On the eve of its regulation, the Brazilian online betting market is beginning to show its power to attract international investment, amid expectations that the country will become one of the largest in the world in this sector in the coming years.
“More than 30 companies have shown interest in our business,” says André Gelfi, partner of the Brazilian company Suaposta, whose control was acquired last week by the Swedish company Betsson. “In six months I made 10 trips to Europe to negotiate [with all potential buyers],” says the businessman.
According to the agreement, announced on Thursday, Betsson will hold a 75% stake in the company. The remaining 25% will stay with Gelfi and his partner Fernando Corrêa. The financial details were not disclosed.
Suaposta was created in September of last year, after Gelfi and Corrêa completed the purchase of the online betting division of the Spanish company Codere in Brazil. It was a "management buyout" operation, in which the managers of a company acquire its control. Gelfi was the general manager of Codere in the country and Corrêa, the financial director.
The Brazilian company is focused on horse racing, one of the two regulated betting modalities in the country. The other is lotteries. The expectation, however, is that this scenario will change radically in the coming months, with the end of restrictions and the expansion of betting to other sports. This is what is attracting the attention of companies like Betsson, one of the five largest online betting companies in the world.
The legislation that legalizes sports betting in the country – extending the practice beyond horse racing – already exists. It's Law 13.756/2018, enacted last December. But for the market to expand, the law needs to be regulated; without it, licenses cannot be granted to companies. After waiting for definitions for almost a year, many people in the market believe that the rules will be defined soon. Judging by the government's actions, the expectation is that the law will be regulated by the end of the next semester, or even well before then.
With regulation, the projection is that the Brazilian online betting market, which currently generates around R$ 800 million per year, will grow to approximately US$ 6 billion annually within four or five years, says Gelfi, citing data from a study by the consulting firm KPMG.
At Suaposta, the predominant profile of bettors is that of men over 45 years old, who have in-depth knowledge of horse racing and see betting as a chance to make money from their hobby. The company has a partnership with the Jockey Club of Rio Grande do Sul and pays licenses so that users can bet on international races.
With the expansion of activities to other sports, Gelfi states, the expectation is that the audience will grow, with the entry of younger people of both sexes, and with a social distribution capable of better reflecting the Brazilian economic pyramid. The main attraction will be the possibility of betting on football matches, whose participation could easily reach 85% of the total activity, predicts Gelfi.
In the market, one of the central issues expected to be the revision of the tax burden is expected. Currently, the tax rate is 3% on betting volume, which companies consider too high.
The problem, says Gelfi, is that online betting services pay out many prizes on small amounts. “It’s different from lotteries, where a person can win a fortune and change their life,” he states. According to the businessman, the statistical probability is that the bettor will receive back between 90% and 92% of the amount wagered. On a R$10 bet, that would be just over R$9. The company would therefore retain 8% of the wagered amount. But the tax is levied on the total value of the bet. “In practice, it’s more than 30% of the revenue,” says Gelfi. The government is reportedly working with the hypothesis of a 1% tax rate.
Beyond taxes, the sector faces an intangible issue: public rejection, where betting may encourage gambling addiction. This is a risk that technology has helped to mitigate, says Gelfi. "The internet offers the benefit of allowing us to monitor the customer," he says. Digital tools can identify compulsive behaviors and establish control mechanisms, including blocking access by family members, depending on the case.
At Betsson, the businessman says, there are around 500 programmers working full-time to improve the platform.
Regulation, Gelfi argues, can also have a positive effect in curbing compulsive behavior because today many Brazilians gamble on illegal websites that do not follow existing rules. "There is no precaution whatsoever regarding this problem," he states. ( Valor Econômico )
