Brazil seeking to cash in on gambling to fill its coffers

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The South American giant is expected to legalize gambling in an effort to raise tax revenues to plug the country’s budget deficit, drawing huge interest from the world’s casino operators and betting groups, the Financial Times reports.

The elderly man in a brown cardigan sitting outside a bar in São Paulo’s upmarket Jardins neighbourhood does not look much like a mobster. However, he is in fact one of the many operators of Brazil’s Jogo do Bicho (Animal Game) — a gambling racket run by mafia bosses and corrupt public officials worth R$12bn ($3.7bn) a year.

“My job is a bit like being a therapist,” he says, explaining how to play the illegal lottery that started out as a raffle at a Rio de Janeiro zoo in 1888. Clients often turn up to tell him their dreams, which he interprets with the help of a specialised dictionary that also indicates which of the lottery’s 25 animals they should pick.

You dreamt of missing your flight? It means you have regrets and should bet on the eagle. “Snakes are very common — they indicate betrayal,” he says.

The popularity of Jogo do Bicho — with Brazil’s rich and poor, old and young — is proof, gaming experts say, of how successful the country’s gambling industry could be if it only were legal.

After a 70-year ban, Brazil’s government is finally expected to legalize gambling as early as this year in an effort to raise tax revenues to plug the country’s budget deficit, drawing huge interest from the world’s casino operators and betting groups.

“It would be one of the most significant events in gaming history if Brazil opens up to the gambling sector,” UK bookmaker William Hill said in a statement

William Hill, rival Ladbrokes, the US casino group MGM Resorts International, and Sweden’s Betsson and NetEnt all say they are interested in expanding into Brazil once the sector is regulated.

“The Brazilian market has enormous potential with a population that has long enjoyed a love affair with football which is Ladbrokes’ fastest growing product,” says the bookie, while MGM highlights its interest in “large-scale integrated resorts”.

Luiz Maia, a São Paulo-based lawyer who specialises in gaming, says multinational clients are already discussing local partnerships and have even signed provisional real estate contracts in preparation for the legislation’s approval.

Based on the calculation that gambling markets typically account for about 1 per cent of a country’s gross domestic product, Brazil’s market could be worth R$55bn in total bets placed, according to Brazil’s Legal Gaming Institute (IJL).

“Gambling has always been somewhat of a taboo here, but in the rest of the world it is an entertainment industry,” says Magno José Santos de Sousa, IJL’s president, adding that Brazil is losing R$6bn a year in taxes in the R$20bn illegal gambling market.

Gambling was outlawed in 1941 alongside vagrancy as part of Brazil’s Criminal Contravention Act — rules brought in during Brazil’s industrialisation period to increase productivity.

In 1946 the then president Eurico Dutra issued a decree to shut down all existing casinos — allegedly at the behest of his piously Catholic wife. Only state lotteries, as well as poker and betting on horse races, which are considered sufficiently skill-based activities, remain legal.

In the 1990s bingo was reintroduced under the “Pelé Law” to fund sports activities but became a target for money launderers, leading the Supreme Court to outlaw it in 2007.

Both Brazil’s lower house and senate are discussing separate legalization bills, which include proposals to force foreign players to take on local partners and restrictions on how many casinos one company can own. Online betting may remain illegal for fear of fuelling addiction.

After congress agrees on the legislation, it could get the presidential sign-off this year but more likely early next, Mr Maia says. However, Brazil’s president may try to speed up the process by first creating a gambling regulatory agency as the government scrambles to find ways to plug a budget deficit of more than 10 per cent of GDP.

Foreign operators would be likely to dominate the casino industry, based in tourist hotspots such as Rio, while sports betting will be hotly contested with Brazilian companies, especially given possible interest from local media groups, analysts say.

However, much will depend on the government’s cut in taxes, which IJL says should be similar to the world average of 30 per cent for physical operations and lower for online groups.

Per Eriksson, chief executive of NetEnt, says: “A good level [for online] would be between 15 and 20 per cent — we can’t be there if we can’t earn any money”.

For the Jogo do Bicho mafia bosses, though, even hefty taxes may come as a relief, says IJL’s Mr Santos de Sousa, quoting a 2014 study by the institute that showed one in nine clandestine operators favoured legalization. “They have to pay bribes to the police, to public officials — it’s such a long chain of people that it’s actually cheaper to pay taxes.”

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