JUE 28 DE MARZO DE 2024 - 20:25hs.
Alexandre Manoel, SEFEL secretary

What is the future of the lottery market in Brazil?

Alexandre Manoel, Secretary of Fiscal Monitoring, Energy and Lottery (Sefel) wrote an opinion column for Valor Econômico newspaper about the future of the lottery market in Brazil. In his analysis, he states that the modalities operated exclusively by Caixa did not have structural growth and talks about sports betting, the LOTEX concession, the unification of the payouts and the PM 846.

In Brazil, the only legalized betting game is the lottery. This exception is justified by its social purpose, materialized in the allocation of a portion of its sales to some governmental area, making it a public service. Such allocation is a way of compensating society for possible negative externalities.

By legal construction, the amount of sales of a lottery is divided into three parts: i) percentage "x" for the government; ii) percentage "y" to the operator who manages the lottery; iii) percentage "z", to the prize payout, so that: x + y + z = 100%. Caixa, for example, operates the federal lotteries.

Given that the government has an "x" percentage of sales, it naturally becomes a "partner" of any lottery. Thus, the performance of the lottery products is of direct interest to the government. In fact, the larger the amount of lottery sales, the larger the amount destined to finance some area of government.

The current management of the Ministry of Finance (MF) understood how strategic this "partner" is. In addition, it was inferred that the lotteries operated exclusively by Caixa have, historically, 0.2% of GDP (US$ 3.1 billion in 2017), with a distribution of 0.08% of GDP (US$ 1.34 billion in 2017) for the government, without showing any structural growth over time.

Therefore, it diagnosed the reason for this paralysis in the sales, in order to take measures to improve the performance of the lottery collection, contributing, even, to the fiscal adjustment in course. There were three problems diagnosed: i) sector based on a state monopoly; (ii) confusing legal framework; iii) absence of two lottery modalities, considering the four existing ones, according to the World Lottery Association (WLA), the world's leading lottery regulator.

In fact, according to the WLA, there are four lottery types: i) Numeric Prognostics - whose products the bettor tries to predict which numbers will be drawn (eg Mega-Sena, Lucky Day, Quina, Lotofácil, Lotomania, Double Seine, Timemania and Lottery Federal); ii) Instant - shows immediately by scraping a virtual or physical coupon, whether or not the bettor has been awarded a prize; iii) Sports betting ("pari-mutuel"); and iv) Sports betting (“fixed odds”).

Sports betting are those in which the bettor tries to predict the result of sports games, existing in the formats "pari-mutuel" (ex: Loteca and Lotogol) and "fixed odds" (fixed quota, according to Brazilian translation). In this, when the bet is made, the bettor already knows the prize which will be worth for each real bet effectively; in that, the bettor's gain is only known when finalized the sporting events.

In Brazil, therefore, only two modalities are operational: Numeric Prognosis and Sports Betting in the "pari-mutuel" format.

In view of the importance of prospecting larger lottery revenues, considering the expansion of resources for government areas, the Ministry of Finance prescribed the following remedies to combat the problems diagnosed: opening the lottery market to competition, structuring of its legal framework and implementation of the two missing lottery modalities.

Initially, it was decided to grant Lotex, the second most important lottery mode in the world, to the private sector - it represents, on average, 25% of the world market. With this, the competition between the instant lottery and the other lottery modalities is expected, providing a competitive scenario for the Brazilian lottery sector, with more innovation, employment and income.

In relation to the confused legal framework, the MF articulated with the interested government areas (Public Safety, Sport and Culture) the edition of Provisional Measure 846, promulgated on August 1, 2018 and approved in the National Congress at the end of November. This MP standardizes in a single legal framework the distribution of resources, previously diffused and scattered in fifteen legal regulations.

By unifying the legislation, MP 846 remedied a deficiency in the legal framework, which had a nominal sum ranging from 104.5% to 115% in the distribution of lottery revenues. It was necessary to make a rule of three to reach 100% of the resources actually distributed.

In addition, the spread of legislation obscured the notion of trade-off for parliamentarians and society as a whole, because it was possible that resources were destined to some area of government without realizing that it would be reducing the portion destined to the other. In addition, the confusion of the legislation led to reductions of the payout, with negative consequences for the attractiveness of the lottery.

This MP also authorized, in a competitive market structure, the implementation of the Sports Betting System of Fixed Quota. The MF will have up to four years to regulate it. This, together with the lottery modalities operated by Caixa and Lotex, will complete the Brazilian lottery market.

With these initiatives, it is estimated that, in the near future, in the basic scenario, the sector will jump from 0.2% of GDP to approximately 0.5% of GDP and the share of lotteries destined to government areas will jump from 0.08 % of GDP to 0.15% of GDP - in a competitive environment with revenue growth, modernization, innovation and job creation.

Finally, it should be noted that the bases for the future of the national lottery market have been structured, but will only be consolidated if there is a strengthening of regulation. In fact, the structuring of a strong and competitive private market only establishes with equally strong and technically competent regulation.
 

Alexandre Manoel
Secretary of Fiscal, Energy and Lottery Monitoring (Sefel)