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The goose is running around and laying its golden eggs, or at least that's how the Brazilian government sees it, with the gambling industry ready to be enforced, ready to be launched with the new scheme on the new licenses next January the 1st. But days ahead of the enforcement of these new licenses, the government is pushing to set a selective tax on sports betting, iGaming and fantasy sports. Welcome to iGaming Daily, I'm your host for today Fernando Nott, Senior Business Journalist for SBC Noticias and I'm joined once again by Ricardo Assis, Editor for SBC Noticias Brasil. Ricardo, how are you today? Hey Fer, very nice and happy to be here discussing this important affair, so let's go for it. Yeah, let's go for it and to discuss it we have a very special guest, Barbara Telles, Director of Government Relations for the Brazilian Fantasy Sports Association also. member of Redo Pitaco, Barbara, how are you today? I'm fine, thank you, Ricardo, thank you Fernando for having me here and it's a great opportunity to talk about this important and hot topic here in Brazil. Yeah, it's really a very, very hot topic over the last few days and surely into the near future, but before we discuss it, let's thank our sponsor OptiMove, the number one CRM marketing solution for the iGaming market. and sponsor of iGaming Daily. As a special offer OptiMove are offering new clients a free first month when they buy OptiMove. For more information claim the free month go to OptiMove.com slash SBC. Links will also be down in the description so you can find them more easily. But so, Barbara, let's get started. Can you please explain to our audience this whole tax reform and what the syntax is? a very catchy name they have put for this tax. Yes, it is. First of all, let me start by explaining what we are facing here in Brazil. So last year we had a first step of a major tax reform. This changed the constitutional law here in Brazil. And this year there is a complementary law to regulate this tax reform that is under discussion. So this complementary law addresses more details of this tax reform and what will be done and everything. Yesterday, the Senate approved the text, the base text, which was already approved by the House of Representatives by the end of August. So right now, with the changes that the Senate made, the text will be submitted again to the House of Representatives and then will be sent to the sanction by the president here in Brazil. So the sanction is expected to be made by still this year, by the end of this year. And this tax reform, there are some, it is creating some substitute taxes from what we have nowadays here in Brazil. One of these taxes being created is this SYNC tax. The technical name of this SYNC tax is like selective taxation. is like a text that is applied to the services or to the products that has impact on the environment or in the health of the population. So it is a text applied to the activities that are considered harmful to the society or something like this. In the initial text that was submitted to the Congress, the same text was applied to the smoking products, to alcoholic drinks, to... sugar drinks, mineral goods, something like this. And during the assessment of the house, it was included the betting and the fantasy sports in this syntax. The purpose of this measure, of this syntax, is to generate public revenue for Brazil and to discourage behaviors that are perceived to be socially undesirable. So this tax approved yesterday shows an effort of the Brazilian government to restrict more the gambling sector, to restrict the activities here in Brazil and impose high taxes, which are not so good right now. We are facing like a regulation being non-placed. And how have the fantasy sports company reacted to the inclusion of the modality? Okay, at first we were very surprised. that the fantasy sports was included in this text, in search of this text, because there is no impact in the environment. So is it a full digital service? Is a full digital product? So there is no impact in the environment and there is no impact in the health of the population. It is an electronic sports. So it is an activity with low risk. of developing addiction in the population. So the reaction from the Fantasy Sports Company has been one of concern, particularly regarding to the potential impact of the business models here in Brazil. The Brazilian Fantasy Sports Association has highlighted the fact that the Fantasy Sports is an electronic sports, is a skill-based. game is not traditional viewed as gambling, so it must be separated from the other activities. For many, this same regulatory umbrella as the sports betting and the fantasy sports creates misunderstanding in the product, in the model, in the business model here in Brazil. So the fantasy sports association have had meetings with the, since the beginning of the bill, congressman cabinets, with the congressman, with the executive branch, with all of the regulators to explain the differences of the fantasy sports, the betting, the lotteries and everything and to show the size of the fantasy sports sector here in Brazil to explain the impact of the development of the sector could create in the technology sector here in Brazil and for the young people. This goal, this meeting that we had, was to have these distinctions between the fantasy sports and the gambling in the tax reform, which would have an impact in the fantasy sport would be several here in Brazil. So despite of that, it was included in the same tax regime. It was included in the same tax, the fantasy sports. So when the decision was taken, we saw the sector still suffers from a lack of knowledge, whether it is fantasy sports, a lack of recognition, whether it is an electronic sport, and despite the legislation in place about the fantasy sports. Considering everything you just said about the fantasy sports industry having no impact on the things that the selective tax is supposed to act on. What was the lawmakers justification? What's the reason behind their decision to add fantasy sports within the syntax? So there is a confusion around what is fantasy sports here in Brazil. Last year Brazil has approved a law in the same path as the United States did years ago like recognizing what is fantasy sports and the difference between fantasy sports and Brazil is going through a delicate moment for the gambling industry in general. There is a confusion between the categories of gambling, what is allowed and what is not allowed. There is a public concern here in Brazil about the gambling sector. So I think this made the senators and the representatives to think about fantasy sports. such as a gambling activity. One of the senators that we had talked said to us that gambling is gambling, there is no difference. So showing that they doesn't know this difference between the modalities, I think this was the reason that the syntax was included to the fantasy sports. And this considered the legislation on place about the fantasy sports. So I think it's a movement to create more revenue to Brazil, to balance the public budget here in Brazil. We are facing this moment right now. But as the legislation didn't have in mind the difference between the fantasy sports and the gambling sector and what it would create to the revenues here in Brazil. And why have the fantasy sports have been lumped together with sports betting? Consider there is a free version of the activity, because it doesn't make much sense in this regard. Yeah, it doesn't make sense, Ricardo. There is still a confusion here in Brazil around the fantasy sports, as I said. One