Brazil’s Supreme Court Limits Loterj-Licensed Operators to Rio de Janeiro

Brazil’s Supreme Federal Court (STF) has imposed a significant restriction on the Rio de Janeiro State Lottery (Loterj), mandating its licensed operators to limit their betting activities strictly within the state. This ruling is set to reshape the regulatory framework for gambling in Brazil and address the ongoing tug-of-war between state and federal authorities.

STF Orders Geolocation Systems for Compliance

In a decision handed down on January 2, STF Minister André Mendonça ruled that Loterj-licensed operators must implement geolocation tracking to prevent bets from being placed outside Rio de Janeiro. This injunction responds to Original Civil Action No. 3,696, a case filed by Brazil’s federal attorney general’s office (AGU) last October.

The ruling grants Loterj a five-day compliance window, effective January 7, to enforce these measures. The court highlighted that previous amendments, which had removed geolocation requirements, undermined the integrity of Brazil’s regulatory structure.

Minister Mendonça expressed concern over the potential ramifications: “The relaxation of the criteria weakens the supervision and control of lottery activity, potentially harming the federative pact.” While states retain the right to offer lottery services, the minister emphasized the federal government’s overarching regulatory authority.

The Legal Tussle Between Loterj and the Federal Government

The legal battle stems from Loterj’s decision in 2023 to issue its own online gambling licenses, which were seen as an alternative to federal licensing. The state regulator positioned these licenses as a cost-effective option, charging BRL 5 million for a five-year term compared to the federal regulator SPA’s fee of BRL 30 million. Additionally, Loterj’s tax rate of 5% on gross gaming revenue (GGR) significantly undercut the federal rate of 12%.

This disparity attracted operators looking for less stringent and more economical terms. However, the STF’s ruling has effectively nullified this advantage, reinforcing the authority of Brazil’s federal online gambling regulations, which officially came into force on January 1.

Implications for Loterj-Licensed Operators

For operators, the court’s decision presents immediate challenges. Those licensed by Loterj must either restrict their activities to Rio de Janeiro or seek federal licenses to continue nationwide operations. The operational and financial impact of this ruling is expected to be substantial:

• Compliance Costs: Operators will need to invest in geolocation technology to meet the court’s requirements.
• Strategic Reassessment: Companies must decide whether to align with federal licensing or scale back their ambitions to Rio de Janeiro alone.
• Tax Implications: Transitioning to federal licenses will increase the tax burden from 5% to 12% on GGR.

What’s Next?

The STF’s preliminary injunction is not the final word. A virtual plenary session, scheduled for February 14–21, will scrutinize the decision further. During this session, Loterj will have the opportunity to appeal and present its arguments. Meanwhile, the AGU will respond to the court’s queries, potentially shaping the course of this high-stakes legal dispute.

Until then, Loterj-licensed operators face uncertainty. The decision has sparked broader debates about the balance of power between state and federal governments in regulating Brazil’s burgeoning online gambling market.

Federal Gambling Framework Gains Strength

The federal government’s intervention underscores its intent to assert control over Brazil’s gambling industry. By mandating uniform regulations and enforcing higher licensing fees, the government aims to create a standardized framework that promotes transparency and accountability.

This shift follows a protracted six-year process to legalize online sports betting in Brazil. As of January 1, the country officially became a regulated national market for fixed-odds betting. Federal regulations now cover various aspects of the industry, from taxation to operational standards, providing a unified approach that contrasts with Loterj’s state-specific model.

This table highlights the disparities that have fuelled the ongoing conflict and the STF’s attempt to align state practices with federal standards.

The outcome of this case could serve as a precedent for other states contemplating independent regulatory frameworks. With the national government’s firm stance, operators and regulators alike must brace for a more centralised and uniform gambling environment.