At the beginning, Neil Montgomery began by giving a little history regarding “the great giant of Brazil, which has been waiting for its legal framework to be concluded for a long time. We Brazilians really like games of chance and skill ,too. But since the 1940s, gambling has been prohibited in Brazil and it is considered as a criminal contravention. In other words, gambling is not a crime, it is  aless powerful criminal offense. This has changed a little over the last few decades., because we also had the return of bingo during the Lula government. But that was temporary.”

And he added “Later he was criminalized again. And then in 2018 came the legalization of sports betting. And unlike other countries in the world, in Brazil sports betting was legalized as a lottery modality. And the Brazilian legislature took advantage of a bill that was approved by Congress for the allocation of lottery resources and included a specific chapter legalizing fixed-odds sports betting. For the first time in over 70 years of prohibition, we had the legalization of at least one vertical. As you know, in Brazil we really like sports, mainly soccer.  And it was for the first time in 2018 that sports betting was legalized. This law has been expected since then. The law said that the Executive had 4 years in total to issue the regulations".

In this sense, Montgomery pointed out that “Unfortunately, the Bolsonaro government did nothing in those 4 years. And then the deadline passed and it was the third Lula government, in 2023, that had the arduous task of getting a law approved in the National Congress that has further regulated the 2018 law and with great courage has also legalized online games at Brazil. But between 2018 and 2023 there was a very important ruling from our Supreme Court that said that the federal government's monopoly on lotteries was no longer possible. And that brought a great opportunity for the game. Because? As I said before, sports betting was legalized as a lottery modality. And to the extent that the federal government no longer had a monopoly on the exploitation of lotteries, that opened an incredible opportunity for states and municipalities to be able to license traditional lotteries and sports betting in their respective territories. That in 2020. And in fact, many Brazilian states have made their own legislation. And now we have many Brazilian states where you can obtain state licenses.”

The case of Rio de Janeiro

Regarding the particular legal situation that occurs in Rio de Janeiro, Montgomery explained that “Perhaps the most important, let's get to it, is the license from the state of Rio de Janeiro. Later, with the 2023 law, these operators were also allowed to exploit online games. Because in theory, state licenses would only allow operators to advance within the state territory by accepting bets from people, from people who are located, located within the state. But there arose the innovation of being able to accept bets outside the territory to the extent that the operator and the bettor had to sign an electronic statement confirming that the bet would be considered to have been made within the state. And that, of course, has caused big problems not only with other states that also license, but also with our federal government. There is already litigation underway trying to change that, but since everything that happens in Brazil takes a long time to happen, this fight may drag on for quite some time. And the license in states like Rio de Janeiro has its advantages because, first of all, it is much cheaper than the federal license that we are going to talk about later. The federal license costs 30 million reais and the state license in Rio de Janeiro costs 5 million reais. Furthermore, the GGR tax at the federal level is 12% when the state GGR in Rio de Janeiro is only 5%. So, it has had a lot of attraction from those interested in getting a license in Rio de Janeiro. As I said, in 2018 sports betting was legalized.”

Law 14790

Another central point of the conference was the story about the moment in which “the 2023 law came out, but shortly before law 14790 came out, the Ministry of Finance issued a normative ordinance of 1330 that already provided for some general rules that could be in the future law and They also invited those interested in requiring a federal license to submit a prior expression of interest that, according to the government at this time, would give them a preference in the federal license procedures. So, at this time, 134 companies expressed their prior interest in a federal license and with that they were also able to participate in a testing phase that only ended in this year of 2024 and they were able to see how the system developed by the Ministry of Finance and by SERPRO, which is the data processing company of the federal government.”

“But the big milestone was, almost in the last days of 2023, with the promulgation of Law 14790. There was quite a bit of discussion in the National Congress. Online games were seen as a large source of taxes for the federal government, which since it took office in 2023, had the plan to achieve zero fiscal deficit. In this way, it is a very important source of resources for the federal government. And with this purpose they managed, at the last moment, to also add the legalization of online games, in addition to fixed-odds sports betting. So, this was a very important regulatory framework.”

