The Brazilian government has announced that it will "follow the UK model" of recording online gambling, applying a 15% GGR fee, explicitly to ensure that the channeling of black markets to the national licensing regime is effective. At first glance, a 15% GGR tax for online sports bets seems sensible: it works in the UK and similar tax rates work, more or less, in the USA.

However, a 15% GGR tax inspired by the UK is not the whole story. Perhaps the Brazilian government sought advice from the former UK Culture and Health Secretary, Matt Hancock, and the ex-minister of Finance, Kwasi Kwarteng, who were recently taken by surprise by faking their consultancy credentials despite the absence of any talent or perceptible vision , because Brazil is heading towards a nonsense and a self-destructive political scam that will achieve the opposite of what is intended, apparently a specialty of both former British ministers.

Brazil's proposed sports betting taxation model, in its current form, is deeply flawed on three structural levels and, it is said thay may destroy the current market.

First, and least seriously, a low GGR tax rate is not the main driver of plumbing, despite what the industry likes to lobby. When Denmark increased taxes from 20% to 28% in 2021, industry expectations of a reduction in plumbing did not materialize. Similarly, there is no correlation between significantly varying GGR tax rates for online sports betting in the U.S. and per capita income (in fact, the correlation is dangerously positive thanks to New York, which taxes online sports betting at 51% GGR and has the highest rate). per capita income of any major state). Finally, the reduction of online gambling taxes from 25% to 20% GGR in Spain in 2018 coincided with a slowdown in growth, not an acceleration.

There is a simple reason for this: apart from the potentially biased taxation of bonuses, GGR taxes do not affect consumer prices and, therefore, do not affect demand (operators threatening The model of taxation of sports bets proposed in Brazil, in its current form, presents deep flaws on three structural levels and, in our opinion, could destroy the current market.

In the first place, and less serious, a low GGR tax rate is not the main driver of employment, despite what the industry likes to do. When Denmark increased taxes from 20% to 28% in 2021, the industry's expectations of a reduction in tuberies did not materialize. Likewise, there is no correlation between significantly variable GGR tax rates for online sports bets in the US. UU. and the per capita income (by the way, the correlation is dangerously positive thanks to Nueva York, which records sports bets online at 51% GGR and has the highest rate). per capita income from any major state). Finally, the reduction of the 25% to 20% online game charges in Spain's RBG in Spain in 2018 coincided with a slowdown in growth, not with an acceleration.

There is a simple reason for this: apart from the potentially levied imposition of bonuses, the GGR charges do not affect consumer prices and, therefore, do not affect demand (operators who threaten to deceive customers by raising prices in it responds to higher GGR taxes, which are liars, economics). illiterates, as they will simply offer a price advantage to competitors, or will effectively be proposing a cartel).

What really makes a higher GGR tax rate is to reduce the amount of money that operators have available to spend on marketing (assuming that gullible investors have stopped injecting money into defective commercial models); And given how counterproductive this marketing spend is from the point of view of efficiency and policies, higher taxes are not necessarily bad. It is an unrecognized but empirical certainty that very little commercialization of games of chance really makes the segment grow or positively influences the knowledge of the product. However, in the Brazilian context, a GGR charge of 15% on the ground is a defective concept in terms of the foreseen policy objectives, but it is also risky for fiscal sustainability.

The typical range of VAT/GST applicable in Brazil is 17-25%, which means that once the current online sports betting market is channeled to around US$1,600 million (income of US$1,300 million; c. 20% bonus), generates a relatively meager $240 million in taxes; all future income is tax-free in the best of cases, since the increase in sports bets must come from other parts of the consumer economy (taxes). However, a basic misunderstanding about channeling and the inherent fiscal inefficiency are far from being the most serious defects in the direction of Brazil's sports betting policy, in our opinion.

A bigger problem is that the 30% tax on winnings that applies to the lottery still seems to apply to sports bets. Currently, lottery prizes for under R$2640 (around US$500) are exempt, which seems to be an important exception in a massive and relatively emerging market if this exemption is transferred to sports bets.

