GMB - How do you see the future Brazilian gaming market?
Robert Heller - We see the future for the Brazilian gaming market as being very bright. Brazil has an enormous population and economy, and a recent history of gaming being popular. Additionally, Brazil has many great cities, natural wonders, cultural attractions, and diverse local culture – all appealing to tourists.
Brazil needs the economic stimulus the gaming industry can bring. The challenge in the legalization process seems to be that the legislature is trying to do too much at once so as to please every constituency and, therefore, cannot move any of the initiatives forward. In part, this is because there is conflict over jurisdiction: will this be regulated under national law or state law? Also, there are many types of gambling already active in the country, including state lotteries, Jogo do Bicho and sports/internet gaming hosted in other countries. None of these provide revenues to the Federal government, but will provide competition to prospective future legal gaming operators in Brazil.
We see any of the proposed gaming initiatives working well, but not if they all come on at the same time. There has to be limits on competition for periods of time to assure investors get adequate returns on their investments. There also needs to be a robust regulatory and enforcement regime in place to assure that the gaming operators chosen for licenses are properly qualified by international standards and that gaming operations are undertaken at that same high international standard of probity and transparency. This too needs to be introduced and refined over time or the regulatory and enforcement bodies will become overwhelmed.
We would like to see Brazil start with a limited number of gaming licenses in key cities, whether for casinos or Bingos. This is to be sure that the process of license award is done in a controlled fashion focused on getting the most respected operators involved and maximizing the impact for the country and the locality. Licensees should be selected based on their track records and the amount they are investing in the projects to create jobs and long-term economic impact. This is opposed to granting licenses to anyone that meets minimal operating standards and then pays the most up-front to the government for granting to them the license.
What current presence and what plans does Spectrum have for 2018 in the country?
There are two arms for Spectrum: Spectrum Gaming Capital that arranges joint ventures, and raises capital for developers and operators; and Spectrum Gaming Group, which works with governments and regulators in establishing gaming regimes and regulations, does background investigations and performs economic analysis for both governments and industry participants. Both of our groups assist casino developers.
We have already invested a lot of time and attention into gaming in Brazil. We have been presenting at gaming conferences; meeting with government ministers that are seeking guidance on how to get gaming started and to do it in the best way; meeting with local companies eager to get funding for future gaming businesses or desirous of forming partnerships with international gaming operators; meeting with lawyers and bankers to form strategic alliances; and meeting with other international gaming operators eager to invest and otherwise become involved in the Brazilian gaming market. We prepared a “white paper” on gaming on 15th June 2017 and distributed it to legislators in Brazil, and operators, investors and other key players from the international gaming community. Please click the link to access both the English and Portuguese versions.
We set up a distinct section of our website, www.spectrumgamingcapital.com, dedicated to gaming in Brazil. As the legalization process evolves, we post the facts about the process and our opinion on what is needed to make gaming in Brazil a reality. Each month more people around the world come to our website to see what is going on in Brazil gaming.
We plan to keep doing this in 2018 including presenting at the Brazil Gaming Congress on 22-24th April, in São Paulo, organized by Clarion Events. During that time, we expect to visit prospective casino developers and local financial sources to help educate them on the risks and rewards in the international gaming business and the opportunity in Brazil. Our goal is to be at the forefront of advice and deal making to join the international investment community and gaming industry with prospective developers and operators in Brazil and, of course, with the government.
In the top 10 of gaming trends for 2018 that Spectrum recently published, Brazil is ranked in fourth place with the chance to have up to 35 casinos ... can you expand this concept?
Brazil gaming will be huge. The proposed legislation provides for a major casino in every state and some states with more. This could mean that as many as 35 casinos can be developed with some likely costing a $R3 billion (USD 910 million) or more to build. In Japan, a country with only 60% of the population of Brazil, but with over four times the per capita GDP and a population with a likely higher propensity to gamble, the opportunity to develop just 2 -3 casinos initially is bringing proposals for projects as big as $R35 billion (USD 10.6bn).
The proposed legislation also calls for many hundreds of Bingos (maybe close to 1,000), legalized Jogo do Bicho, sports betting, and Internet gaming. This is a lot of gaming for any country. The regulatory and enforcement infrastructure needed to keep that amount of gaming transparent and honest is massive. So, in the context of business opportunity, tax opportunity and regulatory challenge, this is very big development on the global gaming stage.
Are there possibilities for Spectrum, associated with other companies, to make an offer for LOTEX? What analysis have you done of the Brazilian Instant Lottery to try to get its oncession?
We are very interested in participating in the LOTEX auction as an advisor to one of the bidders and have discussed this with the various participants in the process. We believe that with our long and deep knowledge of deal structuring, financing and best practices in gaming, and leveraging the relationships we have already built in Brazil, we can provide substantial support to a potential Lotex bidder. Additionally, we would like to help in raising the investment capital for the bid.
However, the government’s expectations from the international community for up-front risk taking in the Lotex situation may be too high, especially given the existence of state lottery competition and the prospects for more such competition. We think the government might approach this differently, sharing more in the risk and then sharing more in the reward if the project should be successful.
How do you see the process of legalization in Brazil? Do you think it is closer than other times to be approved? Do you know the projects?
We are optimistic about a gaming law being passed in 2018 and we will be active in Brazil on that assumption. We understand part of the government wants to have the regulatory process further organized and established before granting casino licenses and we think this is a very good idea. We also think the granting of licenses should be done in a step fashion to enable a controlled process that will allow a newly organized licensing body to be careful and deliberate in their evaluation of prospective licensees. If the government wishes to allow the opening of Bingos as well as casinos, then the impact of one on the other needs to be taken into account as both are rolled out.
How much does the international gaming community consult with Spectrum about the Brazilian market?
The international gaming companies and the investment community see Brazil as the next big “prize” in gaming development, after Japan. We have been speaking with most of our client base about this topic and they share our enthusiasm.
However, as all these companies are used to working under extremely tight regulation, they are greatly concerned about Brazil’s ability to provide a business environment in which they can operate and satisfy the regulators of their home countries. Gaming regulators in the US and the world-over mandate that gaming companies follow strict guidelines in business practices, and the regulators can withdraw licensure in the home country for infractions in other countries of certain home market operating rules. As a result, an international operator’s entire business can be jeopardized by the company’s activities in Brazil.
Do you imagine complications when it comes to regulating and combating illegal gambling in the country once the law is approved?
Regulation of gaming is only half the picture – enforcement of gaming laws is just as important. Both elements are needed to protect the populace from cheating, to assure stable businesses, and to assure proper tax payments to the jurisdiction in which casinos operate. The specially trained enforcement arm of government needs to investigate and prosecute violations of gaming law. Gaming is a big business, operated with cash; as a result, complications cannot be avoided. But they can be planned for and an infrastructure built to protect the participants and beneficiaries.
Gaming is growing rapidly around the world, in terms of social acceptability, as a form of legitimate entertainment. But to facilitate that, requires tremendous planning, and tireless commitment to the highest standards and controls.
According to your vision, where is the gaming industry pointing in the upcoming years?
The gaming industry will continue its robust growth trajectory. It will come to new jurisdictions seeking economic benefit, tax revenues and a desire to prevent illegal activities; we will see larger entertainment facilities in the jurisdictions that allow gaming; there will be expansion of digital forms of gaming and more connectivity with sports. We will also see ever-larger conglomerates owning the gaming facilities to achieve lower costs, economies of scale and greater professionalization of the business.
Spectrum Gaming Capital and our sister company, Spectrum Gaming Group, look forward to continuing to be facilitators of this growth on behalf of governments, developers, operators and investors.
Source: Exclusive GMB