In 2019, the Italian-English International Gaming Technology (IGT) and the American Scientific Games International (SGI) formed the consortium Estrela Instantânea winner of the LOTEX auction and would receive the grant for R$ 800 million. Despite this, they decided to withdraw from the concession process after having failed requests by Caixa and the government.
In a joint note released last October, the companies alleged a lack of agreement to distribute the new lottery through Caixa's lottery network. "Although we are fully prepared to comply with all the financial and non-financial conditions precedent of the concession contract, prudent capital management dictates that we withdraw from the process and reevaluate the business of implementing a lottery operations model in Brazil," they said.
The consortium argued that the Supreme Court's decision reached the companies' plans and, amid other frustrated negotiations on the distribution of instant tickets through Caixa's 13,000 lottery shops, withdrew from the concession process. Negotiation has been going on for months. Then, Ministry of Economy and BNDES informed that the process was closed due to noncompliance with the conditions of the notice.
The passage of time and a new reading of the effects that the STF decision could generate in the market raised the question. “After the effort and investment already made, we are facing another opportunity and it is worth trying. The scenario is different now. We do not consider it better or worse, it is simply different with advantages and disadvantages. We are analyzing very carefully to arrive at a definitive position on the matter,” revealed a source close to the companies to GMB.
The reality is that the international consortium understands that Caixa's position on this business must be different after the Supreme Court decision. The state bank will now have strong competition from lotteries in all 27 states. Several of them are already underway and others are in the process of being born. Therefore, Caixa's attitude should change and even the price of using the 13,000 points of sale could be reduced due to the entity's need not to lose business and compete.
Caixa's idea of delaying negotiations to overturn the agreement between the Government and the international consortium and trying to maintain the Lotex concession no longer makes sense with the end of the monopoly of modalities by the Union. Now it would be much more advantageous to close an agreement with IGT and SG so that commercialization begins as soon as possible.
The rapprochement of the parties has already taken place and for this reason Estrela asked SECAP-ME and the Investment Partnership Program (PPI) for more time to negotiate with the bank and, if there is a positive result, proceed to the signing of the final contract that seemed to be extinguished in October.
The consortium said that if the government considers an extension of the deadline for Caixa to authorize and execute a distribution contract, they will evaluate "the possibility of re-engaging in the process". IGT / SG need to get 65,000 points of sale and Caixa's lottery network represents almost a fifth of the number committed.
The situation is today at a point where no one would gain from the fall of the concession. The companies would lose the guarantee of the proposal, in the amount of R$ 25 million, and would have a negative precedent in the face of new businesses in Brazil, such as sports betting or others related to the lotteries themselves. The government would find it difficult to promote a new bidding process. The values would be lower, as there would be no exclusivity. Even in the 2021 budget, LOTEX's revenue is already accounted for.
The instant lottery mode is the second most important in the world lottery market, accounting, on average, for 25% of that market. In Portugal, this modality reached half of the lottery market.
Lottery companies led by Febralot also put pressure on Caixa to be able to add the instant lottery to its product offering in a deal that could leave the network around R$ 3.5 billion. For them, it is necessary to start selling LOTEX as soon as possible and improve their level of commissions.
Source: GMB
