Brazilian State lotteries controversies

Last Friday (22), the Ministry of Finance sent a notice to Loterj (Loteria do Estado do Rio de Janeiro) to stop accrediting online sportsbooks, or "bets", in the current way.

In Lottopar's opinion, as pointed out in the lawsuit, Loterj, by rectifying its public notice for the accreditation of companies to operate sports betting, ended up allowing bets to operate outside the territory of Rio de Janeiro, which would be contrary to a decision by the Federal Supreme Court (STF) regarding limits on the operation of lotteries by the states. 

The notification sent by the Ministry of Finance follows the same line. The Ministry maintains that Loterj is accrediting the bets without establishing a lock for the companies to operate only in the state of Rio de Janeiro, which, in the Treasury's view, would be prohibited by Law 14.790 of 2023. 

"This Loterj controversy is just the tip of an iceberg that has the potential to generate serious risks to the opening up of the betting market in Brazil," warns Fabiano Jantalia, founding partner of Jantalia Advogados and a specialist in gaming law. For him, the regulation of betting and state lotteries, in general, urgently needs a "shock of order, a brake". 

"Although we already have a modern and consistent federal law, we are plunged into a legal limbo due to the lack of the expected regulation. This is what is leading to various confusions and distortions in the application of the law by some state lotteries," argues Jantalia.

Controversy Review

In 1944, Decree-Law No. 6,259, which regulated the operation of lotteries in Brazil, allowed states to operate lotteries indirectly through concessions, but established that state lotteries were "restricted to the limits of the respective state". Given the legislative authorisation, the states began to structure and operate their own lotteries exclusively within their territories. 

In 1967, the creation of new state lotteries was prohibited by Decree-Law no. 204, which established a federal monopoly on the operation of lotteries, maintaining only the state lotteries established up to 27 February 1967. 

This scenario only changed with the 1988 Constitution, which, in article 22, item XX, established the exclusive competence of the Union to legislate on consortium and lottery systems, which raised a question about the constitutionality of the prohibition on the operation of lotteries by the states. 

Faced with this doubt, the matter was brought to the STF by the state lotteries themselves. In 2020, the Court ruled that, with due regard for the principles of territoriality, state autonomy and the stability of the federal pact, the Union's legislative competence cannot exclude the material competence of the states to operate lottery activities. In other words, the Court recognised the competence of the states to operate state lotteries, within the limits of their territories, in an environment of coexistence with federal lotteries, which are national in scope. 

At the end of 2023, Law No. 14,790 was sanctioned, responsible for giving legal treatment to the fixed-quota lotteries that had been created in 2018 by Law No. 13,756, which had already given the Ministry of Finance the power to regulate the activity of bets in Brazil. The four-year deadline set by the law for regulation, however, was not met. 

In February 2024, the Ministry of Finance set up the Secretariat for Prizes and Betting, which was given the power to regulate the sports betting market - dealing with sensitive issues such as preventing money laundering, responsible gambling, advertising and marketing - and to authorise the operation of betting in Brazil. Regulation, however, is still in its infancy, with only two ordinances having been issued, creating a regulatory vacuum. 

Legal uncertainty 

Until the Federal Government issues all the necessary regulations and opens the authorisation procedure, states and even municipalities have been trying to get ahead of the Federal Government, hoping to attract operators with lower fees and taxes. 

"The problem is that these accreditation notices and even the supervision of state lotteries have been based on misinterpretations of both the STF's decisions on the subject and the provisions of the federal gambling law," says Jantalia. The lawyer also argues that this is creating growing legal uncertainty for the sector. "If this isn't resolved promptly and properly, we run the serious risk of generating a lottery war and driving operators away, jeopardising all the efforts made by the Executive Branch and the National Congress to open up this market," says Jantalia.

By Fabiano Jantalia