• Brasil Fernandes Advogados

"Adopting GGR as tax calculation basis is right for sports betting to be viable in Brazil"

Roberto Brasil Fernandes, a lawyer specializing in lotteries, is Gildo Mazza's guest for a new GMB One-On-One interview He talks about the advances for the States with STF's decision to end the Union's monopoly in the exploitation of lotteries and defends that all modalities should be regulated locally. “The shortest path would be to transfer competence to the States.” Regarding adoption of GGR for tax calculation basis, he says that 'it is correct and essential for the modality to be viable in Brazil.'

Check out the main excerpts from the interview below: GMB - What is your assessment of the current moment of lotteries in Brazil? Roberto Brasil Fernandes - I have no doubt in saying that we have started a new era for state lotteries in Brazil, especially. But not only for the state lotteries, but also for the federal lottery, which is facing a great opportunity. It refers to two new modalities included in the lottery portfolio, which are fixed-odds sports betting and Lotex - instant lottery - both with the possibility of being explored by the private sector. This undoes a model that had been adopted since 1967, which stymied the state lotteries, and, in some way, the Union lotteries administered by Caixa Econômica Federal. It is something quite innovative. When I joined ABLE, in 2004, I was already discussing the autonomy of the states in the exploitation of lotteries at the Court of Justice of Santa Catarina, then at the STF. I argued some actions, held some debates and only now, in 2020, we have a decision by the Federal Supreme Court contemplating what the 1988 Constitution already provided; that is, the independence and autonomy of the states with regard to some matters, among them the issue of state lotteries as a public service. So, objectively answering your question, it' is a new moment, a new era for lotteries, especially state lotteries in Brazil.

From a practical point of view, has anything changed since the Supreme Court decision? No doubt. The states that operated state lottery in Brazil - Minas Gerais, Rio de Janeiro, Ceará and Paraíba - did so in a plastered way. They could not create new products and there was legal uncertainty in the face of the Union's intention to monopolize this activity. You can see that the Lottex law only brought the Union as the only one competent to authorize the exploration of the activity. I was at road shows and public hearings, when I mentioned to investors that there was a pending issue in the Federal Supreme Court, which was the discussion on the jurisdiction regime of the States and the Union in the lottery area, which now resulted in the decision of ADPF's 493 and 492. Now states can create as many lottery products as are convenient and opportune for the public interest. This respects the lottery modalities established by federal law. Every federal law that creates a new modality called lottery modality allows states to explore the same product, managing it in their own way, with administrative and financial competence. The state should not use the federal decree, strictly speaking, but should only redeem what is in the federal legislation, bringing it to the reality of its state, creating a product based on that modality and establishing periodicity, layout, payout, and destination of the resource. It would not be credible, for example, that the Union decided in the sports betting law that the resources be destined to public safety It may be that a certain state does not have this demand but has a more important one in the health area. So, it cannot be linked to that legislation. It [the state] has to dispose of the financial resource in accordance with its public interest. In other words, that state will allocate the revenue to health and not to public safety. Another thing is the competition issue. The state will create a product that competes with the one created and exploited by the Union. This is the healthy dynamic of the lottery. Someone would say: “This competition between the State and the Union is healthy”. Of course. If we consider that the lottery's objective is to serve the population, with a source of income to finance social demands, since a lottery is not a game, just a source of income. The game is just a way to capture this revenue. So, if the interest is the target audience and social demands, lotteries – both in the Union and in the States – will occupy the market and serve the market better than before. It is a false dilemma to understand that this competition is bad for the Brazilian scenario. Talking about the allocation of resources, how do you see the recent change in the tax regime proposed in the Chamber of Deputies in an amendment to the provisional measure that deals with the financial system and that will consider GGR at the time of tax collection? And how will this benefit the market in Brazil? This is a sine qua non. There was no possibility, from an economic x financial point of view, with Law 13756 regarding fixed-quote sports betting in Brazil. This was already an analysis made by other jurists in the country, such as Luiz Felipe Maia and many others, who always showed concern with this matter. And proceeded! An observation. Fixed-quote sports betting in Brazil is considered a lottery modality. In other countries, no. So, it aims to raise funds to finance social demands. If it doesn't, it doesn't make sense to occupy the market without this perspective of significant collection. And as it was being treated, that is, with the calculation basis on the turn over, this made this operation unfeasible and would not create a sports betting operation that would compete