However, a tax on earnings of 30% at the highest prime levels presents a serious channeling trap that makes the GGR tax rate practically irrelevant. It is little likely that around 90% of Brazilian sports betting customers reach this lottery level, the 10% that probably represents more than 70% of the income in our opinion.

For example, we believe that the $1500 million GGR market is backed by 9 million active sports betting customers:

*90% or around 8 million = 20% of the income, or $40 of net spending per customer; at 10% of GM = $400 in participations and $360 in earnings per year, much less than the aggregate amount, much less per participation (these customers are also especially sensitive to prices and, therefore, will experience low taxes).

*10% or around 1 million = 80% of income or $1300 of net spending per customer; at 8% of GM (simple) = $16 600 in stakes and $15 300 in gains per year; It is likely that a significant proportion of these individual bets have a value of $500 or more in winnings (large individual bets and multi-step accumulators).

In other words, the tax on earnings is directed at the most valuable, most intelligent, most sensible customers, the most precious and the most mobile. Even with a limit of $500 on a tax on earnings, it is possible that 80% of income is not channeled and it is likely that the black market will prosper. While maintaining the tax on earnings even with a top of $500, the explicit objective of the policy of a 15% GGR tax would be completely defeated.

It is likely that the third structural failure will be fatal for the entire project, especially when combined with the tax on earnings. The biggest and possibly the most insoluble problem is that the Brazilian government is much more willing to regulate sports bets than games. Last week, the government seemed to confirm that a Brazilian sports betting license would prevent online games from being offered, which would be reviewed later (possibly much later).

Games Brazil have signaled this risk for some time as a result of the common sense of the political forces at work, but this is the first time that a government official has spoken about it. When blocking online games, around 50% of the existing market is blocked per product. However, this is much worse than "solo" reducing the current target market by half when combined with the 30% revenue tax, as it provides a powerful additional reason for existing customers to use black market alternatives, since the customers of games and bets are much more valuable per capita than the customers who only bet. The current proposed tax package accounts for 80% of the current online market and makes it dysfunctional.

Brazil's sports betting package will, without a doubt, open up an important terrestrial omnichannel opportunity, which we believe could have a value of around $1 billion in additional income and perhaps more. However, it is likely that this new market will be absorbed by some experienced and well positioned local players and could attract the fiscal and regulatory interests of semi-autonomous Brazilian cities and with financial difficulties: the need for a physical network opens an obvious opportunity to aggregate local taxes .

However, of approximately US$2300 million in revenues for 2023 (in the GGR) in the Brazilian market of bets and online games that we forecast for 2023, we expect that less than 30%, or US$650 million, will survive national regulation, if it is recorded and regulated as proposed. An industry of this size would represent a GGR of US$2 thousand million out of the US$300 million of GGR tax refunds, much because of the US$2-3 thousand million that the Brazilian government expects with optimism (we hope that most of it will be retained on the black market).

Indeed, if the expected upper limit of $3,000 million was composed of a 60% GGR and a 40% income tax (which implies an 11% income tax mixed with a $500 top), this would imply a GGR of $12,000 million or $56 per capita. market: more than what New York currently achieves... The difference between an income subject to taxes of $ 3 thousand million and $ 300 million is more than the difference between success and failure: it would mean a total political disaster for the game and all those who supported the regulation.

Ironically, but perhaps inevitably, it is likely that the industry will bear the blame for the weak fiscal income and the aggressive commercialization of shares that the proposed regime will introduce almost inevitably the next year, delaying the likelihood of a positive reform in the taxes on them earnings and the game potentially indefinitely. . Brazil may be copying the United Kingdom, but in ministerial incompetence, not in effective politics, in our opinion. Once more, several years of intensive but naive and simplistic cabildeo by the industry have achieved exactly the opposite of what was intended in what is rapidly becoming another avoidable but potentially catastrophic political issue.