The official legalization of sports wagering in Brazil occurred at the end of previous year, and the beginning of betting is projected to start during the next or this quarter, while watchdogs work through their processes regarding license grants. All of this points to Brazil replacing the US as the next main market for the sports wagering gold rush.
The Brazilian market is full of potential:
Although Brazil is smaller in size than the regulated market of the US, it still represents a large reward.
Relatedly, the US represents a legal regulated market of approximately $10.8bln in gross gaming income. As for the current Brazilian sports wagering grey market, it is projected to be roughly $2.2bln GGR and is ought to rise to $5.4bln with the aforementioned legalization rule.
Commenting on the potential of the Brazilian market, Waterhouse VC director Tom Waterhouse commented during a phone call: “I think there’s a lot of opportunity in Brazil. The report is 140 operators are looking to enter Brazil with a $6 million (R$30 million) license fee and a local 20% shareholder requirement. It’s going to be similar to the U.S., because it’s going to be a while before [sports book] operators make money because they’re going for a land grab.”
As for Waterhouse VC in particular, it is a fund that specializes in investments regarding sports wagering that has gave back an average of 111% annually since inception during 2019.
Also commenting on the same topic, Carsten Koerl, CEO of Sportradar, said to the investors in March: “It’s an opportunity which is driven by soccer. Our CONMEBOL deal is very supportive. We are looking into strengthening this portfolio to attack Brazil for years.”
Brazilian market vs. US market:
As soon as the legal sports wagering market in Brazil officially opens, next or this quarter as mentioned above, the Government will start issuing licenses. Once that happens, operators will be required to pay a tax of 12% on GGR and punters will have to pay a profit tax of 15% on net winnings, based on the briefing document from Mayer Brown, the law firm.
According to this, Brazilian tax rates are in the midst of what the current industry’s situation is in the US. The situation in the US is that the highest taxes are in NY, with a tax of 51% on GGR, in addition to the state profit tax for punters. However, Nevada represents the state with the lowest taxes, which means its wagering tax rate is 6.75% and there is no state profit tax, based on the last year’s analysis conducted by the Tax Foundation. However, there are also federal profit taxes in Nevada.
Relatedly, the race to capture the US market share is seemingly winding down, as the 2 top dogs in sports wagering are DraftKings and FanDuel, which is owned by Flutter Entertainment, meaning they currently own approximately two-thirds of the market.
888 Holdings has decided to pay $50m to return the SI Sportsbook brand to Authentic Brands, the brand’s owner. Earlier, 888 showed a moderate aim of capturing single-digit market share in markets of its SI brand. However, several states have seen companies abandon their efforts like Betr and WynnBet, which both allowed that their licenses for Massachusetts become invalid in 2024, but WynnBet will continue to accept sports wagers at its Boston casino.
For the few who are also participating in the US, Brazil seems to be the next big hope.
Super Group may shift focus towards Brazil:
Super Group, the large player that is the parent of international brand Betway, may be able to shift its focus towards Brazil. To support this statement is that the firm has never set foot into the regulated market of NY because of its big tax rate and was tough on the US throughout the last month’s call with investors in an otherwise powerful international performance.
In this regard, in a response to an analyst’s question, Richard Hasson, president of the Super Group, commented: “The U.S. is proving tough.”
Although the firm’s executives said that they wanted to witness how Brazil’s final regulations pan out first, Neal Menashe, the firm’s CEO, responded to the same analyst’s question about future growth: “It’s all about LatAm.”
Furthermore, while everything seems perfect when it comes to Brazil now, Waterhouse, a venture capital investor, warns that the market will eventually have the same challenges for bookmakers as the regulated market of the US.
On that note, he said according to Sportico.com: “Regulated markets are quite similar. What we saw in the U.K. and what we’ve seen in Australia and the U.S. is they mirror each other in the sense there’s such a benefit to having scale and operational leverage. If you haven’t got that scale, the cost of sales and the taxes take up too much of your gross win, and you haven’t got enough to spend on the user experience and the marketing to keep getting enough [bettors to the] top of the funnel.” He also added: “The interesting businesses that will make a lot of money in Brazil are existing operators that have got large databases already, affiliate businesses and local operators that can partner.”
In various markets, big wagering operators have purchased domestic operators to solidify their presence, a situation that has great potential to occur at the local level, particularly with Brazil’s 20% ally rule, which demands from global sportsbooks to enter into partnerships with domestic operators as soon as possible.
Speaking on the subject, Waterhouse commented: “Existing operators are going to make a lot of money, the sporting organizations, media rights—all of these things are going to balloon in price. It’s not winner-take-all, but … you either have to be very big or very, very agile.”