Sports betting process from legalization to regulation in Brazil
Photo: Jornal de Brasília

The world industry is anxiously awaiting the closing of the sports betting regulation phase in Brazil. The process began with the approval of Law No. 13,748/2018, still in the government of President Michel Temer, and should consolidate a gigantic market in the national territory.

All stages of this process were covered in an article signed by Maria Luiza Kurban Jobim (Lawyer Associated with the Office – Internet and Technology) and published on the ConJur portal last Thursday, 2.

The text also mentions the recent amendments introduced by Law No. 14.183/2021, with the aim of making fixed-rate bets economically viable for commercial exploration in Brazil.

According to Maria Luiza Kurban Jobim, there are still some points that deserve due attention from the legislative and regulatory spheres for an adequate structuring of the national sports betting market and in accordance with the best international practices.

Check out the full text below:

Multilevel legalization and regulation: the dilemma of sports betting in Brazil

The recent changes brought by Law No. 14.183/2021 changed key points of Law No. 13.748/2018, in order to make fixed-quote sports betting (AQF) economically viable for commercial exploitation, as provided for in its own creation law (article 29, caput, of Law No. 13.748/2018). There are a number of points, however, no less important, that deserve to be further studied in the legislative and regulatory spheres so that solid assumptions are made, whether in the economic field, or in the social and legal field, for an adequate structuring of the industry.

In this sense, it is necessary, at present, to address issues related to the regime of competences between a general — and a federal — law and the recurrent state legislations that are being disseminated dealing with the matter of lotteries. The issue concerns not only the supposedly material and simultaneous competence of federated entities, but also the necessary differences between the matter reserved for national legislation and that subject to complementation by its further terms by other entities.

The distinction between legislation and regulation in the strict sense is not an easy matter. Also because, being broad, legislation is still a form of regulation. In terms of games, this interlocution is not only adequate but strictly necessary. Sports betting was legalized in national territory as a lottery modality, that is, within the range of options already well known by everyone, such as Mega-Sena, Lotomonia, Loteria Federal etc.

However, unlike other lottery variations, sports betting already has defining elements that significantly impact the legal-regulatory panorama. Pursuant to article 29 of Law No. 13,748/2018, the AQFs, in a very unique way compared to foreign jurisdictions, follow the legal regime (controversial, but maintained and reaffirmed by the STF in a recent decision, including) administrative typical of lotteries, of public service. Public service why? Because, according to minister Barroso himself, they legem habemus. Or, for those who prefer, because yes.

The legal regime of lotteries as a public service dates back to the 30s of the last century and, unlike the typical oscillation that suffered several points related to lottery games, such as the possibility, or not, of delegation to the private; from the principle of coexistence between federal and state lotteries, it remains an inescapable mantra.

And that the doctrine cannot truly explain. In fact, the connection of lotteries as a public service is sui generis because it does not stem from the legal nature of the service itself (and from its respective essentiality per se or social interdependence, as commonly associated with this modality of service. After all, how could they then too modalities of games of chance are characterized, in principle, as a criminal offense if they are so basic to society?), but, yes, in function of their destination.

It is not without reason that, internationally, lotteries are characterized as quasi-public goods. This is because it is their resources that acquire essential character due to their allocation to “good causes”, from social assistance, sports, health, among other areas.

In our case, in a peculiar way, sports betting is also correlated with obtaining resources for the benefit of public safety. In any case, the classification must be compartmentalized within the complexity of the exploration of the public service in formation: what is ruled by the typical public service regime is its correlation with the destination of the proceeds of the collection by the government entity – and not as to its form of exploitation.

Delegation to private parties must be governed by a procedure that safeguards the basic principles of publicity, legality, morality, impersonality and efficiency, whether through concessions or authorizations. However, in the sphere of the private entity, this is not a non-profit practice. The legislation is explicit in this sense: it is about commercial exploitation (article 29, caput, of Law No. 13,748/2018). And, for that, requirements compatible with the profitability and sustainability of the exploration must be dimensioned.

