Sportsbooks are regulated
Sportsbooks are regulated
During the months of April and May 2024, the Federal Government advanced in the regulation of sports betting houses, a subject of fundamental importance and social impact considering the scenario of advancement of technologies and artificial intelligence, as well as the growth, in Brazil, of betting platforms. Provisions such as: regulation of the payment flows of betting houses by accounts held exclusively in institutions authorized by the Central Bank of Brazil, restrictions on the financing of bettors, and the need for prior operating approval of betting operators’ agents, aim to supervise the financial activities of sportsbooks, as well as to restrict the indebtedness of bettors. It’s worth checking out!
Federal Government advances in the regulation of payment flows and operating authorizations of Sports Betting Houses
During the months of April and May, the Federal Government made progress regarding the regulation of sportsbooks and electronic games, through Normative Ordinance SPA/MF No. 615/2024 (“Ordinance No. 615”, available here) and Ordinance SPA/MF No. 827/2024 (“Ordinance No. 827”, available here). The main points of each of them can be found below!
Ordinance No. 615/2024
Published and in force since April 16, 2024, Ordinance No. 615 establishes the general rules that must be observed in payment transactions carried out by agents authorized to operate the fixed-odds lottery modality, in Brazil, in virtual or physical modalities.
Ordinance No. 615 presents a series of rules that must be complied with by agents authorized to operate in the sector. In this sense, wagering stakes, withdrawals of financial resources by bettors, and payment of prizes by operating agents to bettors must be carried out exclusively through electronic transfer between a registered account (bettor’s account) and the transactional account (operator’s or agent’s account). In addition, both accounts must be held in financial or payment institutions authorized to operate by the Central Bank of Brazil (BCB).
In addition, operating agents cannot receive financial wagers through cash, bank slips, checks, virtual assets or crypto assets, any payment or transfer not from the account registered by the bettor or from third parties, through credit card or other postpaid payment instruments, and any other alternative other than Instant Payment (PIX), wire transfer (TED), debit or prepaid card and book transfer.
However, it is expressly forbidden for the operating agent: a) allow the placing of bets without prior settlement of the wire transfer; b) granting, in any form, an advance, anticipation, bonus or prior advantage, even if by way of promotion, publicity or advertising; c) enter into a partnership, contract, agreement or any other form of arrangement or business arrangement that aims to enable or facilitate access to credit or the commercial development operation by the bettor; e d) promote or allow access, physical or electronic, to the individual or legal entity that grants credit or carries out commercial development operations to bettors.
Regarding the transactional account, i.e., the one owned by the operating agent, its offer is exclusive to financial institutions authorized to operate by the BCB and such account must allow bettors to make bets and withdrawals with the operating agent or receive the prize amounts due to them.
On the other hand, the bettors’ funds held in the transactional accounts constitute separate assets, which are not to be confused with the assets of the operating agent and are not directly or indirectly responsible for any obligation of the operating agent. Furthermore, such resources may not be subject to seizure, sequestration, search and seizure or any other act of judicial constriction due to debts of the agent’s responsibility. Thus, they do not comprise the assets of the operating agent for the purposes of bankruptcy, judicial or extrajudicial reorganization, intervention or judicial or extrajudicial liquidation. Finally, they cannot be given as collateral for debts assumed by the agent.
It is forbidden for the operating agent to use the bettors’ funds held in the transactional account, even if on a temporary basis, to cover prizes due or other expenses of their responsibility.
In addition, the operating agent may invest the total or partial daily balance of the transactional accounts, including the amounts corresponding to open bets, in federal government securities or in repo operations backed by federal government securities admitted to trading in the Selic, with daily liquidity, with the financial institution holding the agent’s transactional account. In this sense, it is forbidden for the operating agent to apply the balances in any investment other than those previously mentioned, as well as to share the winnings with the bettors.
