to establishing a regulated, sustainable, and ethical sports betting environment. For operators, the journey to market entry in Brazil demands meticulous planning and unwavering adherence to these comprehensive regulations.

MARKETING AND ADVERTISING IN THE NEW REGULATORY FRAMEWORK

The evolution of Brazil’s sports betting landscape with Law No. 14,790 brings a revised set of guidelines for marketing and advertising. This legislation, aligned with the rules governed by the Brazilian Council for Self-Regulation in Advertising (CONAR), aims to balance commercial interests with social responsibility, ensuring the ethical promotion of betting activities, emphasizing responsible advertising and consumer protection.

Under the new legislation, advertising content for sports betting must adhere to principles of responsible gambling. This includes avoiding the idea that betting is a guaranteed way to financial success, a change of life, or an alternative to regular income. Advertisements must not create unrealistic expectations about the nature of gambling or misrepresent the risks involved.

The law also mandates clear identification of betting advertisements, particularly on social media, where influencers often blur the lines between promotional content and personal opinions. Ads must not target minors or vulnerable groups, aligning with the broader objective of protecting susceptible demographics from gambling content.

The Role of CONAR in Regulating Advertisements

CONAR’s Annex “X” to the Brazilian Code of Advertising Self-Regulation complements the legal framework, providing detailed guidelines on the ethical boundaries for betting service promotions. It enforces content restrictions, dictates platform usage, and clarifies sponsorship deals. The intent is to guide marketing agencies, digital influencers, and the sports community to promotional activities while safeguarding consumers from potential exploitation or harm.

Platforms with audiences of minor consumers, such as betting websites, including when promoted by influencers on social media, are prohibited from hosting betting advertisements targeting or accessible to underage consumers. Furthermore, betting platforms and social media must employ age-restriction mechanisms on their digital platforms to prevent underage exposure to betting and gambling content.

The regulatory framework also impacts sponsorship deals between sports clubs/entities and betting companies. These partnerships must be transparent and not encourage irresponsible gambling behaviors. Sports clubs/entities holding influence and social responsibility, especially towards younger fans, must ensure that their messaging around betting remains cautious and ethical.

Brazilian sports clubs can benefit financially from these partnerships but must also navigate these relationships within the regulatory boundaries, ensuring transparency and compliance. The partnerships should focus on enhancing fan engagement and generating new revenue streams while promoting safe and responsible gambling. This includes ensuring that sponsored content does not overshadow the nature of sporting events and maintaining the integrity of sports as entertainment.

Non-adherence to these advertising guidelines can result in severe penalties. Companies that were found violating advertising regulations may face fines, suspension of operations, or revocation of their license. This strict enforcement underscores the government’s commitment to maintaining a responsible and ethical betting environment.

CONSUMER PROTECTION MEASURES

A key aspect of Brazil’s Law No. 14,790 is the strict enforcement of age restrictions and identity verification to ensure responsible gambling practices. These measures are critical in protecting minors and maintaining the betting industry’s integrity.

In line with global standards, the legal age for participating in sports betting activities in Brazil is set at 18 years. This age limit is crucial to safeguard young individuals from the potential risks associated with gambling, including financial irresponsibility and addiction.

Operators are mandated to implement robust systems for verifying the identity and age of their customers. This verification process, often part of the Know Your Customer (KYC) procedures, is essential in ensuring that all bettors meet the legal age requirement. Such systems are a frontline defense in preventing underage individuals from accessing sports betting platforms.

These measures are not only a legal requirement but also represent a commitment to ethical practices within the industry. By enforcing these rules, operators also create a safer and more responsible betting environment.

Ensuring Safe and Responsible Betting Brazil’s sports betting regulations under Law No. 14,790 place significant emphasis on consumer protection. These measures aim to foster responsible gambling and safeguard bettors from potential risks associated with betting.

Self-Exclusion Programs: One of the critical components of consumer protection is the provision of self-exclusion programs. These programs allow bettors who feel at risk of developing gambling problems to voluntarily exclude themselves from betting services for a specified period. Operators must honor these self-exclusions by preventing access to their platforms during the exclusion period and refraining from sending marketing communications to self-excluded individuals.
Betting Limits: To further promote responsible betting behavior, Brazil’s sports betting regulations include mechanisms to impose limits on the amounts that can be wagered. Operators are required to set maximum and minimum stake limits, helping to prevent consumers from engaging in risky betting behaviors that could lead to financial distress. This approach aligns with global responsible gambling practices, ensuring a safer betting environment.
Promoting Responsible Gambling Behaviors: Operators are also tasked with actively promoting responsible gambling behaviors. This involves providing clear information about the risks associated with betting, including financial implications and the potential for addiction. It is crucial for betting terms and conditions to be transparent and easily understandable, aiding bettors in making informed decisions.

Moreover, operators must include warning signs of problematic gambling on their platforms and offer resources for those who may need assistance with gambling-related issues. This commitment to responsible gambling is essential for creating a betting environment that prioritizes consumer welfare and the integrity of the sports betting industry.

