iGaming Daily

00:00
If you were thinking you were able to relax, you better think again because it's time to buckle up again for Brazil in this new episode of iGaming Daily. I am Fernando Nott, Media Manager for SBC and your host for today where we'll be talking about the new news in Brazil, the new... I don't want to say scandal, but there's a lot going on in Brazil as always and to discuss it.

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is with us. It's Ricardo Aziz, editor of SBC Noticias Brasil. Ricardo, how are you today? Yeah, I think in giving everything that's going on here in the market, I'm okay. And I'm excited to talk a little bit more about this. Yeah, I mean, we are okay because we are not operators. But we'll get to that. And you are already here in the lovely voice of Ana Maria Menezes, business journalist for SBC Noticias Brasil. Ana, how are you today?

00:58
I feel very excited because we have a Brazilian game coming, if you guys are listening right now. The gaming is already over so I might be crying on the couch or very happy. We'll see. We'll just have to hashtag wait and see for that. And before we get to the information for today's episode, let's thank OptiMove, the number one CRM marketing solution for the iGaming market and sponsor of iGaming Daily.

01:27
Big shout out to OptiMove. And now it is time to discuss the latest in Brazil. Brazil never lets you like relax, chill, like lay back and see how things are going. You can't actually wait and see. You kind of wait and see while you are like sorting things that are falling apart or building up and so fast that you it's hard to keep up with.

01:53
But the Brazilian market was shaken this week for a major tax increase that is putting the iGaming industry to the test. So Ana, why don't you walk us through what happened this week in Brazil? First of all, we're just going to start saying that if all these measurements go, I mean, if they all work start being valid, we could have a raise up to 36 % of taxes in Brazil. So yes.

02:22
for our betting operators. So let's just start with that and then break it down a bit. wait, wait. Let that sink in. Let that sink in because that's a lot to process. mean, it's a lot to process for our listeners. Yes. I can imagine the operators just receiving this information being, OK, what now? And we're going to go through that, actually. So on June 8th, during a meeting that lasted for about five hours, important to say that, five hours only discussing these topics,

02:52
And the government decided to move forward with a provisional measure and to increase the betting tax rate from 12 % to 18 % on the gross gaming revenue. So GGR of all betting companies, licensed betting companies. And the proposal is expected to be presented to President Lula. So President Lula today, Tuesday. Wait, I'm just going to say it again because of the time. So the proposal is expected to be presented to President Lula.

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on Tuesday, so by the time this episode goes live, we'll already probably have known his position about it, as an alternative to raising the IOF. So it's the Tax on Financial Operations. And when the change of the IOF was presented in the first place, the Congress was very, very, very unhappy. Also, the Brazilian population was very unhappy. It was a big announcement. So the government decided to sort of back down from it.

03:51
and just, okay, we cannot do this. Of course, many people are annoyed by that. So let's just think about other options. This is where the betting industry came to play. It always comes to mind. We need money. What about gaming? Yeah. Exactly. That was actually one of the points. So initially the Congress thought about the tax rate over GGR to be 18%. Then when the law was published, it was 12%. What they did now,

04:21
and it's Minister Adade. So he's the Minister of Finance in Brazil. What happened? He proposed to go back to the original tax that was thought of by the Congress. So it's not like it's a number that they didn't already have before. And after the meeting, Adade told the press that this measure will allow us to recalibrate the IOF decree, focusing more on its regulatory aspect in the new version, which will allow us to reduce the tax rates

04:50
setting the original decree. And he also noted that the revenue expected from the IOF increase originally, it was estimated around 20 billion, should now drop by 6 billion. And this is where these other measurements came in hand. Not only the betting industry is being affected by this, other industries as well, such as fintechs and banks, they're also being affected by this measurement. And...

