Paulo Horn Q&A: Brazil’s lottery system still lives in a legal grey zone

From a legal architecture standpoint, what is the most ambiguous legal point surrounding Brazil’s lottery system?

The greatest ambiguity lies in the attempt to treat the lottery as a purely commercial or tax-related activity, when, in fact, it is an atypical or improper public service. Although the national Supreme Federal Court (STF) declared the non-existence and ended the attempt at a Union monopoly in 2020 (ADPFs 492 and 493), there is still tension regarding the limits of the power to legislate (exclusive to the Union) versus the power to operate (common to all federated entities). The challenge is to define to what extent the "general rule" ends and at what point the "operational autonomy" of states and municipalities begins.

In addition, the coexistence between the concession and authorization regimes still generates gray areas. While the Union is moving forward with the regulation of fixed-odds betting under an authorization model, many states maintain the classic concession structure. This disparity creates a hybrid ecosystem in which operators seek regulatory arbitrage, trying to fit into the rule that is most favorable to them, which reinforces the need for a reform that standardizes the legal nature of the commercial exploitation of gambling in the country.

Recent Supreme Court decisions have reignited the debate over state versus municipal competence. How do you believe constitutional autonomy should be balanced with the need for national coherence in lottery regulation?

In practice, autonomy must be exercised with territorial responsibility. Although the Supreme Federal Court (STF) has reaffirmed that the Union does not have exclusivity, this does not give smaller entities the right to ignore the consumer protection and anti-money laundering regulations established by the federal government. The effectiveness of this system depends on a federative pact in which municipalities focus on local impact, without trying to create "regulatory havens" that distort the security of the national market.

The balance must be found in the principle of subsidiarity. While the Union dictates the rules of integrity and standards of play to avoid regulatory chaos, states and municipalities have the necessary reach to apply revenues to local social demands. National coherence cannot mean subordination, but rather coordination. 

The STF has already indicated that exploitation is a right of all federated entities. However, the Solidarity Party filed a claim of fundamental precept, with an injunction granted monocratically, exceptionally, to suspend municipal lotteries until a final decision by the Plenary.

What risks arise when legal interpretation moves faster than the regulatory capacity of municipal lotteries, often defended as tools for local development and social investment?

The main risk is legal uncertainty for both the operator and the bettor. If judicial interpretation opens doors (such as municipal operation) before the municipality has the structure for oversight, compliance and responsible gaming, we create loopholes that lead to the deterioration of the service. Administrative capacity must keep pace with the rights guaranteed in the courts to prevent the lottery from losing its social credibility.

Another critical risk is administrative fragmentation, which can lead to inefficient control. If hundreds of municipalities create their own lotteries without the necessary technical preparation, oversight of responsible gaming and the integrity of the draws is compromised. 

To overcome this risk, the ideal legal advancement would be accompanied by intermunicipal consortia or partnerships with the State, ensuring technology and security protocols are standardized, regardless of the size of the operating entity.

You have recently argued that lottery services are public services with clear constitutional grounding. What misconceptions do you think still dominate the public and political debate around this classification?

The biggest misconception is the confusion between "prohibition of gambling" and "operation of legally authorized lotteries." Public debate often ignores that the lottery has a historical and constitutional basis linked to social welfare. 

Another common mistake is thinking that classifying it as a public service prevents partnerships with the private sector. On the contrary: the State holds the title, but efficiency comes from private operation under strict regulation.

There is also a distorted political perception that public management of the lottery is inefficient by nature. In fact, by classifying it as a public service, the Public Authority assumes the duty to ensure the activity fulfills its primary social function. Profit, in this case, is a means to finance social security and assistance, and not an end in itself. When the political debate reduces the lottery to a simple source of tax revenue, the opportunity to use the service as an instrument of direct public policy is lost.

From your experience with Loterj (Rio’s state lottery) and advisory roles, what lessons should lawmakers draw from past regulatory models when designing future frameworks?

Considering the 12 uninterrupted years serving as Director of Loterj and subsequently, up to the present, as President of the Lottery Games Commission of the OAB/RJ (Brazil’s Bar), as well as the studies for a master's dissertation in city law completed at UERJ and dozens of seminars and congresses, we can highlight that the main lesson is that the market does not tolerate a vacuum. 