TAX RATES AND OPERATOR FEES

Taxes on OperatorsA critical component of Brazil’s sports betting regulatory framework involves the taxation and fees applicable to operators and bettors. Law No. 14,790 establishes specific financial obligations for participants in the sports betting market, influencing the industry’s economic dynamics.Brazilian sports betting market operators are subject to a 12% tax on their gross gaming revenue (GGR). This tax is in addition to standard corporate taxes applicable to all businesses in Brazil. These include corporate income tax (IRPJ), social contribution on net profits (CSLL), contributions to the Social Integration Program (PIS), contribution to the Financing of Social Security (COFINS), and the Service Tax (ISS). The cumulative tax burden requires operators to strategically manage their pricing and payout approaches to remain profitable while being compliant.
Tax on Bettors’ WinningsBettors are also subject to taxation under the new law. A 15% tax is levied on net prizes from fixed-odds and fantasy sports bets. This delineation between operator and player tax rates aims to balance the revenue share for the state and allow bettors to enjoy their winnings without prohibitive taxation.

Inspection Fee and Deadline for Winnings

Operators must also consider the inspection fee associated with regulatory compliance. This fee and the taxes mentioned above form part of the broader financial framework governing the sports betting market in Brazil. Additionally, operators must adhere to specific deadlines for disbursing bet winnings, ensuring timely payouts to successful bettors.

Tax considerations also play a significant role in mergers and acquisitions (M&A) and in establishing local entities in Brazil. Operators looking to enter the market through these channels must navigate the intricate tax-related aspects to ensure compliance and financial viability.

These tax rates and operator fees not only contribute to the Brazilian government’s revenue but also shape the sports betting industry’s growth and the level of market competition. Understanding and adhering to these financial obligations is crucial for operators aiming to capitalize on the opportunities within Brazil’s promising sports betting market.

RESTRICTIONS AND PENALTIES FOR NON-COMPLIANCE

The enforcement of Law No. 14,790 in Brazil includes strict restrictions and penalties for non-compliance, underscoring the seriousness with which the country views the regulation of its sports betting industry.

The law imposes specific restrictions on betting-related transactions to maintain the integrity of sports and the betting industry. These restrictions are designed to prevent practices such as money laundering and fraud, ensuring that all betting activities are conducted transparently and ethically. Operators must adhere to stringent anti-money laundering (AML) and counter-financing of terrorism (CFT) protocols as part of their operational standards.

Non-compliance with the legal and operational requirements outlined in Law No. 14,790 carries substantial penalties. These can range from hefty fines to the revocation of licenses, depending on the severity and nature of the violation. The stringent penalty regime serves as a deterrent against malpractices in the sports betting industry and ensures that operators conduct their businesses responsibly and within the legal framework.

Financial institutions authorized by the Central Bank of Brazil (BC) must adjust their operations to comply with the new regulations within a specified deadline. This includes implementing measures to monitor and report betting-related transactions that fall under the purview of the new law. Failure to meet these requirements within the stipulated timeframe can result in sanctions and penalties, emphasizing the need for all stakeholders in the financial sector to align their operations with the new legal landscape promptly.

The robust framework of restrictions and penalties is integral to maintaining the integrity and trustworthiness of Brazil’s sports betting market. It ensures that operators, financial institutions, and other stakeholders adhere to the highest standards of conduct, contributing to a healthy and sustainable betting environment.

CONCLUSION

Law No. 14,790 represents a watershed moment for Brazil’s sports betting industry, setting the stage for a future marked by growth, innovation, and regulatory challenges. This legislation not only legalizes and regulates sports betting but also opens the door for significant economic opportunities and enhanced consumer protection measures.

With the formal introduction of a regulated sports betting market, Brazil positions itself as a lucrative destination for both domestic and international operators. The expected surge in legal betting activities promises to increase tax revenue, generate employment, and attract foreign investment. This economic boon, however, comes with the responsibility of maintaining a balanced approach that fosters industry growth while ensuring social welfare.

A cornerstone of the new regulatory framework is its emphasis on consumer protection. Measures such as age restrictions, self-exclusion programs, and limits on betting amounts showcase Brazil’s commitment to promoting responsible gambling. As the market evolves, ongoing efforts will be necessary to educate bettors and enforce these protective measures effectively.

International interest in Brazil’s market is high, given the country’s robust passion for sports and a vibrant consumer base. Foreign investment and expertise could be a boon, introducing global best practices and innovative gaming technologies. However, international operators must contend with local customer preferences and a unique regulatory landscape that may differ from other jurisdictions.

As a result, partnerships between local companies and international entities might serve as a strategic gateway for market entry, combining local insights with global expertise. Such collaborations could drive market growth and ensure the integration of international standards within the Brazilian context.

The future success of Brazil’s sports betting industry hinges on the ability of operators and regulators to navigate the complex landscape of legal and operational requirements. The dynamic nature of the industry, coupled with technological advancements, will likely pose regulatory challenges. Adapting to these changes while maintaining the market’s integrity will be crucial.

As Brazil embarks on this new chapter in its sports betting saga, the potential for growth and innovation is immense. However, the accurate measure of success will lie in balancing economic opportunities with the imperative to protect consumers and uphold the integrity of sports. The journey ahead will require collaboration, adaptability, and a steadfast commitment to responsible gambling principles. With strategic oversight and continuous refinement of regulations, Brazil’s sports betting industry can achieve a sustainable and prosperous future.

Companies aiming to penetrate the Brazilian sports betting market are tasked with navigating a complex matrix of legal, financial, and operational requirements. The path to authorization is paved with rigorous checks and balances designed to ensure the industry’s integrity and sustainability. By meeting these stipulations, operators can unlock the potential of Brazil’s dynamic and promising sports betting landscape.

Author: Thiago Nicacio Lima

SOURCES: Meritas / Lexology