How to design a state lottery
Since the Supreme Federal Court ruled on ADPF 492, ADPF 493, and ADI 4.986 in 2020, it has been established that the Union does not hold exclusive material rights over the operation of lottery services. The Union's exclusive competence to legislate on consortium and lottery systems remains; the States and the Federal District are responsible for operating, within their territories, the lottery modalities provided for in federal legislation, observing the applicable legal limits.
This distinction may seem technical, but it is crucial. It defines what the State can exploit, how it can organize its regulatory structure, and, above all, how far it can reach the bettor in the digital environment. Law No. 14.790/2023 made this point even more explicit by regulating the operation of lotteries by the States and the Federal District and establishing territorial limits for commercialization and advertising.
Since then, several states have announced or structured lotteries. In many cases, the debate has focused on the announcement, when the most important decisions had been made beforehand: institutional design, police powers, technology, oversight, responsible gaming, payment methods, territoriality, and operator capacity.
This text is about those decisions. There are twelve. Some can be corrected later; almost none can be corrected cheaply.
I – Where the lottery resides matters less than the freedom to work.
The first question is usually which state structure the lottery will be linked to: the Civil House, the Treasury Department, the Administration Department, a state partnership program, or another administrative structure. Each choice carries advantages and risks.
Linked to the Treasury, the lottery gains proximity to the fiscal and revenue-collecting structure. The necessary precaution is to preserve the independence between the revenue-collecting purpose and the regulatory function: decisions regarding the protection of bettors, integrity, or compliance cannot be subordinated to maximizing revenue.
Linked to the Civil House, it gains horizontal coordination capacity and institutional access to the center of government. The state lottery requires dialogue with public security, health, education, technology, the Attorney General's Office, consumer protection agencies, and regulatory bodies. The risk is that regulatory activity will become excessively exposed to the Executive's political agenda.
Linked to the Administration, it tends to operate in a more neutral environment, but may have less coordinating power. The model works best when the entity has sufficient decisional, financial, and administrative autonomy.
Placed within a state partnership program, there must be a clear separation between structuring the contract and regulating the service throughout its execution. Modeling and bidding have a defined timeframe; regulation and oversight remain throughout the life of the operation.
A multi-sector regulatory agency can also perform regulatory functions if there is an adequate legal basis, specialization, technical structure, and capacity for continuous monitoring. Lotteries are not regulated solely through periodic reviews: they require monitoring of transactions, games, payments, advertising, integrity, and the protection of bettors.
The state of Paraná illustrates how the affiliation can change without altering the nature of the autonomous entity. Lottopar was initially linked to the State Secretariat of Finance; State Law No. 21.231/2022 transferred its affiliation to the State Secretariat of Administration and Social Security as of 2023; and State Law No. 22.108/2024 linked it to the Civil House. The preserved structural element was its legal personality under public law, its own revenue, technical, administrative, financial and patrimonial autonomy, and its power of oversight.
Regardless of its position on the organizational chart, what determines the outcome is the institution's ability to work with technical independence: issuing regulations within its area of expertise, overseeing without undue interference, processing applications, contracting necessary resources within legal limits, and supporting unpopular decisions when they are technically necessary.
Recommendation: Negotiate autonomy, competencies, and resources before discussing only the linkage. An organizational chart without decision-making capacity is a design, not governance.
II – Legal form: four paths, four sets of advantages and disadvantages.
The second decision concerns the legal form of the entity. There is no universally perfect form; there is the structure that is most suitable for the role the State intends to play.
Superintendency — a direct administration body without its own legal personality. It can be useful as an initial or transitional structure, but its budgetary and contractual autonomy is limited, and its decisions remain embedded within the hierarchical chain of the body to which it is subordinate.
State-owned enterprise — a public company or mixed-economy company subject, among other regulations, to Law No. 13.303/2016. It may be suitable when the State intends to carry out operational or business activities. However, the exercise of typical administrative police powers, especially authorization, coercive inspection, and application of sanctions, requires a specific legal basis and must be structured in a way that avoids conflict between those who operate and those who control.
SPE — Special Purpose Entity. It is a useful tool for the concessionaire because it segregates assets, liabilities, and accounting from the operation. As a governance rule, it may be required of the winning bidder. However, it should not be confused with the regulatory body nor create a situation where the State is simultaneously an economic partner and supervisor of the same operation.
Autonomous entity — a legal entity under public law. Among the models examined, it offers a particularly suitable combination for regulatory and supervisory functions because it can receive, by law, administrative and financial autonomy, its own revenues, sanctioning powers, and police powers.
