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Challenges iGaming operators might face after regulations in Brazil

What Challenges iGaming operators might face after regulations in Brazil

Currently, only 12.3% of Brazil’s online gambling market comprises licensed betting brands. On the other hand, 3,674 illegal operators were active and live in H1, while 1,587 affiliates promoted them. 

On 17 September, Brazil’s Ministry of Finance declared that enforcement actions against unlicensed operators would start at the beginning of October. This means that only operators who have submitted a license application and are already active in Brazil will be able to continue operating. The key licensing deadline passed on 1 October, and 193 brands were officially registered. 

After that, some additions were made. Now, the final list comprises 251 companies. The transition period will last until the end of 2024, and the legal market will be officially launched from 1 January 2025

But is it all? You might ask, and no, it’s not. The transition always entails some challenges that need to be dealt with. Moreover, when talking about the Brazilian Market (which is the front-runner in the LatAm Sports Betting Market), there are various opinions about the possible complications concerning its state in the future. These aspects need to be voiced and discussed. And you should know about them if you are thinking about entering the Brazilian market or planning to start sportsbook in Brazil. So, let’s get into it. In the article, we will discuss the challenges that iGaming operators might face during and after the regulations in Brazil.

Underground Market

Currently, 251 licensed betting companies (registered by 100 operators) are allowed to operate in Brazil. Meanwhile, the new regulations will force around 2,040 betting sites to cease operations. Officials have already ordered the National Telecommunications Agency (Anatel) to block these websites. 

This move is part of the government’s effort to enhance consumer protection and create a safer, more transparent environment for bettors. Nonetheless, it represents a possible threat, too. 

In the interview about Brazil Gambling Regulation, we mentioned the possibility of evolving the underground black market. Considering that more than 80% of betting sites previously active in Brazil will be banned from continuing their operations in the local market, the possibility and prospect of going underground are very tangible. 

Let’s review this type of activity in the last months. Yield Sec’s data estimates that 49 million Brazilians, or 23% of the country’s population, participated in black market gambling during the first half of 2024. This marks an increase from 2023, when 41 million Brazilians, or 19% of the population, engaged in illegal online gambling throughout the entire year.

Well, what I am saying is that a considerable number of the “left-out” companies may choose to go on the “dark side” and continue to offer their services to Brazilian users, who will not supposedly turn them down just because the local authorities don’t license them. 

This is one of the challenges that, if proven to be real, will remain active after the market is regulated. Although, officials and government representatives claim that unlicensed operators won’t stand a chance to continue operating in Brazil. 

They have various methods to ensure this. First, once the illegal betting site is spotted, the responsible agencies will transmit information to Anatel, and they’ll block the domain.

On the other hand, the main point is that gambling transfers were mainly carried out by Pix, a fast payment system run by the Central Bank.

The government claims that with the new gambling rules in Brazil, payments made through Pix to unapproved gambling operators (those not on the SPA list) will be blocked by the Central Bank. 

Pix will play an important role in helping the government crack down on illegal gambling before the legal market starts on January 1, 2025.

While this is the legal claim, what will happen behind the curtain is unknown. Unlicensed operators may still find an open window to make transactions look legal, creating an unbalanced economy. While licensed operators will pay taxes, the black market leakage will also take a share, reducing the revenue for the officials and licensed operators. 

High Cost of License and Heavy Tax Regime

We’ve mentioned that the new regulations in Brazil’s iGaming industry present challenges for operators. These challenges are particularly acute when it comes to the high license costs and heavy tax burden. 

One of the biggest hurdles is the licensing fee, which is set at 30 million Brazilian Reals (about 5.3 million USD). This is a considerable amount, in fact, the price is higher than any other popular online casino licenses you might have heard of, and many operators may struggle to afford it. For some, the high cost might even make them question if it’s worth running a legal business in Brazil at all. They might look at the fee, plus the taxes, and decide that operating legally in the country won’t be profitable.

In addition to the expensive license, the tax system in Brazil could also be a challenge for some. iGaming operators have to pay 12% of their Gross Gaming Revenue (GGR) on top of a 15% Corporate Income Tax.

Moreover, there’s an extra 10% tax on any profits above 240,000 Brazilian Reals (around 43,600 USD) per year. These multiple taxes can add up quickly, cutting into the profits of even the most successful operators. For smaller companies, if somehow they managed to pay the license fee, it could be a deal-breaker, making it hard to stay afloat in such a highly regulated and taxed environment.

There’s also a 15% tax on player winnings if their net annual gambling winnings are equal to or above R$27,110.40 (about $4,923). This tax is directed at players for the sake of reducing the rate of gambling-related problems in society.

Well, the truth is that only this measure won’t be enough to handle this problem. On the other hand, some high-rollers might be discouraged if they know they’ll lose a chunk of their winnings to taxes. But, honestly, that’s the least problematic among the challenges operators might face.

Money Laundering and the Enactment of AML Rules

Money laundering was an active topic in Brazil in recent years, and it still is. Operators must be concerned because they might lose massive funds due to such activities.

If somehow (willingly or unwillingly) an operator is one of the links of the ML chain, it poses a tremendous threat of reputational damage. It’s the end of the business; no player will stay on your platform, and the ones who will (by a miracle) will change their betting habits significantly.  

Well, hopefully, the new Brazilian regulations also introduce measures to combat money laundering. As a result, betting companies must maintain a solid corporate structure with a good reputation and put in place systems to monitor any suspicious financial activity.

Any bets over R$10,000 (US$ 1,834.85) must be reported to COAF, the Financial Activities Control Council. In addition, all betting operators in Brazil are required to establish internal controls and implement AML/FTP (Anti-Money Laundering and Financing of Terrorism Prevention) risk assessment frameworks for gamblers, betting operators, and employees, ensuring that the flow of funds in online betting is properly monitored.

Operators are also required to have identification processes in place that can verify and confirm the identity of gamblers and platform users during their registration.

These regulations will protect iGaming operators and their players from the harmful effects of money laundering. So, considering the fact that the operators will follow stringent rules and guidelines, money laundering should not be a serious problem for them.

But, taking into account that Brazil (and its gambling sector) was a fertile ground for such activities, the transition period and the ongoing changes will be complex and it’ll take time to stabilize the market. How operators handle this challenge is up to them; it won’t only be about the formal acceptance of the declared rules but also the strict enactment of these measures in practice. 

Final Thoughts

Despite these challenges, the Brazilian market is still booming. It presents significant opportunities for operators with the resources to navigate the regulatory landscape (Check out the article: Brazil’s Betting Boom: A Closer Look at Average Bet Growth). The Brazilian market can be extremely rewarding for large international companies and established operators with solid financial backing. These operators have the resources to pay the hefty license fee and manage the tax requirements while still generating healthy profits. 

Brazil also offers a promising prospect for medium-sized operators with slightly larger resources. While the initial financial investment may be steep, those who can manage the upfront costs and taxation structure could find long-term success. Brazil’s vast market potential means that the operators who can establish a foothold could experience significant growth.

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