Brazil Sports Wagering Beckons as Big Names Ease Off U.S.

Brazil Sports Wagering Beckons as Big Names Ease Off U.S.

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The Brazilian government legalized sports betting at the end of 2023 with the commencement of wagering expected to begin this quarter or next as regulators work through their licensing process. It’s quickly looking like Brazil is taking over from the U.S. as the next destination of the sports betting gold rush.

“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,” said Tom Waterhouse on a phone call. He’s the principal of Waterhouse VC, a fund that specializes in sports betting investments that has returned an average 111% a year since starting in 2019. “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.”

Brazil isn’t the size of the U.S. market, but it’s still a big prize. According to betting data and analytics firm Sportradar, the U.S. is about a $10.8 billion gross gaming revenue (GGR) legal market. The Brazilian gray market for sports betting is estimated to be around $2.2 billion GGR and should grow to be $5.4 billion with regulation. “It’s an opportunity which is driven by soccer,” Sportradar CEO Carsten Koerl told investors last month. “Our CONMEBOL deal is very supportive. We are looking into strengthening this portfolio to attack Brazil for years.”

Brazil’s legal sports betting market isn’t open yet: The government is expected to begin awarding licenses this quarter or next. When it does, operators will be charged a 12% tax on gross gaming revenue (GGR) while an income tax of 15% on net winnings awaits bettors, according to a briefing paper from  the law firm of Mayer Brown.

That puts Brazil’s rates about in the middle of what the industry faces in the U.S. New York taxes the highest, with 51% levy on GGR, plus a state income tax for bettors. Nevada is the lowest with a 6.75% betting tax rate and no state income tax, according to a 2023 analysis by the Tax Foundation. Federal income taxes come on top of those.

Meanwhile in the U.S., with Flutter Entertainment’s FanDuel and DraftKings establishing themselves as the top dogs in sports betting, with roughly two-thirds of the market between them, it seems the rush to grab market share in the U.S. is ending. 888 Holdings is paying $50 million to hand back the SI Sportsbook brand for sports betting to owner Authentic Brands. 888 previously had expressed modest goals for winning single-digit market share in its SI brand markets.Some states have seen businesses give up trying: WynnBet and Betr decided to let their Massachusetts licenses expire this year, for instance (Wynn will still take sports bets inside its Boston casino).

For some of the U.S. also-rans, it seems, Brazil is the next great hope.

One big player turning toward Brazil may be Super Group, the parent of global brand Betway. The company never entered New York given its high tax rate and was dour on the U.S. on a call with investors last month showcasing an otherwise strong global performance. “The U.S. is proving tough,” president Richard Hasson said in response to an analyst question.

While Super Group executives said they are waiting to see how Brazil’s final regulations appear, CEO Neal Menashe allowed to the same analyst’s question that, “It’s all about LatAm,” in terms of future growth.

But even as the green fields of Brazil beckon, venture capital investor Waterhouse cautions the market will prove similarly challenging for sportsbooks.  “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,” he said. “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 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 other markets, large betting operators have bought up local operators to establish their foothold, something likely to happen domestically, especially with the 20% Brazilian partner requirement forcing international bookmakers to find partners already. “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,” Waterhouse said. “It’s not winner-take-all, but … you either have to be very big or very, very agile.”

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