GMB - Can you briefly explain the content of the amendment that needed the law you wanted? What would be the 3 fundamental changes that have not been possible yet?
Alexandre Manoel - In order to enable a modern and effective regulation of sports betting, we understand that Law 13.756 / 2018 would need three structural changes: i) change in the percentages of distribution of funds raised (awards, government and operator), which would allow establish Gross Gaming Revenue taxation in line with what is practiced in major global markets; ii) inclusion of criminal items that contemplate criminalization and the typification of conduct, thus inhibiting money laundering, manipulation of results and fraud; and iii) definition of the destination of the prescribed prizes, omitted in the referred law.
Why do you think it was not possible to process and approve the amendment?
We noticed that there was a conceptual confusion in parliament, as the modernization of the law dealing with the lottery sports betting modality was treated (by some parliamentarians) as legalizing gambling in general. This seems to us to have been the main obstacle. It should be mentioned that fixed odds sports betting is already legalized; we just wanted to make its regulation more modern. But some lawmakers understood that it was legalization and wanted to put it on the same level as gambling legalization. A pity. The sport lost, because if the law had been modernized, it would have access to greater sponsorship.
Brazilian sports betting operators will face a 3% tax on revenues instead of the 1% previously expected. The initial provisions of Law 13,756 / 2018 had set the rate at 3% of turnover, however, in a consultation paper released by SECAP earlier this year, the regulator proposed a reduction to 1% in a revised version of the decree. Will this be so? Are these approximate numbers that could not be changed at the congress?
The current regulation proposal, of course, is being worked out based on the law in force, Law 13.756 of 2018. The allocations to the government, treated as a tax on its inquiry, are set at 6% of the total collection for the operator in physical environment and 3% of the total collection in virtual environment. As for the modifications rejected in the National Congress, there is nothing more to do. Therefore, Law 13.756 of 2018 is valid, as it is in force. And it should follow.
However, it is noteworthy that the law itself allows flexibility in the administration of the percentages intended for the operator and the payout. Thus, in the virtual environment, the operator can choose between 89% and 97% to allocate as much as they want for awards and to pay the operating costs. For example, in the virtual environment, the operator may choose 90% for awards and 7% for operating costs. In this case, considering PIS / COFINS and ISS, depending on your tax planning, this will have an incidence on GGR of approximately 36%. It will not be the end of the world, considering, for example, that such an incidence (making equivalence) is about 50% in France, 60% in Poland and 65% in Portugal.
Therefore, we assert that our regulation will not reflect a bad law, but an average one. We will be closer to the Greek or Dutch cases. If the amendment rejected by Congress had been approved, we would be moving towards the English, Danish or Italian case, which are currently the world references.
SECAP also agreed to discard the so-called "bad actor" clause, however, this has not been confirmed. The clause would give Brazilian regulators the power to permanently suspend licenses and bar market operators for up to 10 years. Will there be quarantine for companies now operating in Brazil or will there be only quarantine for those who, after regulation, operate without permission?
At the administrative level, the current regulation proposal includes the regulatory body with the proper police power. Among the possible measures that could be adopted in relation to the operator caught in the illegal exploitation of sports betting are punitive initiatives resembling the “bad actor clause”. For example, the irregular operator may be suspended in whole or in part, as well as being prohibited from obtaining new authorization for a period of up to 10 (ten) years. In relation to the quarantine, it is also provided for punitive interstitial of 730 days, imposed on any operator caught in the irregular exploitation of sports betting, from the beginning of the legal operation of the sport in the country.
After regulation, will all sites currently operating in Brazil from other countries be prevented from continuing to offer sports betting? Will the office act by blocking IPs or initiating legal actions?
In principle, yes, because operators in the condition described will be in hiding. It is a business option that should take into account the legal risk of eventually culminating in court sentencing. With regard to measures such as blocking IPs or legal actions, the matter goes beyond the scope of the Secretariat. However, this may occur as a result of police assaults determined by court order, due, for example, to prosecution.
