Legal Battles Loom As Brazilian States Press Ahead With Local Licensing

May 20, 2024
Two of Brazil’s largest states continue to move forward with issuing local licences for online gambling, despite an imminent federal regime and a series of pending legal questions regarding state-level licensing.

Two of Brazil’s largest states continue to move forward with issuing local licences for online gambling, despite an imminent federal regime and a series of pending legal questions regarding state-level licensing.

Last week, the state lottery of Paraná (Lottopar) announced the opening of a second window for operators to apply for a licence to offer fixed-odds betting within the state of some 11m people in southern Brazil.

Five operators have already been licensed to offer retail and mobile sports betting in Paraná through an initial process that closed last June. 

Ahead of the second window, the state’s regime has now been expanded to also include online casino-style games, subject to definitions established by Brazil’s new federal legislation from December.

Lottopar adopted a regulatory decree on May 10 mapping out specific requirements for online gaming and will allow operators to apply for licences between June 3 and July 3.

“This is a new opportunity for companies in the sector to participate in the licensing process in Paraná, the fast growing state in Brazil [and] the reference point in lottery operations with legal security, respect for jurisdiction boundaries and a pioneering spirit,” said Daniel Romanowski, Lottopar’s president, in a statement announcing the new licensing window.

Lottopar’s licensing announcement came one day after its counterpart in Rio de Janeiro further extended its own deadline for operators to apply for a licence.

After launching its regime around the same time as Paraná last year, Rio’s state lottery, Loterj, had opened a second licensing window in March and will now continue to accept applications through to June 13. 

Loterj has so far issued state licences to five operators, with seven more applications actively under review. Similar to Paraná, a March decree reopening the licensing process in Rio recognised the possibility of operators offering all forms of lottery games and fixed-odds betting that are authorised under federal law, allowing for online casino games to be offered by licensees in addition to sports betting.

The licensing regimes in two of Brazil’s top five most populous states follow a landmark Federal Supreme Court ruling of September 2020 that found states had the same rights to operate or regulate defined lottery games within their own borders that the federal government has on a national level.

The smaller state of Paraíba in northeastern Brazil also has begun an authorisation process and awarded its first betting license last month.

Legal Questions Surround State Licensing

As Brazil’s Ministry of Finance gears up to launch a federal licensing regime, the state-level activity is a notable complicating factor that has raised a series of high-stakes legal questions due to be decided in court.

Rio de Janeiro has taken the position that its licensees are authorised to operate throughout Brazil, on the basis that customers must legally acknowledge that betting transactions are deemed to occur within the state. 

Officials from the Ministry of Finance recently wrote to Loterj to warn that interstate bets are not permissible under federal law, while the state of Paraná has joined a civil lawsuit to challenge Rio’s legal interpretation.

On another legal front, the governors of both Rio and Paraná, as well as four other states this month, filed a joint petition with the Supreme Court to contest certain provisions of December’s new federal legislation for online betting in Brazil that were designed to rein in state lotteries and state-level licensing.

The states are specifically challenging two sections of the legislation which specify that no company can obtain a licence or concession from more than one state, and that any advertising by a state-licensed operator must be restricted to within the borders of the jurisdiction.

Further provisions of December’s law also expressly prohibit interstate operations and oblige state lotteries to align with federal regulations, although it is less clear how each of the restrictions apply in the case of Rio and Paraná as their initial licensing decrees were adopted prior to a deadline set by the new law. 

Global Giants Waiting For Federal Regime

To date, the local licences awarded by Rio and Paraná have been either for local operators such as Pixbet and Apostou or to companies from neighbouring Argentina and Paraguay. 

Among the seven applications under review in Rio, however, are those submitted by Lottoland and the Brazilian company that holds the local brand rights for Caesars Sportsbook.

Still, larger international brands appear to be staying on the sidelines and waiting for the national licensing regime to kick off.

Rather than state licensing, Entain’s plan is to apply for a federal licence for its Sportingbet brand, Martin Lycka, senior vice president of American regulatory affairs, said during a panel discussion on the Brazilian market at this month’s SBC Summit North America in New Jersey.

In theory, state licences could be attractive for sports-betting companies that may wish to focus their operations on those areas of Brazil where sports are most popular and if states’ local regimes offer sufficient tax incentives, Lycka said.

“The federal licence will extend to the whole territory of Brazil, so that is the key advantage,” he said.

Any state-licensed operators will also be financially committed to that licence for several years, regardless of whether they later apply for the federal licence, added Amie Biros, vice-president of strategic initiatives for Rush Street Interactive.

The forthcoming federal regime will also trigger a major influx of regulated competition for any local operators within a given state.

“It just doesn’t seem to be a viable strategy,” Biros told SBC delegates. “You’d have to have a lot of stickiness in that state or region and a concerted marketing effort to make a difference in that state to compete with the bet365s, etc.”

Under a formal timeline published by the betting department of Brazil’s Ministry of Finance, a federal licensing ordinance was initially due to be published by the end of April. 

However, that ordinance is widely considered to be imminent and could be published in the coming days. 

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