Brazil Regulator Confronting Challenges To Its Licensing Authority

January 20, 2025
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Just days into the country's new regulated era, Brazil’s federal betting regulator is facing several overlapping challenges to its licensing authority over online gambling.
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Just days into the country’s new regulated era, Brazil’s federal betting regulator is facing several overlapping challenges to its licensing authority over online gambling.

At least two companies that were not included in the initial group of more than 60 operators licensed by the Secretariat for Prizes and Bets (SPA) have since announced court injunctions enabling them to remain active in the Brazilian market, despite new legal prohibitions that took effect on January 1.

Last week, leading Brazilian betting brand Esportes da Sorte said it was now “authorised to operate nationally” after a federal court agreed that its application had been rejected illegally and the company had complied with all legal and regulatory requirements to obtain a federal licence from the SPA.

Esportes da Sorte established itself as one of the leading players in the hitherto unregulated market and serves as the main sponsor of several major Brazilian football teams, including Corinthians.

However, the company and its founders have recently been implicated in a high-profile investigation into alleged money laundering of illegal gambling proceeds, although it should be noted that no charges have been proven.

Esportes da Sorte was among a small group of companies that took previous legal action last year in order to be added to the SPA’s temporary whitelist of applicants eligible to remain in operation during a transition period, having initially been denied that status.

The latest legal challenges now appear to be an early test as to whether the SPA will have overriding authority to grant or deny applications, or whether operators may be able to bypass the regulator and gain approval through the courts.

In a recent interview with Exame, SPA secretary Regis Dudena disclosed that the regulator shelved a number of the initial 114 licence applications it received because the applicants failed to provide necessary documentation.

But there was also a “smaller group” who were denied due to suitability concerns, with Dudena noting that the SPA was “not obliged to give authorisation to anybody”.

“What we do is not a pre-judgment, but a cautious assessment. If there are legitimate concerns, we prefer not to grant the licence,” he said.

State, Municipal Licensing In Focus

The licensing status of Esportes da Sorte overlaps with the legal battle being fought by Brazil’s federal government over the scope of state-level licences issued by the state lottery authority of Rio de Janeiro.

In accordance with a 2023 decree, Rio lottery LOTERJ has issued local licences to Esportes da Sorte and 25 other sites that explicitly authorise them to offer online betting both within Brazil’s third largest state and across the country, without requiring an additional federal licence.

Although a December 2023 federal law included provisions to restrict any state-approved operations strictly to within that state, LOTERJ insists its licensees are exempt because Rio’s broader regime was in place before a cut-off date established by the federal legislation.

LOTERJ swiftly lost an initial appeal against a Federal Supreme Court order of January 2 requiring it to prevent Rio licensees from operating beyond the state’s borders.

The lottery authority is not backing down, however.

In a further appeal filed last week, LOTERJ argued that it needs more specific technical guidance and a minimum of six months to comply with the court’s order to geofence Rio’s online betting market, in part because the state’s licensees currently lack appropriate geolocation technology.

On Friday (January 17), LOTERJ said it had also met with federal officials to insist that state-licensed operators be entitled to use .bet.br domain names that are currently limited to companies that receive federal approval from the SPA, to ensure “equity in the digital environment and not privilege some operators to the detriment of others”.

Legal observers are continuing to watch the situation closely as the prospect of state-licensed operators being able to accept bets across Brazil threatens to undercut the SPA’s federal licensing regime by establishing a route-to-market that is subject to lower upfront fees, a lower tax rate and contrasting suitability standards.

Speaking on a Vixio webinar last week, the chief legal officer of one of Brazil’s first federally-licensed operators warned that allowing a betting platform to operate nationally under a state licence would disrupt the entire regulatory framework.

“It would discourage interest in obtaining a federal licence and it goes against the logic of our federal system, from my point of view,” said Rafael Marchetti Marcondes of Rei do Pitaco.

Luiz Felipe Maia, founding partner of the Maia Yoshiyasu law firm, said the prohibitions on interstate operations in Brazil’s December 2023 legislation are clear and LOTERJ’s legal arguments to the contrary are “quite weak”.

Still, the issue remains pivotal given the potential for a race to the bottom involving not only state governments, but also Brazil’s many thousand municipal governments that could also issue licences for fixed-odds betting and other online lottery games.

Maia noted that one little-known municipality in the northeastern state of Rio Grande do Norte recently opened a process to award online betting licences that cost less than $5,000, compared with around $5m for the SPA’s federal licence.

At least one site appears to have already launched under a Bodó municipal licence and is actively accepting bets from across Brazil, while a number of others are also participating in the licensing process based on the public records maintained by the Bodó city government.

“Either you apply the restrictions or you are going to have the smallest municipalities issuing licences without any compliance, without any reasonability, that will allow the companies to operate nationwide,” Maia said.

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