05:18
If the proposal is sent to the Congress, it will take effect immediately, but it must be approved within a hundred and ten days to remain valid. So we still have to hashtag wait and see, but it's a big measurement and it's very, it's popular. It's a popular measurement in the Congress, but also by the public. So it's not like it's something that people think, oh, this is absurd from, from that side, but for betting operators. Yes.

05:47
it's an immense, immense increase on taxes. I'm curious to see what's going to happen considering this has already been discussed and this figure like this rate, this tax rate had already been proposed and put aside. you said, they actually wanted to tax at 18 % and they lowered that. So they already had this discussion and they decided this was not the way to go to have a healthy industry.

06:17
So I'm very curious to see how they turn that around because they already, I mean, we're used to politics changing their minds like it's nothing, but let's leave that aside. And you mentioned operators, of course, the industry did not take long to react to this decision. Yeah. So this decision was released to the public before the meeting even happened. So the Ministry of Finance already prepared

06:46
they prepared the document before presenting to the congressmen and the leaders of the Senate who were present at the meeting. So the industry had time to sort of react before it even happened to show their discontent. And talking about one of our biggest representations of the iGaming industry, we have ANLJL, which is the Association of Gaming and Lawyers in Brazil.

07:13
And they called the proposed tax hike and quoting them a shot in the foot. And they also said that raising the tax rate could push the overall tax burden on betting operators. Again, as I said, to around 36%. And once you add all the other taxes that we already have, so it's income taxes, social contributions, federal and municipal leaves, and the 30 million reais license fee. And besides that, all the regulatory fees. So the analysis.

07:43
It was prepared by the economist Itani Elson Cruz, and it points out three likely consequences with this tax raise. Licensed companies leaving Brazil, lower tax revenues, and a boost to the illegal betting market, which is one of the biggest concerns, both for the government and also for the iGame industry. So the report says that instead of raising more money, the government could end up pushing the industry back into the shadows like it was before the regulation.

08:13
And NHAL also suggested a different route for this. So instead of, OK, let's tax everyone, why don't we do this? Focus on enforcement and also cracking down on illegal operators, which still, according to them, make up for about 60 % of all bets in Brazil. And also according to the association, if the black market were reduced to just 10%, so it's a 50 % reduction,

08:41
The annual tax revenue could reach 15 billion reais, which is nearly the tripo of this 5.8 billion that was expected from the proposed GGR tax increase in the first place by the Ministry of Finance. it's very important that the ANJL voices their concerns, says, hey, let's not do this or this will happen. But it's not the only.

09:06
voice that has been raised. Ricardo, you have been speaking to some operators as well. Yeah, yeah. I've been talking with lot of operators that have expressed serious concern about the measure. And I personally believe that a move like this could create a competitive disadvantage for domestic operators who lack the foreign investment and are already struggling to compete with this tax rate. So I think this will intensify the mergers and acquisitions and

09:36
companies shutting down or selling their license because this is something that is really difficult to cope because the companies do a schedule thinking that the tax rate is going to be something and in five months the tax rate goes up by 50%. So it's kind of insane to project long-term goals with these kind of changes. And some believe that half the operators cannot handle this rate. So the market would be cut by half in a short term.

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An operator told me that with this increase the total tax burden could reach up to 56%, even more than the 36%, which he described as unsustainable and bordering on confiscatory. One common complaint that I've heard from them is that the government is being really distant from the operators, failing to listen to the sector concerns and needs. The issue of legal uncertainty was also raised

10:33
with the Brazilian Institute of Responsible Gambling stating that it's seeking dialogue with the government, they do not rule out going to court to try to reverse this measure. And to understand the legal avenues that the operators may take, we talked with some lawyers and they pointed out what strategies the market might adopt if the measure indeed moves forward.

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You can check it out in SBC Noticias Brazil's

11:27
And we are back with iGamingDaily to discuss the tax hike proposal in Brazil that looks like it's going to be enforced. And not only does the gaming industry, not only did the gaming industry voice their concern, but also some other voices from outside the industry have reacted and said, hey, this is not the way to go for Brazil, Ricardo. Yeah. Last Friday, the parliamentary front of the free market.