This was the path adopted in Paraná. State Law No. 20.945/2021 established the public lottery service and created Lottopar; subsequent amendments consolidated the autonomous agency with its own revenue, technical, administrative, financial and asset management autonomy, and supervisory power. The design also separates operational exploitation from the public functions of authorization, accreditation, control, and supervision.
Recommendation: If the chosen option is an autonomous entity, the creation law should define operating revenues, oversight and sanctioning powers, governance, technical management requirements, and mechanisms to preserve operational capacity. Police power needs a legal basis; autonomy needs concrete instruments.
III – The power of policing is what seemed accessory and has become essential.
Coordination with security forces is one of the most underestimated aspects of the initial design. Without institutional integration, the regulator possesses technical knowledge but limited capacity to confront clandestine operations that also involve criminal offenses.
The state lottery does not exercise judicial police powers. Its role is different: to technically identify irregular operations, recognize equipment and systems, produce qualified information, point out regulatory discrepancies, and provide elements for the action of the competent bodies.
For this cooperation to work, the process must exist before the crisis: a reporting channel, triage, production of technical information, preservation of evidence, referral, and institutional feedback.
Internally, four elements are essential: normative definition of infractions; administrative sanctioning process with due process and full right to defense; criteria for determining penalties and effective collection mechanisms; and precautionary measures, when provided for by law or relevant regulation, to prevent further harm during the course of the proceedings.
Recommendation: Establish cooperation agreements with the relevant authorities before scaling up the operation and set up formal channels for reporting, monitoring, and sharing information.
IV – Management platform or full access to systems, but never auditing based solely on PDFs.
Periodic reports in PDF format can be part of the accountability process, but they should not be the primary source of oversight. They are a snapshot produced by the regulated entity itself. Effective oversight requires access to primary, traceable, and auditable data.
There are two possible models: a management and monitoring platform under the regulator's control, fed by all operators in a common standard; or direct, secure, and auditable access to the concessionaire's systems. In operations with multiple operators, the first alternative tends to facilitate standardization and comparability.
The regulator must be able to reconstruct, from transactional data, bets, prizes, deposits, withdrawals, chargebacks, registrations, gaming events, configuration changes, administrative logs, and audit trails. The test is simple: can the agency calculate and reconcile the GGR (Gross Gaming Revenue) without relying exclusively on the consolidated report produced by the operator?
It is important, however, to correctly address the legal nature of the data. Instead of generically declaring that all data 'belongs to the State', the contract and regulations must ensure that public authorities have full, timely, auditable, and preserved access to the data necessary for oversight, including after the termination of the contract for the applicable legal or regulatory period. Personal data remains subject to the LGPD (Brazilian General Data Protection Law), and software, architecture, and intellectual property follow the corresponding contractual regime.
The retention period should also be defined by data category, considering regulatory purpose, administrative statute of limitations, anti-money laundering obligations, information security, LGPD (Brazilian General Data Protection Law), and other applicable regulations — and not simply by the entire duration of the contract.
Recommendation: Establish data architecture, integration standards, audit trails, retention, continuity of access, and sanctions for unavailability or unjustified degradation of regulatory access.
V – The social aspect goes hand in hand, and there are two social aspects.
There is a recurring flaw in industry regulations: treating the social component solely as a source of revenue. This is insufficient. There are two distinct aspects.
The first is the public allocation of resources: assistance, health, education, culture, sports, security, or other legally defined purposes. The second is the protection of the bettor: prevention of harm, responsible gambling, self-exclusion, prudential limits, responsible advertising, protection of minors, and support channels.
These are complementary but independent principles. Directing revenue to a good cause does not neutralize the risk of gambling; similarly, a robust responsible gambling policy does not replace transparency regarding the use of collected funds.
In terms of allocation, transparency is essential: identifying beneficiaries, disclosing the amounts actually transferred, and allowing society to monitor the results of the public policy.
In terms of protecting bettors, the Brazilian scenario has evolved. At the federal level, the SPA/MF (Secretariat of Economic Policy/Ministry of Finance) implemented a centralized self-exclusion platform for fixed-odds betting operators authorized by it and made it mandatory to define prudential limits for financial and time losses. For the states, the challenge also involves harmonization and interoperability: preventing state and federal mechanisms from functioning as isolated entities.
This does not mean that a federal system automatically reaches state operators. It means that the state design must consider the coexistence of regimes and seek, within legal and technological possibilities, cooperation and exchange of information.
Recommendation: treat social purpose and responsible gambling as distinct policies, with their own indicators. And design gambler protection considering the current federal regulatory reality, including centralized self-exclusion and prudential limits.
VI – Without laboratories, you can't sleep.
