The opening of the lottery market in Brazil

There are four types of lotteries in the world: lottery numbers (in Brazil, represented by Mega-Sena, Quina, Lotofácil, Lotomania Dupla Sena and Timemania); the one based on sports prognoses (here Loteca and Lotogol), in which the bet is given by the result of the games; the passive, whose card already comes with predefined numbers (Loteria Federal); and Instant.

In Brazil, federal revenue from these modalities has always fluctuated around 0.2% of GDP, about US$ 3.9 billion in 2016, much lower than what is observed in several countries, where lottery-only less 1% of GDP (US$ 19.6 billion). That is, there is a great growth potential of the lottery market in Brazil.

The instant lottery, whose bets are made by means of a ticket with covered fields that, once scraped, the bettor can win a prize in money, in physical products like cars and computers, or even a combination of both, existed in Brazil, but was discontinued, at the federal level, in 2015. Therefore, there is no operation of this service at the federal level. This happened by determination of the General Comptroller of the Union, which pointed out that there is an inadequate legal instrument for its operationalization. Parallel to this, Federal Law 13,155 / 2015 authorized the Federal Executive Branch to establish the Exclusive Instant Lottery Public Service ( Lotex).

The instant lottery is the second most important in the international lottery market, accounting, on average, for 25% of this market. In Portugal, this modality represents half of the lottery market. There is no doubt that instantaneous is one of the most important lottery products in the world and the Brazilian government expects similar success in Brazil with the resumption of this modality at the federal level. And which is the reason for this expectation by the Brazilian government?

First, Lotex's operating model is in line with the best international practices of lottery operations. In fact, what is observed in the main global markets is that the role of the state in the lottery business is generally limited to regulation. In the operation, its role is as contract manager (outsourcing all the links of the value chain of the lottery operation) or as granting power for the private initiative, which was the option chosen by the federal government in the case of the Lotex concession. Brazil has never operated an instant lottery in any of these ways.

Second, the provision of this public service will be at risk and expense of the concessionaire winning the bidding process, with the absence of any subsidy and / or intervention by the Union in the management of the business, either directly or through its state-owned companies, leaving the total concessionaire fully responsible for enabling Lotex to operate. It is also important to highlight that the Union will be a partner in this success, since it will receive 16.7% of the value of ticket sales, besides the collection of taxes on the concessionaire and income tax on the highest awards.

Third, before 2015, when there was an instant lottery operation in the national territory, the value of the sale of tickets that returned in the form of prizes to the bettor, called the payout, was less than 40% of the total sales value, marketed in about of 13 thousand lottery units. Under the new legal framework, the payout will be 65%, which means higher and / or more frequent prizes, and the sale can be made in other physical and virtual points of sale, reaching more than 65 thousand points of sale, distributed throughout the national territory. This will put Lotex in line with the payout and instant lottery marketing channel observed in other countries.

Given the above characteristics and the entry into the Brazilian market of operators that have been working with this service for many decades in the world, there is no way to look at previous experiences of instant lottery in Brazil to project the future of this lottery in the country. Therefore, Lotex is a completely new project, a greenfield operation in the technical language of the investment plan.

It is also worth mentioning that, for the first time in more than half a century of the existence of lotteries in Brazil, we will have a competitive auction that requires proven experience of the future operating company and which marks the opening of the Brazilian lottery market. There are around twenty-five companies in the world with the potential to participate in the Lotex concession process, which is a service that requires efficient logistics in the confection, distribution and control of ticket security throughout the country, a major challenge for a country with continental dimensions such as Brazil.

A competitive auction with the participation of the largest lottery companies in the world, the minimum grant payment of US$ 276 million, a business plan that signals a growth of more than 30% of the Brazilian lottery market for the next five years and more than doubling it over the next 15 years is undoubtedly an excellent project for the country. This means, among other things, a growth of more than US$ 150 million in the annual budget of the Ministry of Sports until 2022, a growth of 40% over the budget approved this year for this ministry.

Finally, it is worth mentioning that, after more than a year of careful study on the best model for exploring Lotex and several meetings on the subject with different entrepreneurs and researchers in Brazil and abroad, there is no doubt that, from the In view of the public interest of the Union and transparency, the concession of Lotex in auction for a similar period of time as in other countries is the best way for the modernization and growth of lotteries in Brazil, benefiting significantly the investment in sports, as well as in the social security and penitentiary system.

Mansueto Almeida and Alexandre Manoel Angelo da Silva are, respectively, Secretary of Economic Monitoring and Deputy Secretary of Economic Monitoring of the Ministry of Finance.