“Only a transparent regulatory process can legitimize the gaming industry in Brazil”

Captain Kip Peterson is Founder and CEO of Thorsborg Institute LLC, a global consultant serving governments, private/public corporations and developmental organizations in 100 countries since 1979 providing research and intelligence analysis. He will be part of next BgC edition taking part in the sesión "Sports Betting - opportunities offedered by the provisional measure by the Ministry of Finance”.

What are your expectations regarding next BgC edition?
I hope to start a very serious conversation on HOW to get this process going. We have heard "would of, could of, should of” of the opportunities of the largest potential gaming market in the non-Islamic world for years…nothing has happened. With the other major political activities in Brazil with the retirement age issue, the budget and the various corruption trials/investigations and faced with an election in 2018, I am not as bullish that Brazil will get this going in the next 6 months as it could lost in the midst of the politics. It is a shame the law/regulations wasn’t enacted three years ago!

Which are the opportunities that the legalization of sports betting can bring to Brazil?
There are several financial and societal benefits.

FINANCIAL
The legalization of sports betting will generate taxation of the employees working for the bookmaker, taxation of the operations of the bookmakers. This is a benefit for the government, but it does require efficient honest enforcement by the appropriate law enforcement officials as heretofore the players who bet in small local operations and/or on the internet do not pay taxes and many keep their winnings outside of the Brazilian jurisdiction. The game Jogo do Bicho is an example of illegality on steroids that will be a significant obstacle to overcome. Current illegal sports betting in Brazil operates in similar manner to the other illegal activities and there have to have sufficient penalties to the illegal operators to diminish their influence. Brazil in in the midst of major corruption investigations and the conversation of cleaning up the vast illegal networks will require significant political will. To do nothing will augment the illegality that has permeated and disappointed the majority of Brazilian society.

An even more important financial aspect is the potential to increase the amount of disposable income to the winning players who will purchase goods and services from their winnings, which will an overall positive financial effect.

SOCIETAL
The societal impact will be the LAWFUL employment of the sports betting operations. There is no way to completely eliminate illegal gambling, but the emergence of a legal/authorized operator will bring a more ordered market as the players will be able to know that if there is a problem, they have the government law enforcement authorities to assist them if there is a dispute and/or fraud by an operator.
Legal gaming activities also are by definition fair and equitable so the potential for official corruption is diminished by the transparency involved in legitimate gaming operators. Records are auditable and the society will know that every bet has an equal opportunity to win if the outcome of the event is a winning bet.

Did you work with CAIXA FEDERAL on sports betting market for Brazil?
Yes, I was the sector expert for study that CAIXA FEDERAL commissioned on all gaming in Brazil. Sports’ betting was one of the topics investigated, as it is one of the fastest growing gaming activities in the global gaming industry.

Is Brazil really interested in legalizing the activity? What are the possibilities?
That is a question for the politicians. The populace wants fair, honest and entertaining games of chance, but the reality is that the illegal operators are certainly insuring their operations from interference by gratuities made to those who could interfere with the illegal activities. These gratuities are vast and involve significant personages on many different socio-economic levels.
Indicators of the conflict between good and evil is evidenced by the many drafts of laws, regulations and orders that have been developed in the past five plus years in the Brazilian Congress and almost voted on and then only to be delayed or removed by disgruntled politicians at the last moment. It is an axiom in politics that stopping legislation is infinitely easier that passing legislation.
Transparency in the regulatory process is the only way to pass any meaningful legislations or reglaments to achieve a legitimate gaming industry in Brazil.

Can you estimate the size of the current online sports betting market in Brazil? How can it grow once the activity is regulated?
That was one of the many debates in the CAIXA FEDERAL report, who also wanted to know what was the tax revenue lost by illegal gambling. Estimations with logical assumptions could be made, but experience has shown me that any "number” given will become set in stone even if it is merely an assumption.
What I do know, is that if the target for the LEGAL sports betting should be set as a percentage of the illegal betting. Government agencies tend to make optimistic views and projections that have little basis in fact, and the legitimate sports betting industry in Brazil needs to be started in a reasonable and rational basis. Outrageous fees and regulations will doom the attempt to legitimize the industry.
The legal sports betting system will grow if operated by an honest and perceptive operator (Fyi -it must be a global sports betting operator, as there is no organization at this time in Brazil that can has the experience moreover an ability to operate in this global instantaneous real-time business). Global operators have the ability to work in the global betting community and offer virtually all events that are conducive to betting which will augment the options for the players.

How can Brazil migrate current model to a future legal one?
Political will of the Congress and the Executive Branch. The perfect analogy for Brazil to legalize this massive corruption is the case of Prohibition that was implemented in the USA in the 1920’s. The American Government tried to legislate public morality by banning the sale of all alcohol products.
This is an identical case to the prior military Government of Brazil banning all gambling within Brazil many decades ago. In the USA case, criminals took over the manufacturer, distribution and sale of illegal products. In fact it gave birth to organize crime that still influences the USA today. When the population voted the prohibition out, a process started to convert the illegal operations into legitimate firms. A moratorium stated that gave the illegal operators a finite time to get licenses and become legitimate. If the illegal operators decided not to follow the process, the penalties were criminal and severe. It took years and yes, there are still illegal alcohol manufacturers/bars; but these criminals are caught and pay the penalties in jail/fines. One of the main points of the conversion from illegal-to-legal was an amnesty for "past taxes that were lost during the period of illegality”.
This is essential for the conversion of illegal to legal for gaming in Brazil; as there are many in government who will want to look backward after an illegal operator becomes legit, and tried to extrapolate the reported legitimate revenue backwards to collect "back taxes”. Without this amnesty, it will be almost impossible to create a legitimate gaming climate in Brazil.

Is there any international regulated market that could be the right one to imitate in Brazil?
There are several models to consider when the realistic laws/regulations are finally passed. First, there must be a concession to a global operator… and the fee should be reasonable and structured as a joint venture for the government to benefit as the operator grows the business. A major industry concern is that the Brazilian Congress will pass laws/regulations in a vacuum that will result in unworkable terms and unrealistic expectations.

As for models to look at:

- I was involved in the start of sports betting in Turkey, which has been a significant success as it started from scratch and competed successfully with the on-line operators in a jurisdiction with significant religious issues.

- The star of recent governmental involvement is the Taiwan sports betting model, which has a competitive payout and has grown from a disappointing start with an initial vendor to a current revenue basis in the hundreds of millions.

- The success of a new vendor in the State of Nevada has yielded market share around half of the sports betting market in Nevada by utilizing technology advancements

How long do you think can take to define and implement a regulation model for the Brazilian sports betting market
With a concentrated effort with international industry experts assisting as the knowledge base for legitimate operations necessitates a global perspective, then a comprehensive model could be developed/constructed in six to nine months. The law and the regulations need to be realistic and completely transparent to augment the legitimacy of the process. Then the Brazilian Congress gets it and I have no earthly idea on the time needed to pass this legislation. One significant consideration is that the Brazilian Government is looking to receive revenue from gaming as soon as possible. The best way is to have legislation separated for several different aspects of gaming because of the very different periods needed to get the specific gaming activities in operation. The list of gaming products getting operational the fastest are as follows:

- Sports betting would be the fastest to get operational, as it should be a global concession operator that can launch the process on-line and in retail outlets.

- The privatization of the National lottery should also be given to an established concession operator as the systems and programs could augment the existing sales of products as the sector morphs into a global level operation.