Brazil court bans Loterj licensees from accepting bets nationally
The Federal Supreme Court (STF) has mandated that the Rio de Janeiro State Lottery (Loterj) cease its licensed operators from accepting bets at a national level. This preliminary ruling was established on January 2nd, signaling a pivotal moment in the ongoing regulatory evolution within Brazil’s gambling landscape.
In a decisive move, STF Minister André Mendonça responded to Original Civil Action No. 3,696, filed in October 2024 by the Attorney General’s Office (AGU). This action highlights a long-standing dispute between Loterj, the state regulator, and the federal government regarding Loterj’s regulatory authority over lottery operations throughout Brazil.
The court’s ruling places a five-year suspension on Loterj’s ability to permit state-licensed entities to operate public lottery services across national borders, as stipulated in Loterj Accreditation Notice 01/2023.
Consequently, Mendonça’s decision not only restricts Loterj-licensed operators from functioning outside the state of Rio de Janeiro but also reinstates the mandatory implementation of geolocation tracking. This measure aims to ensure that state lotteries operate strictly within their designated territories, complying with federal mandates.
Loterj has a five-day window from January 2nd to cease its nationwide operations and re-establish geolocation mechanisms that had previously been relaxed. Mendonça has emphasized that these prior amendments were detrimental to the integrity of federal oversight.
The implications of Mendonça’s preliminary injunction are significant, as it will proceed to the STF plenary, set for discussion between February 14th and 21st. Following this session, a virtual referendum will be conducted.
This legal confrontation, however, is poised to continue. Loterj retains the right to challenge Mendonça’s injunction, and once its response is filed, a hearing will take place to evaluate Loterj’s position. The AGU will subsequently have an opportunity to present its perspective on the matter.
Significant Setback for Loterj in Brazil
Mendonça’s ruling underscores the ongoing friction between Loterj and the federal government, representing a critical advantage for the latter in regulatory enforcement. By prohibiting Loterj from enacting new regulations that would allow its licensees to operate outside the boundaries of Rio de Janeiro, the decision marks a substantial constraint on state-level operations.
The federal legal online betting market was launched on January 1st. Reports indicated that certain lottery licensees, such as Esportes da Sorte, were conducting operations throughout Brazil without the necessary federal licenses, erroneously relying on Loterj’s now-challenged Accreditation Notice 01/2023 for protection.
Mendonça articulated concerns that the relaxation of operational criteria compromised the supervision and regulatory oversight necessary to maintain a cohesive federative agreement across the country.
While he acknowledged the states’ rights to facilitate lottery activities, he firmly asserted that the overarching responsibility for surveillance rests with the federal government.
Divergence Between Federal and Loterj Betting Licenses
This ruling presents a setback for operators aspiring to expand their reach nationally without possessing federal authorization. The financial implications are stark: a federal license requires a fee of BRL 30 million (approximately £3.9 million/€4.7 million/$4.8 million) for a five-year term, compared to a significantly lower fee of BRL 5 million for a Loterj authorization.
Moreover, federal licensees are subject to a tax rate of 12% on gross gaming revenue (GGR), in contrast to the 5% imposed on Loterj licensees. The state’s lottery regulations are generally more permissive and less burdensome, offering a more appealing compliance framework.
Operators under federal licenses must navigate a strict due diligence process and adhere to numerous specifications mandated by the national regulatory body, the Secretariat for Public Administration (SPA). Loterj had previously touted its licensing as offering the “best cost-benefit” ratio within the online betting market; however, the recent STF decision has materially undermined this claim, potentially reshaping the competitive landscape of Brazil’s gambling sector.