11:56
which includes 173 deputies, released a statement opposing Minister Fernando Adade's provisional measure. According to the note, such a measure would mean the death of the sector, at least the legal sector, and would create enormous legal uncertainty. The statement also highlighted the potential impact that this kind of measure could have on the Brazilian sports, considering that all Serie A clubs are currently being...

12:25
sponsored by a betting operator. A measure like this, which increases operating costs, would not only reduce the number of players in the market, but also significantly decrease sponsorship payments. So it would affect in a big way all the entire football ecosystem here in Brazil. And in addition to the 173 deputies, the parliamentary front includes 27 senators,

12:51
And I'm not sure if they are all aligned on this issue, but this is one of the largest caucuses in the Chamber of Deputies. So this is kind of huge that they are positioning themselves against it. Yeah, I reckon that football is definitely paying a lot of attention to what's going on with the gaming industry because it has represented, I mean, the gaming industry, a big cash flow for Brazilian clubs. I mean, for clubs all across the world.

13:21
in Latin America, but in Brazil in specific, it has represented a lot of money coming into the club's coffers. And that helps them to like face major competitions, like for example, the club workup that's coming up and which we hope Boca juniors wins like all of us in this podcast. But let's move on with the information because like you guys said, both the FPLM and

13:50
the ANJAL and pretty much everyone is saying hey this tax hike is likely going to push the industry back into the shadows I think the ANJAL said and push it back to the illegal segment like make the illegal segment thrive and of course the legal segment to eventually die down and that means less money for state coffers so what do you guys think this decision means for the industry?

14:19
First of all, the concern is right about the illegal market. It already takes up a big chunk of the market in Brazil, if we think about it. And if the government, if its wishes is to actually gather money, which is normal, they want the companies operating in the country to pay for it. Why making the taxes so high, so huge for a segment that is already trying so much to say,

14:47
within the law, not only within the law, but actually supporting and going to the Senate and to the Chamber of Deputies and presenting themselves to help the government to create a better environment. So it actually puts people on the way to illegal batting because again, the batters want their full money, we can say this way, without a big chunk of taxes influencing them because besides the whole

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the whole tax system is you have to pay for the location for other taxes as well that you have to pay as a company. You have to pay for the employees. There's a big number of jobs being created because of the industry. And we are going to see probably many companies closing because they cannot afford it. They cannot afford to operate, to be there. So what does this mean for a country that is so proud of saying that

15:47
the hiring number, the hiring tax is higher. What is that? How is that going to affect? What is being thought actually about all these consequences? We have no idea to be honest right now, but this is something that is upsetting in the sense because we have people working behind, you know, the big name, the big stakes, bad 365, all of it. We have people working.

16:14
and they need to keep working to maintain their families as well, and they're all Brazilian citizens. So how is that going to affect people directly? There's also that to think about. Yeah, and I think this is going to intensify the process of mergers and acquisitions here in Brazil because, as you said, it's difficult to compete in such an environment. And this will affect the better as well because with the increased costs, the odds are going to be lower.

16:42
the returns are going to be lower to the better because it's not sustainable to keep everything as is. So I think they are not thinking it straight. I think they are just thinking in raising on short term, but they are not looking at the bigger picture because as Ana said, there's lots of jobs on the line. There's lots of increasing revenue in long term because if you keep as is and you increase the focus on...

17:11
on tackling the illegal market, would only raise as ANGL has said, tackling the illegal market should be the focus because this is what is going to raise the money that is now going overseas, that's going to be back to the country. So I think this is going to backfire a lot if it goes through and

17:37
It's going to damage the sector, it's going to damage the image of the Brazilian market as a whole because I'm thinking as an operator, who will want to operate in a market that can change the rules of the game all the time in such an easy way because this is what they are doing. It's like a provisional measure that's going to be like this and it's now on the next day they already have to pay 50 % more taxes.