When the State omits or fails in regulation or tries to impose a prohibitive and inefficient model, the gray or illegal market occupies the space. Successful models, such as those we pursue at Loterj, which remains at the forefront, show that transparency and channeling bets to the formal sector are the only ways to ensure that profits return to society.

Legislators must also understand that excessive taxation is the greatest ally of illegality. Past models that attempted to overburden operators with exorbitant fees ended up suffocating the formal market. The lesson is that a fair tax burden, coupled with a rigorous compliance environment, generates a much larger volume of business in the long term, ensuring sustainable revenue for social causes instead of an immediate and fleeting gain.

Is fragmentation an inevitable feature of Brazil’s federative model, or a symptom of incomplete legal design?

I actually don't see it as fragmentation, but as decentralization and collaboration between federated entities. Nothing more than the legitimate exercise of federalism. In Brazil, we tend to confuse centralization with order. The decentralization of lotteries allows each region to explore its cultural and social particularities. The design is incomplete not because of the plurality of operators, but because of the lack of a national agency or forum that harmonizes best practices among these entities.

The current legal design is a "work in progress." The "fragmentation" we see today is a reflection of decades of centralism by Caixa Econômica Federal, forced to give way to decentralization by the Supreme Federal Court and federal legislation, starting with Law No. 13,756/18, amended by Law No. 14,790/2023. In order for this not to become a legal chaos, it is imperative that the National Congress and the Ministry of Finance establish minimum interoperability guidelines. 

The ideal model is one in which states and municipalities compete for service quality and social efficiency, combining efforts in monitoring and controlling the activity, rather than based on who offers the loosest regulation.

Looking ahead, what principles should guide the construction of a stable and predictable lottery ecosystem over the next decade?

Three pillars: Legal Security, to attract long-term investment; Responsible Gaming, to ensure the social sustainability of the business; and Technological Innovation, to combat the illegal market. We need rules that are clear enough to last ten years, but flexible enough to keep up with the digital evolution of betting.

Absolute transparency in the destination of resources is what will guarantee the legitimacy of the sector in the eyes of the public. In the next decade, the ecosystem must be guided by the total traceability of money and the protection of bettors' data. The use of technologies such as blockchain to audit tickets and real-time monitoring of the financial health of operators will be the differentiators that will separate mature markets from those doomed to prohibitionist regression.

If Brazil were to “get it right” this time, what would a well-designed legal architecture for lotteries enable beyond revenue generation?

If we get it right, the lottery will no longer be seen merely as a 'voluntary tax'. It will once again be recognized as an engine of local development. In addition to revenue collection, a well-designed structure enables the promotion of sports, culture, and social security in a direct and transparent way, as well as generating a technology and integrity ecosystem that raises the standard of public governance in Brazil.

Ultimately, a well-designed structure promotes social inclusion and citizenship. By channeling the human desire for gambling into a safe and controlled environment, the State protects vulnerable citizens and generates skilled jobs in technology, cybersecurity, and marketing, among many others.

Brazil "getting it right" will mean transforming a historically marginalized activity into a thriving, ethical economic sector capable of financing real transformations in the country's social infrastructure.

Are there any final conclusions you would like to add?

Although the issue of municipal jurisdiction is sub judice in ADPF 1212, the ideal scenario for Brazil in 2026 necessarily involves strengthening the financial autonomy of states and municipalities. Historically, local administrators have faced a subordinate dependence, often acting as "hostages" to parliamentary amendments and the political discretion of Brasília to carry out basic investments. The consolidation of state and municipal lotteries offers a path to political liberation: by generating their own earmarked revenue for social welfare, the Governor and the Mayor cease to be beggars for favors in the offices of the National Congress.

The goal is not isolation, but administrative dignity. When the federated entity has autonomous financial breathing room, it recovers the ability to plan regional development without the shackles of partisan bargaining or submission to the risks of the model for capturing, approving, and executing parliamentary amendments, which everyone knows how it works in practice. 

If the Supreme Court consolidates this understanding, reinforcing the rulings in ADPFs 492 and 493, we will see a reconfiguration of power in Brazil: a federation in which social development is financed by the efficiency of local and state management, and no longer conditioned on political concessions subordinated to third parties. Constitutional autonomy is ceasing to be a theoretical promise and becoming a financial reality.