with what is currently on the internet, by the international channels that offer sports betting, it would not compete with any informal activities existing in Brazil nor would it attract investors because there is no important economic result if we undertake with Law 13756 in its original form. That would make no sense. Adopting the GGR as a calculation basis for tax incidence is correct and essential for this modality to be viable from an economic, social, and financial point of view. So, applause to the congressman who dealt with this matter, and I hope that it prospers. Everything SECAP has done in the last five years with its competent team is much more than it has done in the previous 35 years. So, only now, with this change in legislation, will it be possible to allow a truly viable model for both the federal government, state governments and the business sector, and especially for one of the sports that will benefit most, Brazilian football. There is already movement in some states seeking to implement their lotteries, such as the Federal District, Maranhão and even Guarulhos city, in São Paulo. How are these processes? Is there any impossibility for municipalities to also implement lotteries? When I filed the lawsuit with the STF, together with the lawyers Alexandre Amaral João Carlos Almagro on behalf of ABLE, we sent a file to all state governments, both in the person of the governors and the finance secretaries, informing that we had filed a lawsuit to defend the law of states. So, 18 states accepted our invitation and went to the STF and joined the action as amicus curiae. In other words, 18 states also won the case along with ABLE. Therefore, these 18 states must, upon complying with the decision that was favorable to them, open their respective lotteries. There are 27 units of the Federation and 23 that were not exploring lotteries before, without a doubt, are already in motion. Some make contact with us, and I don't believe there is any state that isn't with a project or discussing opening their own lottery. The other four states that already had lotteries are strengthening and restructuring them. There is a procedural issue in the result of ADPF 493, whose STF decision excludes the municipalities from this legal possibility. It is an adventure for municipalities to desire or become involved in the regulation of a municipal lottery. This is not possible based on the STF decision and it is also not possible based on the current Constitution. The first issue that makes the municipalities impossible, as they were not part of ADPF 493. Decisions, even for those who were not part, can benefit. And there is a material issue. In Brazil, competences are distributed by the Constitution. It is not a degree of hierarchy between the Union, States and Municipalities. Each one has its competences defined by the Constitution and there is no legal basis in the STF ruling that reaches the municipalities. Even with the quote from Minister Alexandre de Morais, it did not enter the judgment and was just an “en passant” quote. I would have liked the municipalities to have been included, but there is no possibility from a constitutional point of view, as it is not a public service within its competence. The Lottery of the State of Rio de Janeiro and Lottery of Minas Gerais are reformulating their games and seeking to implement new lottery modalities. In your opinion, is this a step towards exploring sports betting as well? No doubt. There are two big lotteries and I know the teams from both. I had the pleasure of knowing the latest Loterj boards and I know that it is a very well-trained and educated team, imbued with the desire to do good, always related to the public interest. As for the Minas Gerais Lottery, Dr. Ronan Moreira, even for his affinity with the legal matter and for the responsibility and seriousness in which he conducts the Lottery, together with the lottery operator, Intralot, in the person of its president Sérgio Alvarenga, were key figures in the discussions at the STF. The presence of the states of Rio de Janeiro and Minas Gerais in the Federal Supreme Court gave scope to the action. Now they are reaping the fruits of that decision and it would be unreasonable that, having won the action, they did not carry out the advances. Rio de Janeiro and Minas Gerais – as well as Ceará and Paraíba should do it – will do nothing more than what the STF has allowed and decided in favor of. This will have a very important repercussion in the collection of these states. I have been following some economic analysis of how this will impact state lottery revenue and it will be very important. The public notice of Rio de Janeiro foresees a collection in five years of more than R$ 3 billion. This means several times more than they have been collecting until today. In this movement for the state exploitation of lotteries, is it possible that the states also seek a regulation for bingos within their jurisdictions? Bingos pay for an image defect. I am suspicious in talking about Abrabin, as Olavo Salles is a friend, but I can say with certainty of his competence in leading Abrabin as president and, today, at Abrabincs, which included the casinos. Bingos are nothing more than a form of prediction contest. So, they could be included. However, in that period, the Union, when regulating football, brought bingos as a source of revenue and did not regulate them in a decent way, giving the states the power to supervise and authorize bingos under the Zico and Pelé laws. Then came the Maguito law, which revoked everything. Federal legislation created an embarrassment for the states. So much so that lotteries were victims of bingo for not having the modality in their state legislation. When