18:06
It's really complicated and I think this damages the image of the country in an enormous way. the mergers and acquisitions approach I think it's actually very interesting because like Rochelle said at the time, buy when there's blood in the streets even if the blood is your own. So it's a very interesting thing to think about, especially

18:34
in terms of the biggest operators. Of course, it's not good news for the smaller operators, like you said, but it's very interesting to see how if this goes through, how it will impact in this sense to the gaming industry. But I don't want to lose the chance to take the note you said about legal uncertainty because that is something that has

19:03
been floating around in Brazil for some time, regarding the state lotteries, the municipal lotteries and how they operate in Brazil because of how the regulation eventually was enforced and how the different steps of the regulation came into place. Some lotteries are playing smart according to the federal government and the state lottery of token chains has been slapped with a legal suspension on it.

19:31
Yes, so this is an interesting case for many aspects and we're going to talk a little bit about them. But Accord in Palmas is the capital of Token Chings. They ordered the suspension of all sports betting and other activities run by lotto chings, so the state lottery of Token Chings. And the decision came after a public lawsuit questioned the legality of the company's betting motto, especially its use of video lottery terminals for fixed odds.

20:01
sports betting. So this is a very specific case with very specific developments as well. So the complaint argues that the setup violates the federal law, so the sports betting law, which says that operators need individual approval from the Ministry of Finance to offer fixed odds betting and that this approval is valid for up to five years. And according to the judge of the case, the current model

20:30
doesn't apply here. So it doesn't apply to this situation. That is because this type of betting requires a specific license that is granted on a case by case basis. And he also pointed out that the law doesn't grant state exclusivity and meaning that multiple operators can legally offer betting services. And based on all these arguments, the judge also ordered the immediate haught of online and video lottery betting.

20:56
And he also banned the use of physical betting machines, which is something, and in this specific case, is the most interesting part to me. But Lotatins was basically told to collect all the equipment in use or risk having it seized by authorities. And then the Tocantins state government argued that the Brazilian states are allowed to run lottery services, a position that is supported by previous Supreme Court rulings. And then again, we have the last part, which is the Lotatins statement.

21:26
They said that, of course, according to the federal constitution, lotteries are public services that can be run by state or licensed to private companies with the goal of raising money for public good. This is the expression public good gambling like slot machines is a private activity and at profit. While they may look similar, they are fundamentally different. This is their statement. So this is something that is very interesting. Are video lotteries the same?

21:55
Like when we say video lotteries, sports betting, mean, what is the difference between that and a slot machine? It's online, of course, but it's also in a landscape base if we think about it, because you have to go to the lottery, you have to pay for it. then, so there's this question that is raised. And then, as they said, the lottery would do it for the public good. And then gambling like slot machines.

22:23
being a private activity aimed at profit. So they presented this as a difference of why they should continue to operate. And this is a very interesting topic because it makes us think about the difference. Okay. A slot machine and a video lottery sports betting offer. What is the difference? One of them is legalized. The other one, it's not. So besides that, are there any differences? And actually this is a topic.

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that SBC Notícias Brasil is going to develop a bit more so you have to hashtag Wait and See because this is a very important topic to also bring to discussion. We also have to think about it for the landscape for the land-based casinos coming in the future. yeah, very interesting topic. Hashtag Wait and See. I love to talk about this. We're going to tackle this a bit more. sure you subscribe to SBC Notícias Brasil's newsletter to keep up to date with all these matters.

23:19
related to the lottery of token teams and the municipal lorries all the feud with the tax hike in Brazil but also the issues between the federal government and the state and municipal governments but now it's time to say goodbye thank you very much Ricardo Aziz and Maria Menezes thank you very much Ani McDonald for producing this episode and to our listeners out there we'll see you in the next one goodbye