of them is that the activity didn't have a legislation in place until last year. So we didn't know what is fantasy sports, what is considered fantasy sports. As the fantasy sports is a smaller sector than the betting tool, there is work to be done to be recognized as it. So the Brazilian fantasy sports estimates that the fantasy market represents around 0.4% of the market in Brazil. So there is a lack of difference there. I think we right now have to do some changes in the mindset, some legislative changes if it is needed to recognize this difference. But I think it's a process made little by little. We have still a long way to go to recognize the differences between the fantasy sports and the other gambling modalities. I believe the biggest reason for the inclusion of the fantasy sports in the same-text regime and in this same-text too is the lack of knowledge on how the modalities work, not here in Brazil, only here in Brazil, but worldwide. We have a lot of fantasy sports, our biggest companies of fantasy sports in other countries that are coming to Brazil. So we have to... to make this recognition more clear to the population, to the legislature, to the regulator and everything. And what are the next steps now for the industry? Do you have an idea of what the actual percentage tax will be? Is there like an estimate of what the industry could take and what percentage could be crippling for the fantasy sports industry? What comes next? Okay, as I said before, the next step is the sanction of the president. So we are still pending on an assessment of the House of Representatives, but from them it will be the sanction of the president. We don't know yet what will be the tax rate because after the sanction, after the law coming to force next year, there will be another bill here in Brazil to discuss what the tax rate will be. So in the current tax scenario here in Brazil, the fantasy sports companies have a tax rate of 11.25% of their gross revenue regarding the Pisco Fins and the service taxes and everything. Just the fact that we were at in the same tax regime as the lotteries and the betting, the tax for fantasy sports might rise for 26% or more. So it's like tripling the amount that is paid today. So to add on this, we have the same tax that we don't know what will be the test rate and there is no estimatives to this still in Brazil. So the percentage that we are paying nowadays of the tax rate will certainly increase, but it is still uncertain. We don't know, we hope it at least will be reasonable, but the fantasy sports is a little bit concerned on this because we don't know what will be the tax rate. And giving all this together, do you believe this decision was more technical or political? I believe there is a more political decision than technical one, because we have talked to the Minister of Sports, we have talked to the Minister of Finance, and both of them... realizes that the fantasy sports is an electronic sports, and it's different from the betting and the lotteries and everything. So we have a statement of the Ministry of Sports that says that fantasy sports is considered an e-sports here in Brazil and should be included in the same tax regime as sports, not lotteries. We have a statement from the Ministry of Finance saying that fantasy sport is not lottery, is not betting. So we have had a study being made for the industry that has proved that the fantasy sport has low probability to develop addiction in the people, in the players. So the government is trying to pay their bills. and they are balancing their needs to revenue regeneration, but they are not understanding the differences between the modalities here, so I think it's more a political scenario than a technical one. Do you think there's room for the government to go back on this or do you think it's going to happen and you just have to wait? We have a hashtag here on iGamingDaily which is hashtag Brazil wait and see because we are always like waiting and seeing what happens with Brazil so do you think there's room for the government to go back or are you waiting and seeing how much the tax will be? here in Brazil even the past is uncertain so everything can change in 10 minutes I don't think there is a place for the government to go back in this decision We will still work on a veto or something like this showing the differences as I said, but I really think there is more like they are trying to bang their bills. So they will not go back on this decision right now, but we are trying to show them. We have two ways to do this. It's like the veto. So they would not include. fantasy sports and the sim tax or we could we can try to make this on the next bill that will impose the tax rates so we have those two opportunities only. And moving aside from the from the sim tax what why don't you tell our audience how the development of the fantasy sports market has been over the last few years? how it has developed, how it has grown, and how do you see it evolving in the next few years? Here in Brazil, the fantasy sports exists since 2005 or something like this, with a huge company that exploits the fantasy sports. Since 2019, another company has been launched here in Brazil. Most of them are startups, so we have this... difference between bigger companies and the startups. Since then, we have the market being involved as showing that the fantasy sports not only a hobby-based platform is like sophisticated. We have fantasy sports not only on soccer but on other modalities of sports. So the sector has attracted significant investments here in Brazil. but there is still a lack of knowledge of what it is. In terms of legislative advance, the greater progress that we had was like last year when we had the legislation on place. Last year we have this law approved, which tells us what is fantasy sports, what is the limits of fantasy sports. So with the law... we expect the fantasy sports sector to grow here in Brazil. The study is that we made pointed out the increase of 120% of the fantasy sports sector here in Brazil with their regulation. So Brazil has the potential to be the third biggest market here on fantasy sport. So... going back in India and then United States, it would be Brazil. It would be huge. So to achieve this level, we have to have a business model and a business environment that must be designed to have balanced taxes, but not this high taxes as we are expecting. Despite of this, I think the market here in Brazil will continue to grow. We had a lot of potential, we have technology, we have young people developing the fantasy sports here in Brazil. So I think we can increase the fantasy sports size here in Brazil, but we have to have in mind this problem that we are facing right now, that is the tax rating and everything. And just to finish, how much growth did you, the sector... have registered in the last years since the announcement of the regulation? The announcement of the regulation was last year so we don't have still on place what would be we are developing studies to this but as we saw like right now the Brazilian scenario is like 10 or 20 percent more increased than it was the last year and the years past. That's Barbara Teles, Director of Government Relations for the Brazilian Fantasy Sports Association. Barbara, thank you very much for being here with us today. Ricardo Assis, Editor for SBC Noticias Brasil. Thank you very much as well. Remember everyone to subscribe to the newsletter of SBC Noticias Brasil to keep up to date with the developments of the syntax and everything else regarding Brazil. and thank you very much for listening to this episode, we'll catch you in the next one, goodbye.