Neil Montgomery evaluates Brazil's election and the market's "unpredictable" future

What are your immediate thoughts on the election result from the gambling perspective? 

I think everyone in the industry expected a different outcome. Theoretically, a Bolsonaro presidency would have been more optimistic than a Lula presidency, as Bolsonaro had indicated he would be more favorable toward the return of sports betting. He might also have been more open to dialogue about online gaming, which is essential because sports betting alone would not be enough to sustain the Brazilian market. It was the same discussion we had during the 2023 legislative process, when online gaming was included toward the end. That was the only solution that would genuinely benefit the market. Now it's up to Congress and the Supreme Court to determine what happens next. 

What does the industry need to do before the November 23 congressional debate deadline? The provisional measure was issued on September 25, so the first 60-day period should end around November 23. However, there is an automatic extension for another 60 days, and Congress will also go into recess. 

If there is a political desire to change things, Congress needs to act quickly. The opposition could use this as an opportunity to push for faster action. We're also waiting for a Supreme Court ruling, at least from the rapporteur, Luiz Fux. Perhaps we'll hear some news this week, although I don't think anybody knows exactly what will happen. Hopefully, we'll see some light at the end of the tunnel with regards to more clarity in the short term. 

Walk me through some of the major pitfalls here: What does Brazil really stand to lose, in your opinion, and what are the key points of contention from a legal standpoint? 

The greatest loss will undoubtedly be legal certainty. Not only the gaming industry but other regulated markets could be at risk because the same thing could happen to them. This sends the message that Brazil is not a safe place to do business. The consequences are particularly severe for Brazilian consumers. They have lost the protections provided by the legal market, which had been reducing the size of the illegal market. Now, with the stroke of a pen, the legal market has effectively disappeared.

Brazilian states still operate certain forms of gaming but not fixed-odds betting or online gaming. Their activities are limited to other lottery products, such as instant lotteries through video lottery terminals. The damage extends much further into the sporting ecosystem. Gaming operators were essential sponsors of Brazilian soccer franchises and other sporting events. Without that funding, these activities will suffer considerably. The Government is also losing substantial tax revenue and license fees, yet it is unwilling to reimburse operators on a pro-rata basis. Worse still, government attorneys have filed a lawsuit against the 17 largest operators, seeking compensation for alleged damage to the public health system. 

The message is completely wrong. These operators paid substantial amounts for their licenses and followed strict regulations, even as they faced tax increases. This is not the operators' fault; it is the government's responsibility. If anyone needs to reimburse the public health system, it should be the Brazilian Federal Government, not operators that complied with the rules that the Government, itself, laid out for them. I think we have gloomy days ahead. Brazil's future is unpredictable. Latin America has shifted considerably to the right, while Brazil remains one of the region's major economies governed by the left. It is also unclear how this will affect relations with neighboring countries and the United States, which has considerable influence in the region. 

It's disappointing. I wanted to see change, and it's upsetting that there wasn't a more balanced political alternative. 

With public opinion on betting so low in Brazil, do you feel in any way that Lula's hand was forced? 

I think Brazilian society is hypocritical to a certain extent. My impression is that the government does not take the population seriously, treating people as though they cannot think for themselves or exercise the discipline needed to view gambling as entertainment. Gambling addiction is recognized worldwide. Brazil is no exception. However, because gambling was prohibited for eight decades, the stigma surrounding it remains substantial.

I increasingly wonder whether the illegal market, including jogo do bicho, had some influence behind the scenes in Brasília. What happened defies logic because it eliminates jobs, tax revenue, investment and consumer protection. Brazil had been praised for establishing a regulatory framework that included facial recognition, know-your-customer (KYC) requirements and anti-money laundering (AML) controls. In some cases, these requirements were stricter than those imposed on banks. Now, all of that has effectively been thrown away. 

The outcome does not surprise me. I previously said a ban was highly likely for several reasons. First, Lula did something similar with bingo in 2004, shutting down an activity that had been permitted during his administration. Second, earlier this year, he announced at the United Nations General Assembly that he intended to ban betting. He could hardly make that announcement at an international forum and then do nothing. Third, I believe Lula was concerned about his legacy as a world leader. I think Lula did not want to be remembered as the president who legalized gambling and allowed it to contribute to debt and addiction. He was willing to do whatever it took to avoid that image. I even wonder whether former Secretary Dudenna left the Secretariat of Prizes and Betting (SPA) months ago because he anticipated what was coming and did not want to be involved. 

The SPA has now been reorganized. Can you walk us through your interpretation of this decision and explain what you think some of the regulator's key failings have been? 

The main problem was a disconnect between the regulator and political leaders. The SPA is part of the executive branch, but it often appeared to be a passenger rather than a co-pilot working alongside the government. The SPA did a very good job implementing regulations and building the regulatory framework. However, it lacked the influence to convince the president that regulation was better than prohibition because it protects all stakeholders, including the government, operators and players.

Gambling will always exist. Brazilians are no different from people anywhere else in the world, and alternatives will always be available. Players may continue using offshore platforms or other gambling opportunities, including cruise ships and unofficial land-based casinos. Meanwhile, jogo do bicho operators may benefit from the dismantling of the regulated market. 

We don't know what forces are behind these developments. We can see only a small part of the picture, and there may be much happening behind the scenes that we will never know about. Nevertheless, I expect things to improve. Congress and the judiciary need to act, while the SPA, or whatever remains of it, should listen to outside perspectives and help convince the president that banning gambling is not the solution. Brazil needs to regulate the market properly and protect consumers rather than prohibit gambling altogether. It cannot simply bury its head in the sand and do nothing. 

Overall, does this leave Brazil's betting industry in worse shape than it was before regulation? 

Yes. The provisional measure currently in force effectively has the force of law and changes the legal framework that existed before regulation by revoking the 2018 and 2023 laws. 

It also specifically states that offshore operators accessing the Brazilian market would be acting illegally. Previously, there was a gray area: the argument was that Brazil's criminal contraventions law applied only to acts committed within the country's territory. Offshore operators based outside Brazil, in jurisdictions where they were duly licensed, could therefore argue that accessing the Brazilian market was not prohibited. 

With the provisional measure now in force, the situation is very different. There is also a bill seeking to criminalize this type of activity. 

As of October 26, the situation is therefore worse than it was before the 2018 and 2023 laws and regulations.