LUN 16 DE MAYO DE 2022 - 14:45hs.
Udo Seckelmann, lawyer at Bichara e Motta studio

“Draft sports betting decree is right in issues like unlimited licenses, compliance and sandbox”

Udo Seckelmann, lawyer at Bichara e Motta, writes an exclusive opinion article with an analysis of the presidential decree published by Games Magazine Brasil. In his assessment, “it is a very good draft”, and highlights points such as the unlimited number of licenses, compliance rules, responsible gaming and regulatory sandbox. About the R$ 22.2m (US$ 4.5m) fee, he is clear: “I believe it is high considering the value in other jurisdictions and the fact that it refers only to the exploitation of fixed-odds betting (and not gambling in general).

At the beginning of May 2022, Games Magazine Brasil had access to the 3rd draft of the decree prepared by the Ministry of Economy that will regulate fixed-odds sports betting in Brazil, pursuant to article 29 of Federal Law No. 13,756/2018.

In view of this, many people have questioned whether the decree, as it stands, is adequate for the development of the betting industry in Brazil. Thus, I was affectionately invited by GMB’s team to present my impressions of the document provided.

First, it is worth noting that the 3rd draft of the decree is better than its predecessors (i.e., the September/2019 and February/2020 drafts). This shows that the Ministry of Economy, rightly, listened to the wishes of industry stakeholders to adapt – as far as possible and without usurping the competence of the Legislature – to the best international practices.

That said, I will briefly address the main points of the draft decree and analyze whether the inclusion in question would be beneficial, or not, for the Brazilian market.

The Regulatory Entity

According to the draft, the Ministry of Economy will be responsible for authorizing, regulating, supervising and monitoring the exploitation of fixed-odds sports betting in Brazil. However, the draft does not indicate which body of the Ministry of Economy will be designated to perform such functions. The international experience of the gambling industry shows us that the creation of a specific body to perform such functions exclusively – and without obligations linked to other sectors – would be ideal for the proper functioning of the market.

Licensing Model and Unlimited Licenses

A crucial point of the regulatory decree was the licensing model that would be adopted. There were two options under discussion: the concession model or the authorization model. Once the authorization model has been established in the draft, operators that submit the relevant documentation, fulfill the required requirements and pay the applicable fees must obtain a license (without the need to go through a bidding process, as would be required if a model were imposed grant).

This is perhaps the greatest success of the Ministry of Economy, since the adoption of the concession model would potentially alienate many operators – and, consequently, gamblers – from the Brazilian licensed market. The authorization model, added to the fact that there will be no limitation of licenses to operators, promotes market competitiveness and, consequently, provides better products/services (odds) to consumers (Brazilian gamblers).

Licensing Fee and Duration

To obtain a license valid for 5 (five) years, the operator must pay a fee of BRL 22,200,000.00 (twenty-two million, two hundred thousand reais – US$ 4.5m). I believe it is a very high, considering the amount charged in other jurisdictions and the fact that it refers only to the exploitation of fixed-odds sports betting (and not gambling in general), remembering that the operator will still have to pay taxes /contributions on its operation, withhold income tax on gamblers' winnings and pay an inspection fee. Stipulating such a high value for the exploration of only one vertical could result in the impossibility of smaller and medium operators operating in Brazil, leading them to continue exploring the gray market.

Perhaps a viable solution would be to allow this amount to be paid in installments over the term of the license or, even, to stipulate a progressive table of annual fees due according to the operator's GGY (Gross Gambling Yield) in the period, as is done in other jurisdictions. Thus, the value of the fee charged to the specific operator would be in line with its “contributory capacity”, in order to attract more operators to the licensed market.

Legal Entities Based in Brazil

Foreign operators must establish a legal entity in Brazil to obtain a license and must designate a legal representative, an accounting representative, an ombudsman and a person responsible for compliance established in the country. However, the draft is silent on the type of society that may be constituted on Brazilian soil. Such clarification is relevant because Bill 442/91 establishes the mandatory constitution of gaming operators in the form of corporations.

Advertising and Responsible Gaming

According to the draft, operators must promote responsible gambling awareness with warning clauses about the harms of irresponsible gambling. This requirement is correct and follows the best international practices.

AML Compliance and Integrity Mechanisms

Operators must implement internal procedures to prevent money laundering, terrorist financing and fraud, in order to comply with the duties established in article 10 of Federal Law No. 9,613/1998. In addition, they will have to adopt security and integrity mechanisms in the exploitation of the activity, and must prove to the Ministry of Economy that they have contracted betting monitoring services. Such requirements are important for the correct and safe functioning of the industry.

Regulatory Sandbox

Perhaps the biggest novelty of the regulatory decree, which will be detailed later by the Ministry of Economy when they launch the program in question. Following the examples of the Central Bank and the CVM, the Ministry of Economy will be able to create an experimental environment, in which it will remove the rules applicable to operators who receive a temporary authorization to develop innovative business models and test experimental technologies in this test environment under the limits to be established in the future by the regulator. It is undeniably an interesting possibility that aims to foster business models based on technological innovations in Brazil. However, more information and details on how this will be implemented are awaited.

Conclusion

For all the above, I understand it to be a very good draft. It is evident that Law nº 13.756/2018 has some aspects to be improved, such as taxation on gamblers' prizes (which can dangerously alienate gamblers from the licensed market), but this issue cannot be changed in the regulatory decree. Thus, given the limits of the Ministry of Economy's competence, the available draft brought very relevant provisions, which were visibly introduced after in-depth studies and debates with industry stakeholders.

Udo Seckelmann
Lawyer at Bichara e Motta Advogados. LLM in International Sports Law at the Instituto de Derecho y Economía (ISDE) in Madrid, Spain. Editor and editor of Lex Sportiva, an international blog on Sports Law. Member of the National Academy of Sports Law (ANDD) – Youth Commission. Member of the Sports Law Commission of OAB/Barra (RJ).