In addition, the same provision also provides for the exclusivity of exploration of the Union, a quality that is incompatible with the subsequent and paradigmatic decision handed down by the STF, in 2020, in the judgment of ADPFs 492 and 493, ADI 4986/MT, which considered not accepted by the new constitutional order, provisions that restrict the economic exploitation of lottery modalities (fixed quota sports betting included here, obviously) by the states. It can be seen that, even in legal matters, the source does not come solely from legislation.

The ad hoc and exceptional (or ordinary) regulation of the Judiciary in matters of games is a constant in our territory. Through the understanding of the STF, an urgent distinction was drawn between legislative competence and administrative (or material) competence. In the first, there is the insertion and admission, by the legal system, of drawing and prognostic systems – in this case, lottery – subject to exploitation. This primary law that was agreed to be the sole responsibility of the Union.

n the second category, as administrative competence, is the form of exploration of the activity, that is, if the competence for both will be exercised in the first place by the interested entity and how it will be (directly, by the entity itself or if indirectly , by delegation to the private, for example, among other elements). It would be like saying that the legislative competence of the states is conditioned to the previous and necessary legislative competence of the Union in the creation of lottery modalities. In any case, the regulatory framework already established by the Federal Government must always be respected. And it is precisely because of these contours that the greatest challenges to be faced in the field of activity regulation will reside, potentially.

What would be, ipso facto, the mandatory regulatory contours in the state panorama (and, although controversial, even municipal, if that’s the case) and to what extent this freedom and autonomy under the cover of what the STF also agreed to call material competence could be exercised? How to ascertain that the material competence of the states will be considered in the online environment?

How to avoid a potential tax war between municipalities from the ISS incident on the activity? By the way, will we have a discussion about the calculation basis extended to other tax charges other than the tax transfers object of Law 14,183/2021? The questions are numerous, as is the challenge of regulating the activity, either generically or strictly speaking.

The situation acquires considerable complexity when one observes that the states are already anticipating in conducting their regulatory and market studies through the process of choosing proposals for expressions of interest (PMI) and operators to explore the activities. Public hearings have already been held and will still be, and a series of inquiries, now reduced to term, still pending elucidation: not only because the answers are not in place, but because, in this environment, there is still a bet on and the rules for so much to agree.

If this was a concurrent competence of the federated entities, the states would exercise additional competence until federal legislation on the matter came to pass, pursuant to article 24, §§1 to 4, of the Federal Constitution, suspending the effectiveness of everything with this state legislation conflicts. Here, in the case of APQs, it is not about supplementation or subsidiarity, but complementarity, respecting the general standards already established (or still to come) of federal legislation.

Several times the Supreme Court has established that the legal regime of lotteries is subject to the exclusive competence of the Union, pursuant to article 22, XX, of the Federal Constitution. With the recent judgment of 2020, the rapporteur Minister Gilmar Mendes also clarified that there was no direct or indirect repeal of Binding Precedent No. 2, since only modalities not authorized by the Union could not be legislated, regulated and explored by federated entities.

At present, between the standard complexity inherent to abstract multilevel legislation and regulation and the asymmetrical reality of current environments built from the territorial bases in formation, the dilemma is posed. Dilemma, which from the Latin dilemma is characterized, in the field of logic, as a “set of two contradictory sentences” and invokes “a situation in which one of two difficult decisions must be taken”. Neither eight nor 80. We are not faced with mutually exclusive competences between the Union and federated entities.

The challenge, then, is to turn the dilemma into a mission—and turn potential contradiction into harmonisation. With this in mind, and in order to make the mission accomplished, and not just given, that regulators, legislators and interested parties know how to consolidate critical points so that they are both: 1) openly discussed at opportune times, such as public hearings and representative class study commissions ; as well as 2) formally incorporated in regulatory instruments — and in formation — with rationality and systematicity. Only then will we have the real substantiation of the regulatory framework that federated entities must pay attention to so that they can, in a harmonious and constructive way, talk.