“Now this law also establishes a six-month period for those operators who access the Brazilian market to obtain a license from the moment the licensing ordinance is published. So we began the year of 2024 waiting for when these ordinances would be issued. And before they were broadcast, as you seem to hear in Tomás' previous talk, there was a demand for local participation. The Brazilian Congress also wanted to copy this idea, including in the law a minimum corporate participation of Brazilian partners of 20%. But it did not say whether this partner, a Brazilian shareholder, had to be a natural or legal person. It seems to me that perhaps Congress has had the idea of ​​requiring a natural person, as many had rumors in Congress, in the Ministry of Finance, but in my opinion, since the law came out, the shareholder could be either a natural person or legal person".

"We have spent practically six months there since the beginning of the year and only last week it was officially confirmed by the Ministry of Finance that the Brazilian 20% partner can be a natural or legal person. So, since the beginning of the year, for my clients who are all foreign operators, who have an interest in Brazil, I always told them that to meet this 20% requirement, what they would have to do, as foreign companies that they are, would be to first establish a holding company in Brazil, under Brazilian laws, with its administration and headquarters in Brazil. And that would be then, this company would be considered Brazilian.”

What will the licenses be like?

At this point in his presentation Montgomery highlighted that “the license costs 30 million reais at the federal level, it will have a validity period of 5 years and 3 brands can be promoted under the license. We still do not have information about what will happen when the 5-year period is reached, whether it will be renewable or not, what the conditions are or what the price will also be in 5 years. But the previous expression of interest last year where 134 companies presented their interest already shows that there is a lot of interest in the Brazilian market. The Brazilian legislature created a GGR of 12% and also a monthly inspection fee that varies from 54 thousand reais to more than a million reais depending on the monthly GGR. So, as you can see, there is quite a bit of tax that is payable if you get a federal license. That is why the state license, for example, from January 8, becomes very attractive. For the player, President Lula vetoed the provisions of the law that dealt with the issue, but these vetoes were recently canceled. So what is going to happen is that the player will have to pay an income tax of 15% annually. That is, you may have to do it together with your annual income tax return. And that would be 15% of what we call the exemption phase. That is, there is an annual value on which there will be no tax. Only what exceeds this exemption will then have to pay 15% income tax. Then there was an ordinance number 615 that deals with the means of payment and what the requirements are. And in general, there were many means of payment that were involved in the gambling market in Brazil that did not have a license from the Central Bank, either because they did not need it or because they had not yet obtained it. But now the law is very clear, only payment institutions or banks that have a license from the Central Bank will be able to act in this gambling market. So, there is a race to obtain this license from the Central Bank because only they will be able to act in the regulated market. Regulatory ordinance 722 was also issued on the technical and security requirements of gaming systems. And the most important one that came most recently was 827, which establishes the entire licensing process at the federal level.”

And he added “this ordinance is also very important because it has established the date, the cut-off date between what will cease to be the gray market, because until now, as I said before, most of the operators have entered the Brazilian market outside Brazil. And that has not been considered a criminal contravention to the extent that they are operating from jurisdictions where they are licensed, their servers are outside of Brazil as well, that is, the criminal contravention law that has an express provision saying that it only applies in criminal offenses that are committed within the Brazilian national territory, such as foreign operators. They are operating from outside and there is not even a legal opinion from the Brazilian Federal Police saying that it is not a criminal contravention. But that's all going to change now. As of January 1, 2025, whoever does not have a license, whether federal or state, will be illegal in the black market and will have great difficulty because only the regulated market will have advertising channels and payment methods available as well. . And for the National Treasury to guarantee that federal licenses will be available on December 31, it established the date of August 20 for operators regarding their online requirement.”

In closing he explained “The clock is already ticking, we are on deadline, we already had the first request presented by the Betano company, more or less a week after the ordinance came out, which was in record time. I don't know if they had any privileged information there or not, but in just a week they managed to enter with their request. So all other foreign operators interested in federal licenses are working with their lawyers to meet that August 20 deadline by December 31 and all federal licenses will be issued simultaneously on December 31.”