As for the graphical account, i.e., the one that the agent must make available to the bettor in its betting system, it must allow the bettor to manage its operations and resources, and must inform, at least: a) the history of the last thirty-six months of bets and withdrawals, bet amounts and prizes received; b) the amount of open bets, and c) the available financial balance.
An important point is that it is forbidden for the operating agent to restrict the withdrawal of the bettors’ available financial balance. In this sense, after the bettor makes the withdrawal request, the balance must be available in the registered account within 120 minutes.
Regarding the payment of prizes, these must be made by wire transfer to the previously registered account held by the bettor, within 120 minutes of the end of the event object of the bet. However, if the bettor wishes, such prize can remain in the transactional account and be used for new bets with the same agent.
In the event the amount of the open bets collected in a certain real sports-themed event are insufficient to pay the prizes due or whenever there is a bet with a prize to be received after an online gaming session, the agent will transfer from its proprietary account to the corresponding transactional account the amount necessary for the payment. However, if the event does not occur, the amounts wagered must be fully returned to the bettors.
Finally, Ordinance No. 615 provides for preventive measures in the event of insolvency or illiquidity. In this sense, the operating agent must constitute a financial reserve to guarantee the payment of prizes and other amounts due to bettors, in the minimum amount of R$ 5 million. Such reserve shall be held in custody by a financial institution authorized to operate by the BCB in the form of federal government securities and shall be kept separately from transactional accounts and other proprietary accounts held by such agent.
Ordinance No. 827
Subsequently, on May 22, 2024, Ordinance SPA/MF No. 827 was published in the Brazilian Official Gazette, establishing rules and conditions for obtaining authorization for the commercial exploitation of the fixed-odds lottery modality by private economic agents in Brazil.
Ordinance No. 827 conditions the activity of betting operators to obtaining prior authorization issued by the Secretariat of Prizes and Betting of the Ministry of Finance, to be granted exclusively to companies incorporated in the form of Brazilian corporations or limited liability companies. In this sense, such companies must have headquarters and management in Brazil, and may also be of national capital or subsidiaries of foreign companies, provided that they have Brazilian partners who hold at least twenty percent of their capital stock. Legal entities headquartered abroad are not eligible to obtain such operating authorization, even if through its subsidiaries, branches, agencies or representative offices in Brazil.
Ordinance No. 827 defines that each authorization, of a very personal, non-negotiable and non-transferable nature, for the commercial exploitation of sports betting will be given upon (i) prior satisfactory and rigorous analysis of the applicant’s economic and financial capacity and good reputation up to the level of shareholders or indirect quotaholders, (ii) payment of the amount of R$ 30 million reais for the exploitation of up to 3 trademarks during the period of 5 (five) years, with such amount to be paid plus if there is interest in exploiting additional trademarks, as well as minimum net equity values and constitution of financial reserves will be required, (iii) obligation to report any corporate reorganizations in the applicant’s group and provide relevant documentation for reanalysis of the authorization, and (iv) tax and labor regularity, among other conditions.
Ordinance No. 827 enters into force on January 1, 2025. Sports betting houses operating in Brazil will have until December 31, 2024 to adapt to the new rules of Ordinance No. 827, being subject to the applicable penalties after this date.
Thus, both Ordinances demonstrate an important first step in the Brazilian legal regulatory scenario, since they establish rules for the operation of sportsbooks. More than that, they establish greater legal certainty for bettors, who now have inspection mechanisms, and rules for payments and receipt of prizes. The emergence and popularization of “bets” in Brazil over the last few years, in itself, demonstrate why regulation is so necessary – recent data (available here) show that (i) Brazil has almost 25% of accesses to online sportsbooks worldwide; (ii) it is a market that moves around R$ 150 billion per year in Brazil; (iii) most of the sportsbooks operating in Brazil are headquartered abroad; and (iv) there are about 450 active websites in Brazil. Both Ordinances, therefore, are an important advance for the regularization of the sector.
