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Seven of Brazil’s states, plus the Federal District of Brasilia, have filed a constitutional challenge with the Federal Supreme Court (STF) requesting the suspension of two paragraphs of the country's new sports betting and online gaming law that limit their licensing authority over lotteries and fixed-odds betting.
Those two paragraphs of Law 14.790/2023 specifically amended a 2018 law to restrict the authority of Brazilian states to license lottery and betting operations or advertise approved lottery games outside their borders.
The states allege that the wording is unconstitutional, particularly regarding regional equality.
The states that signed the so-called Direct Action of Unconstitutionality, or ADI, are Rio de Janeiro, São Paulo, Minas Gerais, Piauí, Paraná, Acre and Mato Grosso do Sul, as well as the Federal District.
The ADI filing argues that paragraphs 2 and 4 of Article 35A of a 2018 lottery law, as amended last year, violate the Brazilian constitution.
The paragraphs in question specifically provide that “the same economic group or legal entity will only be allowed one single concession and in only one State or the Federal District”, preventing lottery or betting operators from obtaining local licences or concessions from multiple Brazilian states.
Further, the challenged articles of the law also specify that the “commercialisation and advertising of lottery [games] by the States or the Federal District carried out in physical, electronic or virtual media will be restricted to people physically located within the limits of their districts or to those domiciled within their territoriality”.
In their filings, the states cite various constitutional principles, including the fundamental objective of reducing regional inequality, the principle of equality and the prohibition of creating differences between Brazilians or preferences between them, the competencies of states to operate state public services, equal conditions for all competitors in the public bidding process, the principles of free competition and consumer protection, and the possibility of delegating services to the private sector.
Luiz Felipe Maia, gambling law expert and founding partner of Maia Yoshiyasu law firm in São Paulo, said that the states may be on solid ground to challenge the restriction on the number of state licences that a single company can obtain.
“Regarding the prohibitions to have one more than one licence, I think they have very good arguments, I think it creates a restriction to competition, I think they have very good chances of success,” Maia told Vixio GamblingCompliance.
As for the advertising complaints, Maia said he was less sure, noting the seemingly contradictory position of the state lottery of Rio de Janeiro.
Rio is one of three Brazilian states, alongside Paraná and Paraíba, that have issued local authorisations for online betting. Unlike the two other states, however, Rio's state lottery has enabled its licensees to operate across Brazil provided that players legally acknowledge that their wagering transactions are deemed to occur within the state's borders.
Meanwhile, state authorities in Rio have also pressured operators to obtain a local licence if they wish to continue offering bets to players or advertising within Brazil's third most populous state, in advance of federal licences becoming available.
“The state has recently notified several operators claiming that they could not advertise in Rio because they do not have a federal licence or a licence issued by [local regulator] Loterj. And now in court what they are saying is that companies with licences from other states will be able to advertise in Rio de Janeiro the same way that Rio will be able to advertise in other states,” Maia said.
“And they also say that the prohibition to operate, to accept bets from other states is reasonable. So I think this, at the end of the day, may create some interesting legal problems for them because actually the legal argument and their own claims are against what Rio de Janeiro is actually doing.”
