For a few years now, the gambling market has been experiencing remarkable growth around the world, with more places giving due attention to possible regulation of gambling.

When properly regulated and supervised, the sector is capable of generating jobs, income, economic activity and various opportunities, making it a great differential for countries/states that recognize the potential of gambling.

EXAME recently published an article by Pedro Simões that talks about the regulation of gambling and the large window of opportunity for the segment in Brazil.

Check out the article about gambling in full below

Since 2018, Brazil has legalized the private exploitation of the fixed-odds lottery modality — which corresponds to the concept of bet in English. The legalization of betting is restricted to the sports market, that is, bets that concern real (not simulated) sporting events.

In fixed-odds bets, the bettor has predefined, at the start, not only the conditions of his victory (team A wins with such a score; player B scores so many goals, etc.) but also the multiplication factor of his bet that results at a premium (the fixed share).

The risk involved in this type of bet is not small, but it is largely controllable by general expectations and the knowledge that the bettor has about the sport he decides to bet on, the teams, the players – which is why some call this type of bet about skill games.

Fixed-odds betting can be considered a form of gambling, in general, which corresponds to the broader concept of gamble, in English. The difference between bet and gamble serves to explain, among other things, what has not yet been authorized by Brazilian legislation.

The content of Bill 442/91 — known as PL dos Bingos or PL dos Casinos and with reinvigorated proceedings in Congress — involves gamble, that is, that type of bet whose starting conditions are not given and in which the prize also fluctuates according to the number of gamblers and the amounts wagered, as is the case with bingo or casino games such as roulette — here randomness predominates and this risk cannot be affected by the gambler’s knowledge.

Even legalized in 2018, the fixed-quota bet has not become a local reality because it lacks regulation by the Executive. This one, on the eve of being edited, delayed an obvious recipe. From the moment that Brazil authorized this type of bet, numerous international players began to openly explore the local market, but operating from abroad, that is, the bets take into account the local sports market, but all the money raised reverts in revenue and taxes abroad.

The possibility of the operators — the bookmakers — being nationalized will soon materialize, and some considerations need to be made so that the regulation not only makes the business viable, but also promotes a competitive and socially responsible field, that is, that does not stimulate compulsive gambling addiction behaviors.

As the legal regime introduced by Federal Law No. 13,756/2018 is that of authorization, this means that the Executive Decree that will regulate the sector must describe an exhaustive list of requirements to authorize operators to explore the national market. In fulfilling the requirements, the granting of the authorization must be a linked act, not subject to discretion. Therefore, the content of this Decree must be assertive.

Market expectations and some minutes that have already circulated in public consultations anticipate some points that should be subject to authorization.

Minimum capital and payment for the authorization: a precarious authorization regime should be chosen, this means that the authorization must have a cost and an expiration date, in order to purposely place barriers to the entry of unqualified players. The amount of the authorization payment shall serve as a parameter for estimating the minimum capital that will be required from a Brazilian subsidiary or national company constituted to explore the betting market. It is worth remembering that capital stock is not a guarantee of economic capacity over time, so authorization may also require the regular presentation of financial statements and/or insurance or capital reserves to cover, at least, premium commitments. The control of this cash must follow the logic of gross gaming revenue, that is, the company’s revenue minus the value of the prizes, of which it is merely the custodian;

Technical capacity: the authorization must establish some quality parameter to determine the operator’s technical capacity to: (i) carry out and audit bets in an automated environment; (ii) perform the proper registration and verification of gamblers, especially for the purpose of preventing money laundering; (iii) serve the Brazilian public (gamblers) in Portuguese; (iv) controlling the flow of funds and also evaluating it from the point of view of preventing money laundering.

Governance capacity: in addition to the capital structure points already discussed above, the regulation should point out requirements to segregate betting and premium resources, in addition to establishing minimum controls that allow the regulator to supervise the market in relation to the funding risk, by operators , from the sports teams and teams themselves, in addition to other actors such as judges, coaches, etc., as well as rules for bettors with “insider information”, both people from the betting market itself, and from the sports market. Control of the conflict of interest must be preceded by a governance structure that includes a statutory compliance position, not linked to commercial contributions.

The regulation should also structure limitations to the foreign market, as a strategy to stimulate the link to the domestic market. Here, the biggest risk is that regulation advances in the legal reserve and anticipates or contradicts the content of the PL on gambling, for example.

Certainly, there is still time for the market to carry out initiatives with the Executive to design the best regulatory format, even idealizing an integration with the gambling market, with the aim of nationalizing these revenues, fostering a new and socially responsible market.

*Pedro Simões is coordinator of the Corporate Criminal and Compliance team at Duarte Garcia, Serra Netto e Terra and Educational Director of the Institute for the Prevention of Money Laundering and Combating the Financing of Terrorism (IPLD).