The São Paulo government is preparing for the state lottery concession auction, which will take place on the São Paulo Stock Exchange (B3) on September 13th. In this way, the exploration of the lottery market, considered highly profitable, was authorized for states and municipalities.
All this, after the decision of the Federal Supreme Court (STF) in 2020, which declared that the Union does not have a monopoly on the exploration of the business.
Legal context and disputes
In 2023, the National Congress approved the Sports Betting Law (Law 14,790/2023), causing dissatisfaction in state governments such as São Paulo, Minas Gerais, Acre, Paraná, Mato Grosso do Sul, Rio de Janeiro and the Federal District.
This law prevents the same economic group from obtaining concessions in more than one state. Thus, benefiting the Union, since the concession and payment of a federal grant allows the company to operate throughout the country.
The dispute between states and the Union involves billions of dollars in revenue from concession sales and tax collection from the sector. The approval of Law 14,790/2023 was a priority of the Minister of Finance, Fernando Haddad, and the Lula government to increase tax revenue.
Contrary to parts of the legislation, six states entered the STF with a Direct Action of Unconstitutionality (ADI). Edgard Bezonatti Neto, CEO of Companhia Paulista de Parcerias says:
“We are awaiting the decision very optimistic about what is coming, as the STF has been very thoughtful in this regard, the decisions have been technical and positive.”
Taxation and location
The São Paulo project is based on the 2020 STF decision. Therefore, the tax on the betting operation will apply depending on the location where the user makes the purchase.
“The interpretation that the state of São Paulo is making of this, which is reasonably pacified, is that the player needs to be in São Paulo to be able to bet on our lottery,” explained Edgard Bezonatti Neto.
To do this, the lottery website must identify the user’s geolocation through the IP or services of the mobile device. If the player is outside the state of São Paulo, he will not be able to place bets. Bezonatti Neto believes that the ADI trial will take place before the auction.
“We have very positive prospects, regardless of ADI’s decision, because we have put some mechanisms into the contract that would allow us to accommodate a later decision,” he stated.
Betting market and investor interest
A report by XP Investimentos in January showed that companies in the sector would earn R$13 billion in Brazil in 2023. Therefore, this represents an increase of 71% compared to 2020.
The estimate for the total value of bets last year was between R$100 billion and R$120 billion, representing approximately 1% of Brazilian GDP.
Ricardo Bianco Rosada, partner at brmkt.co, a strategic and marketing consultancy, highlighted that in 2024 the market numbers will grow.
“This year we think that all the bets that exist in Brazil will generate R$ 250 billion, with 37% of this value coming from the state of São Paulo,” he says.
To compete with federal licenses, Rosada highlights the need to offer an attractive product. “If the grant and taxation are too high, it is not attractive for companies,” he added.
Edson Lenzi, executive director of PayBrokers, specialized in iGaming and lotteries, comments that the fact that São Paulo is the richest state in the country is reflected in betting. “It is a market that, in terms of transaction volume and revenue values, is closely equivalent to the market in England or France,” he pointed out.
Details of the São Paulo project
The Tarcísio de Freitas government’s concession project provides for a variable grant of 35% of the concessionaire’s gross operating revenue. Thus, projected at R$3.4 billion over 15 years, destined for investments in the health sector.
The five types of service that can be explored include:
- Specific prediction lottery (predictions for different games)
- Sports prediction lottery (goal prediction in matches)
- Numerical prediction lottery (e.g. Mega-Sena, Quina)
- Instant lottery (e.g. Scratchcard and Lotex)
- Passive lottery (e.g. Federal Lottery and Christmas Lottery)
31 exclusive points of sale will be installed in all regions of the state of São Paulo, in addition to 11 thousand non-exclusive points of sale. Companies must present anti-money laundering and responsible gaming plans, in addition to obtaining certifications such as WLA, GLI and ISO.
Finally, the Public Services Regulatory Agency of the State of São Paulo (Arsesp) will be responsible for monitoring the contract, with the support of an independent verifier. Furthermore, major international players, such as IGT and Scientific Games, have shown interest in the São Paulo concession.
