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Brazilian state and municipal governments are not waiting for new federal legislation to expand their gaming markets through video lottery terminals (VLTs) offering casino-style games, with the state of Rio de Janeiro now entering the fray.
The gradual expansion of Brazil’s land-based gaming market took a significant step forward this week when Rio de Janeiro Governor Cláudio Castro published a decree to authorise VLTs via Rio state lottery LOTERJ.
VLTs are already being operated on behalf of lotteries in several states and municipalities. But with its 17m-strong population, Rio de Janeiro would become by far the largest VLT market in Brazil to date, drawing greater attention to an opportunity that is emerging despite a general prohibition on casino gaming in the country.
Decree 49.804 expressly allows LOTERJ to issue authorisations for operators to install VLTs in general retail locations as well as in dedicated VLT outlets and “sports bars”, similar to a Las Vegas-style sportsbook.
Players would be required to establish accounts and verify their identities before placing bets via VLTs, while all transactions would have to be made via Pix instant payments and not in cash.
A formal licensing or tender process has yet to be announced, but LOTERJ’s president issued a statement saying VLTs could generate up to 65,000 new jobs while also boosting tourism in Rio de Janeiro.
“We’re taking a decisive step toward establishing Rio as a national and international benchmark for modern and responsible lotteries,” said Hazenclever Lopes Cançado, adding: “The future has arrived.”
Legal Landscape For VLTs
As with other forms of gambling in Brazil, the legal environment for VLTs is complicated.
Although Brazilian laws prohibit casinos and other forms of gaming, they allow for the operation of specific lottery games as recognised by federal legislation, including fixed-odds betting and instant lotteries.
While the federal government recently established a national licensing regime for online fixed-odds betting, Brazilian states such as Rio de Janeiro have been actively expanding their own lottery markets since a landmark Federal Supreme Court (STF) ruling of September 2020 that found states had equal constitutional rights to operate lottery games within their territories as the federal government did nationwide.
The state lottery of Paraná launched its VLT market earlier this year, with licensed operator Apostou currently operating a total of 11 dedicated VLT halls in the city of Curitiba and other locations. VLTs have also been rolled out by state lotteries in the smaller states of Maranhão, Paraíba and Tocantins.
As it stands, VLTs in Brazil are not the same as those of Canada, Italy or Greece, where video lottery terminals are virtually indistinguishable from slot machines offered in casinos.
In Paraná, Apostou’s network of VLTs specifically offer instant lottery games as defined by Brazilian law and certified under testing standards applicable to scratchcards and pull-tabs, even though some of the games may have similar themes and graphics to a traditional slot machine.
There are suggestions that LOTERJ in Rio may push the boundaries, however.
Decree 49.804 specifies that VLTs must be determined by centralised drawings through a central system rather than their own random number generator and that VLT outlets in Rio de Janeiro are expressly prohibited from offering slot machines (“caça-niqueis”).
But one legal expert noted the decree authorises VLTs based on two Brazilian federal laws that authorise fixed-odds betting on sports and casino games, rather than instant lotteries or so-called Lotex games.
As approved by Brazil’s Congress in December 2023, Law 14.790 specifically allows for fixed-odds sports betting to be offered through kiosks but expressly prohibits online casino-style games through physical terminals.
Already fighting a federal court battle over the permissible scope of its licensing regime for online betting, it is plausible that LOTERJ will argue that prohibition on fixed-odds casino games via VLTs applies only to federally licensed operators and not to those authorised by a state lottery in accordance with pre-existing regulations.
“My opinion is that the state of Rio de Janeiro has acted beyond the limits defined by federal law and there is a good chance that this decree will be considered unconstitutional by the Supreme Court if challenged,” Luiz Felipe Maia, founding partner at law firm Maia Yoshiyasu Advogados, told Vixio GamblingCompliance.
Law 14.790 and another federal lottery law from 2018 “expressly restrict VLTs to sports betting only, limiting the casino games to the online offer,” Maia said. “LOTERJ could have achieved a similar goal if they had based the VLTs on the Lotex law, using virtual instant lottery as the basis.”
Filling A Void
The rollout of VLTs by Brazilian local governments comes as the fate of pending federal legislation to trigger a broader expansion of land-based gaming remains uncertain.
The lower house of Brazil’s Congress approved a bill in February 2022 to authorise one to three casino-resorts in each of Brazil’s 27 states, plus video-bingo machines at dedicated bingo halls and major sports arenas in municipalities across the country.
The Senate was scheduled to act on Bill 2234/2022 in July before Senate President Davi Alcolumbre postponed that vote, citing the absence of several senators from the session and division among Senate members over the issue.
Alcolumbre has reportedly suggested the bill will be voted on before the end of this year, but it is evident the legislation faces strong opposition from anti-gambling senators.
Although the Brazilian VLT market is in its infancy, Rio’s concept of a “sports bar” featuring VLTs alongside sports betting and other amenities is likely to become more common across the country, believes Magno Jose, a prominent blogger on Brazil’s gambling market and president of the Legal Gaming Institute (IJL) which advocates for regulation.
“For now, the operation of VLTs is going to replace the activities provided for in Bill 2234/22 due to the country’s gambling ban,” Magno told Vixio. “Even with different math than bingo, casinos and slot machines, the lack of gaming options could support the success of ‘sports bars’.”
Municipal Lotteries In Focus
Still, the future scope and scale of the VLT market in Brazil may depend – once again – on the Federal Supreme Court.
In addition to those of Paraná and other states, VLT halls are also being operated through concessions awarded by municipal lotteries in at least two smaller cities in the state of São Paulo, with a number of larger Brazilian municipalities actively preparing to follow suit.
Despite the activity, the position of the Brazilian federal government remains that the 2020 STF ruling ending federal exclusivity over lotteries applies only to states, and not to Brazil’s 5,000-plus municipal governments.
The legality of municipal-level lotteries is being challenged directly before the STF by one Brazilian political party, with Brazil’s Solicitor General (AGU) in June filing a legal brief in support on behalf of the federal government.
An STF justice declined earlier this year to issue an immediate injunction to halt municipal lotteries. However, the case has yet to be heard by Brazil’s highest court and the eventual outcome will determine whether VLTs and other lottery games may be authorised at city level or only through lotteries being operated on behalf of the country’s 27 state governments.
As things stand, more than 200 Brazilian municipalities have passed local lottery laws, according to Magno, citing statistics from a new association formed to represent municipal lotteries.
“Video lottery terminals are emerging as a viable alternative for city halls while they await the judgment of [legal case] ADPF 1212 by the Federal Supreme Court, which questions the operation of municipal lottery services in the modalities of forecasts, sports betting and online games,” Magno said.
