Legal sports betting, both offline and over the internet, took a step towards becoming reality in Brazil on Wednesday, Nov. 7, 2018, when a joint committee of the Brazilian National Congress (photo) approved Provisional Measure 846/2018. Before it’s enacted into law, the bill will still have to be passed by both houses of the Congress: the Chamber of Deputies and the Senate.

About Provisional Measure 846/2018
The piece of legislation is mostly concerned with the national lottery and how to divvy up the proceeds from it. However, section V of the legislation deals with “Fixed Odds Bets,” and this is where we find the new sports betting proposals.

The Department of Finance would oversee the new industry, and the department will have two years from the passage of the bill to promulgate regulations pertaining to sports betting. The text calls for a “competitive environment,” which sounds like it’s talking about private-sector entities rather than envisioning sportsbooks run by the national government or the states.

Brick-and-mortar enterprises allowing customers to bet on sports would have to return back 80% of their total handle to the bettors, including taxes on the winnings. Another 4% would go to support groups responsible for certain socially beneficial programs, like public security and education. Interestingly, a further 2% would go to the sporting clubs allowing the use of their logos and likenesses in promoting sports betting. Brazil is thus establishing what basically amounts to an integrity fee: a surcharge which has been politically contentious in the United States but that apparently doesn’t raise many eyebrows in the Land of Samba. After all of these payments are accounted for, the operator would be left with a margin of no more than 14%.

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Online sportsbooks would have to comply with even stricter requirements. They would be mandated to pay out at least 89% in taxes and winnings with a further 2% going toward the same public groups described above and 1% for the sports teams. This would leave a gross margin of 8% for the bookie.

Because of the rules surrounding Provisional Measures in the Brazilian legislature, this bill must be passed by Nov. 28, or else it will expire with no effect.

Market Potential
Brazil is home to more than 210 million people, with around 198 million smartphones in circulation. Nevertheless, there are very few legal outlets for people to gamble. The national lottery and pari-mutuel horse racing are the only legitimate options although the racetracks are allowed to have limited slot machine and table gaming. Additionally, there are widespread unlicensed bingo and slot parlors throughout the land.

Poker is a special case as it’s viewed as a sporting activity. Thus, poker associations are allowed to offer games without violating the strict anti-gambling laws that might otherwise apply.

According to a report by the Brazilian Legal Gaming Institute, citizens of the country spend a whopping R$20 billion ($5.4 billion) per year on illegal gambling. It’s understandable that the authorities would like to capture their share of this lucrative pool of money, both through business taxes on the operators and individual income tax on the winning bettors. In addition, global casino groups have expressed interest in building casino development if the bill passes. This includes Las Vegas Sands, which said that it would be consider investing $8 billion in a casino based in Rio de Janeiro.

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Brazil is a mostly Catholic country, with many people staunchly against gambling. This has led some analysts to conclude that President Jair Bolsonaro may decide to allow the country’s 26 states to decide whether to legalize newer types of gambling in their own jurisdictions, rather than pursue legislation on a national level.

Taxes Too High?
However, the strict requirements on how much bookmakers must pay out and to whom might doom this gambling expansion to failure or, at best, only partial success. Leaving aside the minimum return-to-bettor percentages for the moment, B&M bookies will face what amounts to a 6% tax on handle while their online brethren must fork over 3%. This is pretty high – just look at the outcry generated when Ireland upped its betting tax to just 2% of turnover.

It’s important to realize that, when converted to roughly equivalent imposts on gross gaming revenue (GGR), the effective rates of taxation turn out to be much higher than the single-digit figures might imply. For instance, in the case of physical bookmaking locations, they can retain a maximum of 20% of turnover after settling wins, and they then have to pay 6% to the various groups and sports clubs: an effective rate of 30% of GGR. The corresponding figure for internet sportsbooks is 27%.

Even if this financial model proves ultimately sustainable, it will likely be so only for the largest of operators. Mom-and-pop betting shops would be out of the question.

Brazil’s Political and Economic Situation
Providing further impetus to the legalization of sports betting are Brazil’s financial woes. Hard hit by a recession in 2014, the country only started to recover in 2017, and this uptick in its fortunes is proceeding slowly. Unemployment stands at nearly 12% while the government debt load is estimated at around 80% of GDP. The situation is so dire that outgoing Finance Minister Eduardo Guardia said in an interview with the Financial Times that if structural changes are not made soon, “It will be a bumpy road and a short one, because they do not have much time.” Incoming President Jair Bolsonaro is known to be a foe of gambling. Responding to rumors that he intended to legalize casinos, he responded:

“This is unbelievable: Now I am supposedly legalizing casinos in Brazil. Me? No one could believe such nonsense! We know that if casinos were allowed here, they would be used as a money-laundering tool. Also, they would be detrimental to Brazilian homes, as many people give themselves away to gambling addiction, causing major family chaos.”
Thus, the new president could take steps to block the introduction of legalized sports betting in Brazil. However, the fact that huge sums are now going to gray-market operations may incline him toward the view that regulation is the lesser of two evils. Bolsonaro must also consider his country’s financial straits and the need to raise revenue by any practical means available.

This article is a reprint from OnlinePoker.net.  To view the original story and comment, click here.