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Brazil's sports betting beckons as big names give in to US

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The Brazilian government legalized sports betting at the end of 2023. Betting is expected to begin this quarter or next as regulators work through their licensing process. It's quickly looking like Brazil will overtake the US as the next destination for the sports betting gold rush.

“I think there are a lot of opportunities in Brazil. According to the report, 140 operators want to enter Brazil with a license fee of US$6 million (R30 million) and a local shareholder stake of 20%,” Tom Waterhouse said in a phone call. He is managing director of Waterhouse VC, a fund specializing in sports betting investments that has delivered an average return of 111% per year since its launch in 2019. “It will be similar to the US because it will take a while.” [sports book] Operators make money because they pursue land grabs.”

Brazil isn't as big as the US market, but it's still a big win. According to betting data and analytics company Sportradar, it is a legal market in the US with gross gaming revenue (GGR) of approximately $10.8 billion. The Brazilian gray sports betting market is valued at around $2.2 billion and is expected to grow to $5.4 billion if regulated. “It’s an opportunity driven by football,” Sportradar CEO Carsten Koerl told investors last month. “Our CONMEBOL deal is very supportive. We have been looking at strengthening this portfolio to attack Brazil for years.”

Brazil's legal sports betting market is not yet open: the government is expected to start issuing licenses this quarter or next. If this is the case, operators will be charged a 12% tax on gross gaming revenue (GGR), while bettors will be charged a 15% income tax on net winnings, according to a briefing paper from law firm Mayer Brown.

This means that tax rates in Brazil are roughly in the middle of what the industry can expect in the USA. New York taxes the highest at 51% GGR and a state income tax on bettors. According to a 2023 analysis by the Tax Foundation, Nevada is the lowest, with a betting tax rate of 6.75% and no state income tax. There are also federal income taxes.

While Flutter Entertainment's FanDuel and DraftKings are establishing themselves as leaders in the sports betting market with around two-thirds of the market, the rush for market share in the USA appears to be ending. 888 Holdings will pay $50 million to return the SI Sportsbook sports betting brand to owner Authentic Brands. 888 had previously expressed modest targets to gain single-digit market share in its SI branded markets. In some states, companies have given up trying: WynnBet and Betr, for example, have decided to let their Massachusetts licenses expire this year (Wynn continues to accept sports bets). in his casino in Boston).

For some Americans, Brazil appears to be the next great hope.

A big player turning to Brazil could be Super Group, the parent company of global brand Betway. Because of its high tax rate, the company has never set foot in New York and was upset in a call with investors in the U.S. last month, reflecting an otherwise strong global performance. “The US is proving tough,” President Richard Hasson said in response to an analyst question.

While Super Group executives said they would wait to see what Brazil's final regulations look like, CEO Neal Menashe gave in to the same analyst question: “It's all about LatAm” when it comes to future growth.

But while Brazil's green fields beckon, venture capital investor Waterhouse warns that the sports betting market will prove similarly challenging. “Regulated markets are pretty similar. What we've seen in the UK and in Australia and the US is that they mirror each other in the sense that there are big advantages to scale and operational influence,” he said. “If you don't have that scale, cost of goods sold and taxes take up too much of your gross profit, and you can't spend enough on user experience and marketing to keep getting enough [bettors to the] at the top of the funnel.”

He added: “The interesting companies that will make a lot of money in Brazil are existing operators that already have large databases, affiliates and local operators that can work together.”

In other markets, major bookmakers have been buying up local operators to gain a foothold, which is likely to happen domestically, especially as Brazil's 20% partner requirement forces international bookmakers to find partners already. “Existing operators are going to make a lot of money, the sports organizations, media rights – all of these things are going to explode in price,” Waterhouse said. “It’s not about winning everything, but … you have to be either very big or very, very agile.”