Gaming in Brazil

8/30/2017 Update:

Gaming

  • The prospects for gaming legalization have slowed considerably due to increasing political instability
  • Before congress can consider moving gaming to the top of the agenda, they must vote on the Pension reform bill, for which there is no consensus
    • A recent survey by the Institute of Parana shows 45.6% of the population is in favor of gaming with 43.4% opposed
  • Gaming is generally considered to be third in line for legislative attention following the privatization of the instant lottery, Lotex, and introduction of sports betting
  • Most recently a report was filed in the Senate to have the bill heard in the Committee on Constitution and Justice, which has to recommend it for approval, in order for it to pass along for consideration by the full Senate

Privatization of Lotex, Brazil’s instant lottery

  • Government is planning to sell the sole license to operate Lotex for 25 years in an international auction
  • E&Y was hired to complete a valuation of Lotex; Although not public, estimates quoted in the press range from $R1.5B – $R2.5B ($475M-$800M)
  • Bid requirements will be released imminently, with applicant responses due in October and the winning bid will be announced in December

Sports Betting

  • Government expects considerable tax revenue from online sports betting
  • However, legislators believe there needs to be a regulatory regime set up to allow for a competitive, profitable, but controlled sports betting market
  • Budgetary constraints are preventing the creation of a regulatory agency for sports betting so there are no clear next steps to move legislation forward at this time

Spectrum Gaming Capital released a report on Attracting Investment to a New Brazil Gaming Industry

Please click to access the reports in both English and Portuguese versions

Brazil is a country with 210 million people, the 6th largest population in the world. In 2003, there were over 1,200 “Bingos” (slot parlors) in the country generating ~ $800 million of GGR; gaming was then outlawed in an effort to eliminate criminal involvement.

Both houses of Brazil’s Congress, the Senate and the Chamber of Deputies (“COD”), proposed bills legalizing gaming to generate economic growth, jobs and tax revenues. Published analyst estimates for Brazil Gaming GGR range from $9B to $17B; Brazil would be the third largest gaming jurisdiction in the world after the US and Macau.

 

 

brazilgaming_table_new_dec29

 

Key Insights and Observations:

  • Both bills contain a multi-tiered tax structure that includes corporate taxes, a tax on GGR and, most significantly, a withholding taxes on player win. There is not yet any provision for players to be able to deduct losses from prior casino visits in calculating withholding tax due.
  • COD Bill states that the Federal Government will grant casino licenses rather than state-by-state as in the US.
  • COD bill provides for VLT’s for route-like operations, but does not specify where they will be located. BR1(VLT’s) profit sharing compares to VLT’s in Illinois, where the machine owner and gaming establishment operator split the profits 50%/50%
  • Focus on concession fees for license awards will favor best capitalized investors, but will not encourage building compelling facilities that will attract customers and create jobs.
  • House bill also specifies minimum room counts of 100-1,000 and gaming halls of 15k-150ksf, depending on state population
  • Law provides for the legalization of Jogo de Bicho (similar to the illegal “numbers game” in the US), but does not describe how it will be regulated

 

 

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