Market Trends

Brazil's Betting Landscape: The Next Online Gambling Frontier

Gaming giants in the realm of sports betting, such as DraftKings Inc. and MGM Resorts International, stand on the precipice of entering a burgeoning and regulated online gambling market within Brazil. As the largest economic powerhouse in Latin America, Brazil is rapidly advancing to the forefront of the global gaming stage.

Brazil has sparked a gambling revolution across the region, following a series of legislative reforms that began three years ago. The nation, which boasts a population of around 200 million people, now rivals some of the established European markets like Spain and the Netherlands, showcasing its emergent status as a top-tier betting environment with its impressive gross gaming revenues.

A pivotal movement was set in motion when the Brazilian President Luiz Inacio Lula da Silva ratified a significant legislative measure last year. This legal structure delineates the stipulations for licensing fees and further prerequisites for enterprises eager to offer odds-based sports wagers and virtual gaming services within the country.

Source: Entain, Bloomberg

Amongst those indicating a preliminary interest in obtaining a Brazilian license are more than a hundred and thirty entities, as disclosed by the country's Finance Ministry. Not only does this include DraftKings, a US-originated online fantasy sports forerunner, but also established names such as MGM and Hard Rock International, which is operated by the Seminole tribe from Florida.

Griffin Finan, Deputy General Counsel for DraftKings, conveyed via email, "We are enthusiastic about the progression of online gaming regulations in Brazil. As one of numerous companies that showed non-binding interest, we continue to assess the opportunities that the Brazilian market holds for future expansion."

While Hard Rock chose not to comment, MGM outlined its interest in February. Bill Hornbuckle, CEO of the Las Vegas-headquartered casino operator, voiced during an earnings call plans to scrutinize a collaborative venture in Brazil. "Brazil is setting the stage for internet gaming, inclusive of both casino and sports betting realms, and we intend to be part of the scene at its commencement," asserted Hornbuckle.

Concurrently, niche firms brace themselves for the imminent consolidation wave in a domain where there are over a thousand gaming operators, as noted by the Sao Paulo-based analytics company Datahub. The recently enacted legislation demands up to 30 million reais (equivalent to $5.9 million) for a gaming license which might necessitate renewal every five years, subject to reviews by the Finance Ministry. Additionally, a 12% tax on the gross gaming revenues has been instituted, representing a potential hurdle for smaller, albeit efficiently managed, operators.

Darwin Henrique, CEO of Esportes da Sorte, an active online gaming firm in Brazil, pointed out, "There are numerous serious contenders that might not be capable of shouldering the financial demands of this licensing."

Brazil has long been recognized for its voracious passion for soccer. Recent years have witnessed the country evolve into an entrancing market for global sports leagues looking to expand their reach. Data from IBOPE Repucom, a sports marketing research entity, illustrates that in the past decade, Brazilian viewership for the National Football League has surged to nearly 40 million, marking a fourfold increase. Hence, the NFL has chosen Sao Paulo as the host for its inaugural game in South America this year.

The gambling industry within Brazil has mirrored the phenomenal growth trajectory of its sports viewership. In 2022, Brazil shot up to the 10th position globally in terms of gross gaming revenues, accumulating $1.5 billion, a leap so significant that the country did not even make it to the top 15 in the previous year, as per reports from Entain Plc, one of the UK's preeminent online sports betting corporations.

Forecasts from Vixio GamblingCompliance, a leading industry research firm, predict that total gross gaming revenues from Brazil's regulated online market are poised to ascend to nearly $5 billion by its fifth year of operations.

The magnetism of online betting in Brazil has already drawn the attention of international companies like Bet365, SportingBet LTD under Entain’s umbrella, and Betfair, which falls within the portfolio of the Irish bookmaker Flutter Entertainment Plc. Yet, the absence of formal regulations had previously dissuaded several foreign enterprises from officially participating in the Brazilian market.

A new caveat within the rules mandates companies to establish and maintain a bona fide physical presence within Brazilian borders. With these guidelines not yet entirely transparent, the industry's leading operators remain speculative on which firms will decide to inaugurate their Brazilian establishments. Nevertheless, industry magnates argue that the potential introduction of prominent players worldwide and any ensuing consolidation are mere byproducts of the sector's maturation and formalization, rather than a concerted effort to oust smaller entities.

According to Wesley Cardia, President of Brazil’s National Association of Games and Lotteries, "Brazil is becoming one of the greatest markets across the globe. As it acquires regulation and becomes a structured market, it enables companies to enter and navigate the system more proficiently. Additionally, the phasing out of smaller, less reputable sites eventually amasses consumers around the larger and more prominent brands."

Despite the concern that some may falter in the wake of this transition, entities that pioneered the online gambling surge in Brazil contend that their intimate understanding of the local market will be pivotal to their perseverance amidst the influx of affluent international counterparts.

"We harbor no trepidation towards competition because we comprehend the essence of our work," professed Henrique. "Brazil encompasses myriad idiosyncrasies, and Brazilian gamblers exhibit distinct preferences compared to their international counterparts."

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Contribution to this report was provided by Christopher Palmeri and Andrew Rosati.

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