bingos ceased to exist in federal legislation, they persisted in their local legislation with this modality and ended up being declared unconstitutional. This created this problem. Bingo was treated as a purely economic activity and not a lottery. And it seems to me that this must be its character. But answering your question, I would say that the states can, yes, defend the opening of bingos, but not as a lottery modality. Furthermore, I argue that the entire gambling market – casinos, bingos, and other possible modalities – should be transferred to the states. The competence to legislate on this matter should not be concurrent, but only of the federated units. This would speed up the business. A certain state could define that it wants to regulate the casino, while another does not want a casino, just bingo and lotteries. So, with 27 states and continental dimensions and cultural differences allow each state to have its own legislation when dealing with this matter. In this regard, what assessment do you make of the possibility of creating a legal framework for the gaming sector in Brazil, including bingos, urban casinos, IRs with casinos and jogo do bicho? In relation to casinos, I have been following the processing of existing bills in Congress and I observe that the legislative production until 2015 was around 3%. In other words, of the 100 bills that became law in Brazil, 95 originated from the Executive and only three originated from the Legislative, while the other 2% came from the Judiciary. So, the production of the Legislative is very low. We always depend on the Union's initiative, that's why I say that both the Bill 186 and the Chamber's Bill, 442, which are being processed in Congress, without underestimating their importance, as they brought debates to the scene, they have a lot of material to move forward but with modifications that will be needed for them to move forward. Either there will be an effort by the authors and actors of this process to move forward and have the federal government's acquiescence, or they forget about everything and the federal government itself forwards a bill to the National Congress that deals with this matter. I find it very comfortable, relevant and coherent that the government sends a bill saying that the competence of the matter belongs to the States. It would be much easier to deal with federal entities than to deal with the consensus among the 27 states. Until a consensus is reached in the 27 states and various interested parties, the informal market is growing, and the benefits of this market do not happen, including in terms of ludopathy, circulation of resources and also for the entrepreneur who wants to be in the business but has to wait for the proper regulation. So, everyone loses with the lack of legislation. For me, the shortest way to make this happen would be to transfer this competence to the States. I defend that Brazil has resort casinos, which are extremely important and attract tourists and large investors, but they should happen in small quantities and in reserved geographic areas to ensure their economic viability. But we should not exclude multidisciplinary casinos. That casino that comes with all the important ingredients, attracting culture, art, and gambling, but without a hotel. A casino without a hotel in Gramado/RS, for example, would include the entire local hotel network, as well as in Campos do Jordão. They would be very welcome to contemplate the local hotel chain. This would bring more benefits than simply installing a large 3,000-room casino resort in Gramado. Everyone would go to that hotel and would not benefit the existing facilities and the region. So, I defend the two models, that of resort casinos with a reserved geographic area to ensure their economic viability, and multidisciplinary casinos to ensure in important tourist areas as another tool to be included in what that city already includes. And all other lottery and gambling modalities should also be covered. The demand exists in Brazil and must be met. It is better having a sector regulated, inspected and taxed by properly registered entrepreneurs rather than doing it in an informal way. So, finally, I would like to know what is your message to the states in the search for the creation of their lotteries to expand social assistance at the local level… States have a unique opportunity to establish their lotteries without getting lost in the concepts of what they are attracting to their territories. The lottery is an institution that aims to finance social security and social demands of public interest. The source of income for a lottery is the exploitation of lottery modalities established by federal law. It is then up to the lottery and the State to attribute to the private sector the development and exploitation of lottery products, such as Quina, Mega-Sena, Keno, sports betting, etc. With this concept well defined, the States must exercise their material competence in this matter, ensuring in their respective legislations and decrees their administrative, self-fulfillment and self-management competence, including in the financial aspect, to create and approve products that actually make sense and can reach the community of their geographic area, collect significant amounts and then make investments in the area of ​​health, culture or sports. According to the demand of each state, make the lottery appear in the community and the citizen of that locality, seeing the state lottery as a novelty in their state, express that "now I can bet on a lottery that can generate revenue and solve the problem of a hospital, sports or local public safety.” The community needs to realize the importance of this lottery. Source: Exclusive GMB