Independent technical certification is not a mere formality of the bidding process. It is a layer of assurance that provides the regulator with evidence that the platform, game, RNG, integrations, and technical controls meet the defined requirements.
It is impractical to replicate internally, at scale, all the skills needed to continuously test software, security, cryptography, random number generation, reporting, and payment integrations. Independent, technically qualified laboratories reduce this asymmetry.
The model should provide for initial approval, criteria for relevant changes, recertification or periodic audits when necessary, and objective handling of non-conformities.
The laboratory can be contracted and paid for by the operator, but the regulatory design must preserve technical independence, regulator access to the report, and the ability to demand clarifications, retests, or additional audits.
Recommendation: Define in advance which components require certification, which changes require a new assessment, and what consequences result from non-compliance.
VII – This game is not for companies without structure.
Regulated lotteries and betting require capital, technology, compliance, customer service, information security, anti-money laundering measures, responsible gaming, and the capacity to operate long-term. A poorly sized contract can leave the State dependent on a company incapable of sustaining the operation.
Qualification should separately measure technical capacity and economic-financial capacity. Proven experience, team, systems, and compliance history do not replace assets and guarantees; assets, in turn, do not replace operational knowledge.
It is also necessary to identify who effectively controls and executes the operation. Structures in which a company presents the qualification and materially transfers the execution to unevaluated third parties create regulatory risk. The tender and the contract must cover ultimate beneficiaries, changes of control, relevant subcontracting, and responsibilities within the economic group, always within the limits permitted by applicable legislation.
Recommendation: require corporate transparency, inherent capacity or clearly attributed capacity to qualified members, approval of relevant subcontracts, compatible guarantees, and mechanisms to monitor changes in control during the contract.
VIII – Half-baked regulation creates a monster
The temptation to postpone issues is great: regulating the product and not the payment; the licensing and not the post-contract; the operator and not the affiliates; the entry and not the exit; the game and not the advertising.
Each gap transfers risk to the State. Before the operation, it is necessary to map out at least: licensing; technical requirements; certification; KYC; prevention of money laundering; payment methods; advertising and affiliates; responsible gaming; self-exclusion; data protection; access to systems; reporting obligations; sanctioning process; accounting oversight; continuity and termination of operations.
This does not mean freezing the regulation at the date of signing. Technological sectors require regulatory evolution. It is also incorrect to state that every subsequent regulation automatically generates economic and financial rebalancing. The economic and contractual consequence of a change depends on the contract, the risk matrix, the nature of the obligation, the predictability, and the applicable legal regime.
Therefore, the tender notice and the contract must stipulate from the outset that the activity is subject to legitimate regulatory evolution, define the allocation of risks, and establish the procedure for any request for compensation when the legal requirements are met.
Recommendation: Publish the essential regulatory framework before contracting and construct a contract capable of coexisting with regulatory evolution without turning every regulatory update into a rebalancing dispute.
IX – Those who don't want pressure and friction chose the wrong sector.
The company that operates the state lottery provides a public service or performs a delegated/authorized activity subject to intense supervision. Its system will be audited, its advertising questioned, its reports compared, and it will receive official letters, legal proceedings, and requests for information.
Regulatory friction should not be confused with instability. A stable environment is one in which the rule is known, the procedure is predictable, the decision is well-founded, and the operator knows that it will be audited.
The same applies to those who manage the agency. The role requires decisions that may go against operators, the government, suppliers, or short-term interests. The best institutional protection is not the absence of conflict; it is a well-structured administrative process.
This requires a qualified team and institutional continuity. The vision of those who decide must be compatible with the vision of the consequences of that decision.
Recommendation: Record meetings with regulated entities, publish agendas when required, implement a conflict of interest policy, provide justification for decisions, and maintain adequate technical and legal instruction in higher-risk actions.
X – Public security and the Public Prosecutor's Office need to be included in the institutional design.
The relationship with public security and the Public Prosecutor's Office should not be treated as a response to a crisis. It should be integrated into the lottery's architecture from the very beginning.
It is important, however, to separate markets and responsibilities. The authorized market is identifiable and subject to rules; the clandestine market is not subject to the same framework and, in certain segments, may be associated with money laundering, criminal organizations, and other illegal activities. Regulation exists, among other purposes, to make this boundary verifiable.
Transparency, institutional sharing of information within applicable legal frameworks, and operational cooperation help build trust. The regulator can contribute technical expertise; enforcement and control bodies act within their constitutional and legal competencies.
Measures against illegal domains, payments, and digital structures also require attention to jurisdiction. A state agency should not presume powers that the law has not granted it. Administrative or judicial blocks must observe the competent authority, due process, and, in the digital environment, the territorial scope of the operation.
