Federal Court majority votes to ban Loterj’s nationwide activities

The recent Supreme Federal Court (STF) ruling has dealt a significant setback to the Rio de Janeiro State Lottery (Loterj) in its pursuit of nationwide licensing authority for gaming operations across Brazil. Minister André Mendonça’s preliminary injunction has stifled Loterj’s ambitions and established firm restrictions on its licensees.

In October 2024, a pivotal moment unfolded in the ongoing dispute between Loterj and Brazil’s federal government. The Attorney General’s Office (AGU) filed Original Civil Action No 3,696, a legal maneuver designed to prevent Loterj licensees from extending their operations beyond the borders of Rio de Janeiro state.

While various state lotteries have permitted betting operators to conduct business within their respective jurisdictions, Loterj uniquely positioned itself as the sole state entity offering licenses intended for national operations. It previously asserted that Accreditation Notice 01/2023 enabled its licensees to provide lottery services throughout Brazil.

However, Loterj’s aspirations suffered a considerable blow following Minister Mendonça’s preliminary injunction issued on January 2, which explicitly prohibited nationwide operations and instituted mandatory geolocation tracking. This measure aims to ensure that licensees offer betting exclusively within the confines of Rio de Janeiro state.

The legality of Mendonça’s injunction was put to a vote in a virtual session of the STF plenary. Following a brief recess prompted by Minister Dias Toffoli’s request for further review, the STF ultimately established a majority decision, with seven ministers—including Flávio Dino, Gilmar Mendes, and Dias Toffoli—supporting the federal government’s position.

As a result, Loterj licensees are now restricted to offering betting services exclusively within Rio de Janeiro, with stringent geolocation technology mandated to enforce compliance with these jurisdictional limitations.

Has the Loterj vs. Federal Government Dispute Concluded?

This latest ruling from the STF seemingly marks the culmination of Loterj’s aspirations to leverage its Accreditation Notice 01/2023 for nationwide brand authorizations. Loterj has publicly acknowledged the reality of this setback, issuing an ordinance that instructs its licensed operators to comply with the stipulations outlined in Mendonça’s ruling. Previous appeals submitted by Loterj against these restrictions were unanimously dismissed.

Daniel Romanowski, the president of the state lottery in Paraná, expressed to iGB his belief that this outcome signifies the end of Loterj’s legal challenges, characterizing the situation as effectively resolved.

The Conclusion of Loterj’s Federal Licensing Prospects

The STF vote represents a substantial blow to Loterj’s ambitions, which had previously touted its online betting licenses as offering the “best cost-benefit” ratio in the sector.

To provide a clearer comparison, the financial implications of licensing reveal stark differences: a federal betting license in Brazil costs BRL30 million (approximately £3.9 million/€4.7 million/$4.8 million) for a five-year term, while Loterj’s authorization over the same timeframe is only BRL5 million. Furthermore, holders of federal licenses face a 12% tax on gross gaming revenue (GGR), a steep increase compared to the 5% tax applicable to Loterj licensees.

Despite the initial green light for nationwide operations granted to Loterj licensees, leading gaming attorney Udo Seckelmann from Bichara e Motta Advogados foresaw a definitive end to these plans at the hands of federal regulators. He noted the growing trend among operators seeking state licenses as a lower-cost gateway to the market. However, he cautioned about the inherent legal uncertainties that accompany this approach, stating: “Clients would often come to me expressing interest in obtaining a license and assuming a state license could offer similar benefits as a federal one. While cost-effective, this option lacks clarity regarding future regulatory stability.”

Ultimately, as the landscape of Brazil’s gambling market continues to evolve, stakeholders must remain vigilant in navigating the complexities of licensing regulations and compliance mandates to sustain their operations and capitalise on emerging opportunities.