Brazil applicants shrink as operators tap out before market launch
As Brazil approaches the launch of its legal betting market, an increasing number of operators have opted to withdraw their applications for federal betting licenses, raising concerns about the industry’s competitive landscape.
Following an initial deadline of August 20, 2023, a total of 113 applications were submitted to Sigap, Brazil’s betting management system, ensuring these operators would have their applications prioritized ahead of the market launch scheduled for January 1, 2025. Notably, operators have continued to file for licenses beyond this date, resulting in a current total of 273 applications as of early October.
Operators Withdrawing from the Application Process
Recent developments reveal that at least 20 operators are withdrawing their applications. Among the noteworthy names exiting is Super Group’s Betway, alongside other notable firms such as Arena Esportiva, AmuletoBet, and Vera&John, which is currently under Bally’s Corporation ownership.
During a conference call discussing Super Group’s Q3 earnings on October 6, 2023, Richard Hasson, the company’s President and Chief Commercial Officer, articulated a strategic decision to focus on markets with clear routes to profitability. “Brazil is obviously being spoken about a lot across the industry at the moment,” Hasson remarked. “However, after assessing the situation, we are choosing not to proceed in Brazil, opting instead for markets where we can effectively generate returns.”
Reflecting on the company’s strong performance in Africa, which constituted its largest revenue share for the second consecutive quarter, Hasson emphasized the need for evaluative market focus to avoid unnecessary competition with established players such as Flutter Entertainment and Bet365 in Brazil.
Reasons Behind the Withdrawal of License Applications
As Brazil gears up for the official launch of its regulated betting market on January 1, 2025, operators have encountered significant regulatory challenges since the Secretariat of Prizes and Bets delineated the licensing requirements in a comprehensive four-stage rollout. Normative Ordinance No 722 outlines a stringent certification process that emphasizes compliance, mandating regular audits and ongoing testing accompanied by substantial costs.
- Operators face a BRL30 million (approximately £4.1 million / €4.9 million / $5.3 million) licensing fee, which permits the operation of three skins per application.
- Concerns about the financial implications of these regulations have been echoed by various stakeholders within the local market.
- Many have noted that the high technical and operational costs associated with compliance may deter smaller operators from entering the regulated arena.
Some industry insiders have suggested that the current number of applications may be misleading, positing that smaller operators may be applying to evade enforcement actions before the end of 2024. Starting October 1, 2023, operators who are not actively engaged in the market or have not submitted applications risk being shut down by authorities.
Potential for Mergers and Acquisitions in Brazil’s Betting Sector
The looming financial barriers may result in further withdrawals, vexing operators who are apprehensive about their long-term viability in Brazil’s nascent market. A possible pathway for smaller entities could be through mergers and acquisitions (M&A). Adam Patterson, an economist and partner at Redirection International, suggests that the high regulatory costs may catalyze an M&A “boom” within Brazil, wherein larger operators could acquire local companies with established customer bases.
Patterson states, “The surge in M&A activity is largely driven by the substantial regulatory costs associated with the licensing process, including steep authorization fees of up to BRL30 million, technical certifications, and extensive tax obligations. Collectively, these factors impose significant hurdles to the economic sustainability of smaller betting operators.”
In conclusion, as Brazil’s legal betting market prepares for its launch, the landscape will likely influence strategies among operators—especially smaller ones—shaping the future of the industry through potential consolidation efforts amidst stringent regulatory requirements.
