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The Brazilian government will legalize sports betting at the end of 2023, and betting is expected to begin this quarter or next as regulators proceed with the approval process. Brazil is quickly looking to replace the United States as the next destination in the sports betting gold rush.
“I think there are a lot of opportunities in Brazil. According to the report, 140 carriers are considering entering Brazil with a license fee of $6 million (30 million reais) and a 20% local stake. “We're doing it,” Tom Waterhouse said by phone. He is a principal at Waterhouse VC, a fund specializing in sports betting investments, which has recorded an average annual return of 111% since its inception in 2019. [sports book] The business owners are trying to steal the land so they can make money. ”
Although Brazil is not as big as the US market, it still wins big awards. According to gambling data and analytics company Sportradar, the U.S. has a legal market of approximately $10.8 billion in gross gaming revenue (GGR). The Brazilian sports betting gray market is estimated at a GGR of around $2.2 billion, which with regulation should grow to $5.4 billion. “This is an opportunity presented by soccer,” Sportradar CEO Carsten Koerl told investors last month. “Our CONMEBOL contract is very collaborative. We are looking to strengthen this portfolio to attack Brazil for many years.”
Brazil's legal sports betting market is not yet open. The government is expected to start awarding licenses this quarter or next. If this were to happen, operators would be subject to a 12% tax on gross gaming revenue (GGR), while bettors would be subject to a 15% tax on net winnings, according to a Mayer Brown law firm briefing. % income tax will be levied.
This puts Brazil's tax rate roughly in the middle of what the industry faces in the US, with New York state having the highest tax, taxing GGR at 51%, plus state income tax for bettors . According to a 2023 analysis by the Tax Foundation, Nevada has the lowest wagering tax rate of 6.75% and no state income tax. Federal income taxes are added to these.
Meanwhile, in the U.S., Flutter Entertainment's FanDuel and DraftKings have established themselves as the top players in sports betting, with each company accounting for about two-thirds of the market, and the rush to gain market share in the U.S. appears to be coming to an end. is. 888 Holdings is paying $50 million to return its sports betting brand SI Sportsbook to owner Authentic Brands. 888 had previously expressed a modest goal of achieving single-digit market share in its SI brand market. Companies in some states are giving up on the challenge. For example, WynnBet and Bettle decided to let their Massachusetts license expire this year (Wynn will continue to accept sports wagers inside its Boston casino).
For some U.S. candidates, Brazil appears to be their next big hope.
One of the major companies eyeing Brazil may be Super Group, the parent company of global brand Betway. The company has not expanded into New York because of high tax rates, and during a conference call with investors last month it was slow to emphasize its strong global performance in the United States. “The United States has turned out to be in a difficult situation,” President Richard Hasson said in response to a question from an analyst.
Supergroup executives said they were waiting to see what Brazil's final regulations look like, but CEO Neil Menashe echoed similar analysts who said “it's all about Latin America” when it comes to future growth. answered the question.
But despite Brazil's green fields beckoning, venture capital investor Waterhouse warns the market will be just as difficult for sportsbooks. “Regulated markets are very similar. What we've seen in the UK and what we've seen in Australia and the US is that there are significant advantages to having scale and operational leverage. “They are a reflection of each other,” he said. “Without that scale, cost of goods sold and taxes take up a large portion of your total profit, and you don't have enough money to spend on user experience and marketing to continue to earn enough profit.” [bettors to the] This is the top of the funnel. ”
He added: “Interesting companies with huge profits in Brazil are existing operators who already have large databases, affiliates and local operators that can be partnered with.”
In other markets, large betting operators are acquiring local operators to gain a foothold, and international bookmakers are already being forced to find partners, especially with the 20% Brazilian partner requirement. There is a high possibility that something similar will happen in Japan as well. “Incumbent operators, sports organizations, media rights, all of those things are going to be priced out,” Waterhouse said. “It’s not winner-take-all, but you either have to get very big or you have to be very agile.”