Recommendation: Formalize cooperation, define information flows, and preserve the division of responsibilities. Combating illegal activity requires integrated work, not an informal expansion of the regulator's power.
XI – Means of payment are not commodities
Payment processing may be technically replaceable; however, the regulatory function it performs is not trivial. It is at the financial level that identification, ownership, deposit, withdrawal, rewards, blocks, limits, and various anti-money laundering controls materialize.
An integration failure can simultaneously affect the public body, the operator, and the consumer. Therefore, regulatory responsibility does not disappear simply because a particular function has been outsourced.
The design should include robust identification, age verification, account ownership verification, prevention of third-party payments, controls over prohibited instruments, integration with self-exclusion and blocking mechanisms, transaction monitoring, and audit trails.
Approval should focus on controls and integrations, not on a commercial preference for a particular supplier. The operator remains responsible to the regulator for the functions it outsources, without prejudice to the responsibilities of the other agents.
Recommendation: Test the payment system as a regulatory infrastructure. It's not enough to know if PIX (Brazil's instant payment system) has been implemented; it's necessary to know if it was implemented by the right person, in a permitted situation, with the correct controls and traceability.
XII – Territoriality: a state lottery needs to remain state-run in the digital environment.
This is one of the most important decisions in the contemporary model and cannot be treated as a footnote.
The Brazilian Supreme Court (STF) recognized the possibility of state-level operation of lottery services, but this did not transform the state authorization into a national authorization. Law No. 14.790/2023 incorporated specific rules for state-level operation into Law No. 13.756/2018: States and the Federal District may operate, within their territories, modalities provided for in federal legislation, and the commercialization and advertising in physical, electronic, or virtual media are subject to the territorial limits established by law.
In a face-to-face environment, the boundary is intuitive. In the digital world, it needs to be transformed into technical and contractual control. This involves location and domicile criteria stipulated by law, geolocation when applicable, registration rules, advertising, affiliates, digital channels, and monitoring of access attempts outside the permitted area.
This point also needs to be incorporated into the economic modeling. A state-level operator cannot develop its business plan as if it had a national market and then discover that its potential base is limited by territoriality. The legal restriction must be reflected in the projections, targets, and pricing of the concession.
It is also necessary to distinguish between state and federal licenses for fixed-odds betting. These are coexisting systems, with their own competencies, scopes, and obligations. Federal cooperation, including in harmonization forums, tends to be increasingly relevant in reducing asymmetries and grey areas.
Recommendation: transform territoriality into a verifiable technical requirement, a contractual clause, an economic and financial premise, and a permanent object of oversight. In the digital environment, a border that is not in the system exists only on paper.
Final consideration
It's not easy to align all these pieces. Administrative structure, legal form, police power, technology, certification, social purpose, bettor protection, public safety, payment methods, territoriality, and people all move at different paces.
The project faces institutional resistance when decisions are made based on technical and legal grounds, documented, subject to controls, and transformed into verifiable processes. Short-term convenience rarely survives changes in government, audits, legal action, or reputational crises.
A company that takes over a state lottery operation needs to incorporate a basic reality: it will operate within a public policy and a regulated environment. Regulators, the Court of Auditors, the Public Prosecutor's Office, public security, the Legislative Branch, consumer protection agencies, beneficiaries of the social allocation, and the press are all part of this ecosystem.
This needs to be in the operator's business plan: compliance budget, technology, responsible gaming, customer service, auditing, institutional relations, and financial capacity to support maturation and legitimate changes in the regulatory environment.
A state lottery is simultaneously a public service, a regulated economic activity, a long-term contract or authorization, a technological system, a revenue-raising policy, and a consumer protection mechanism. The decisions described here are, fundamentally, decisions about risk allocation.
When risk is not explicitly identified and allocated, it tends to revert to the State that authorized the activity.
Do it completely. Do it beforehand. And do it with institutions and people capable of sustaining the project when the launch phase ends and the routine begins, which is where regulation really happens.
(*) Daniel Romanowski and Fabio Veiga are directors of the Paraná State Lottery (Lottopar) and work in the regulated lottery and betting segment. Daniel Romanowski has directed Lottopar since its inception. Fabio Veiga is the Director of Operations of the Authority and has also been part of its structure since its first day of operation. Both participated in the implementation, structuring, and development of the public lottery service in the State of Paraná. The analyses, evaluations, and recommendations presented in this article reflect exclusively the personal opinions of the authors, formulated from their professional experience in the sector, and do not constitute an official statement, institutional position, or opinion of Lottopar or the Government of the State of Paraná.