Recently at OGS, a number of experts and business executives expressed their pessimism about the success of this law and their disagreements with the tax issue. Did this comment come to you? Do you worry that bookmakers think so too, and end up not confirming business and give up coming to Brazil?
We cannot adopt the position of being spokespersons for private operators, as each company has its own specificity in preparing business plans and prospecting new markets. However, we are convinced that even with the time lag, some of the biggest gambling sites will come as they know the market is a greenfield and there are many opportunities. We understand that current law is not bad; and yes, average. In addition, these legalized companies will join the federal government to modernize the law and, at the same time, act vigilantly to denounce those operating illegally in Brazil. We will give incentives to the law for these companies to report the illegal ones and to settle in our country in the best possible way.
What message can you give to companies that have not seen the country as a good business to take the risk?
The regulations we are working on will provide for an interstitial (vacatio legis) so that operating agents that currently operate illegally in the country can become legally authorized operators. There will also be a period of impediment of operation in the Brazilian market, resulting from administrative punishment, so that companies caught in illegal exploitation are punished with quarantine.
Thus, it is hoped to consolidate, in Brazil, the inducement by the gambler to search for legally authorized websites and, otherwise, the discourage, also of the gambler, to search for legally based foreign sites, but illegal in Brazil. Moreover, I must emphasize that the imminent normative set will contemplate stimulating the denunciation, by the operators legally authorized to operate the fixed odds sports betting in Brazil, both regarding the clandestine performance of operators not authorized by the government and in relation to the search for Brazilian gamblers by illegal betting sites (in Brazil).
Will January be the month in which you will enact the regulation or do you think it can go further? If it comes out like this, do you believe it will be possible to make changes in the future?
Our commitment is to complete the draft regulatory decree later this year, initiating legal procedures within the executive branch to regulate it. Regulation will be effective early next year, probably in the first quarter. It should be mentioned that the improvement of the existing legal framework, its modernization and continuous improvement is one of SECAP's competences, as the regulator of the lottery sector in the country. Therefore, we will continue to seek to improve legal terms, with a view to reaching the potential we envision for Brazil. However, once the market is regulated, anyone caught operating illegally in Brazil will be quarantined.
Therefore, we believe that the right moment to regularize is right after the regulation, during the vacatio legisl period, which I understand to be the period of organization of the regulatory structure, in which the certifying companies (equipment, computer programs and validation of bets raised) and the game monitors are accredited and able to operate in Brazil. We will need these companies for the market to work. It is a market that is being created with very little interference by the government in its operation, by the way.
Hippodromes are undergoing a major crisis, and several have expressed interest in incorporating draws, lotteries and machines to improve the business. Are they fit to do this? How far can they go to not break the law?
Initially, it should be mentioned that, in addition to the classic lottery modalities (numerical, instant and sports betting), the only legally allowed betting games in Brazil are turf betting and sweepstake. The Ministry of Agriculture is responsible for regulating Turf. At SECAP, we are responsible for regulating the Sweepstake, which is the lottery whose result is linked to the result of a particular horse race (or set of races).
This modality has already been regulated, but there is no company that operates it in Brazil. Therefore, at the end of last month, we forwarded a new regulatory decree to sweepstake to attract stakeholders and improve the competitiveness of this business. This decree is already in the federal government's legal sphere, so we expect that, like fixed-betting sports betting, this improvement in sweepstake regulation will happen in the coming months. With this modernization, we expect to generate about 2,000 jobs, such as jockeys, farriers, sealers, grooms, trainers, veterinarians, zootechnists, among others.
It is also worth mentioning that, with the modernization of sweepstake, the regulation of fixed-odd sports betting and the start of the operation of the instant lottery mode (Lotex), the complete portfolio of lottery bets that will be in charge of the Ministry of Economy will be implemented in Brazil. In addition, all discussion of gambling that goes beyond the institutional competencies of the Ministry of Economy, for example casino and bingo, should be held in the National Congress, as everything that is already legalized will be working next year.
Source: Exclusive Games Magazine Brasil
