Gambling sector and federation issues in Brazil

Recent years have seen significant activity in the Brazilian gambling sector, with new legislation, Supreme Court rulings, and updated regulations resulting in a dynamic yet unstable market.

A key topic of ongoing debate involves regulatory discussions among federative entities. The process began when States appealed to the Supreme Court for the authority to operate lotteries. Currently, Brazil faces complex regulatory challenges involving the Union, States, and Municipalities.

Following two Supreme Court decisions that clarified the roles of the Union and states, the Court is now considering cases pertaining to restrictions on State-level operators and whether Municipalities also possess the right to operate. Concurrently, federal authorities are engaged in efforts to harmonize regulations and coordinate supervision and enforcement regarding sports betting and online gaming operators.

The results of this discussion will influence the market landscape, addressing issues of competition as well as determining the barriers and permits that companies must navigate to operate in Brazil.

This article examines the status of federative disputes in the Brazilian gambling market, with emphasis on the roles of the federal government, the States, and the newly established operations of Municipalities. It provides an overview of the relevant legal background and discusses potential future developments in a scenario that remains undefined.

How the Brazilian federation works

Brazil is a federation in which powers and responsibilities are distributed among three entities: the Union, the States, and the Municipalities. According to the Brazilian Constitution, these entities hold two primary types of authority: the power to legislate and the power to manage and provide public services and utilities.

The Constitution reserves certain matters for legislation exclusively by the Union, while others may be legislated by the Union, States, and Municipalities. In instances where all three entities have legislative authority, general rules established by the Union take precedence over State and Municipal laws.

The Constitution specifies which public services and utilities each federative entity may provide. The Union holds a monopoly on those deemed relevant to national interests, while States are responsible for services aligned with their own interests, and in some cases, share responsibilities with the Union (such as roads, land transportation, and lotteries). According to the Constitution, Municipalities are limited to providing services of “local interest,” generally relating to urban matters such as waste collection, traffic management, and sewage.

This context is important for understanding discussions regarding lotteries, as Brazilian law classifies lotteries as a type of public service. Therefore, determining which federative entities have the authority to provide and regulate lotteries requires reference to the constitutional framework concerning powers to legislate and deliver public services and utilities.

Quick note – lotteries in Brazil have a wide reach

Initially, it is pertinent to clarify that Brazilian legislation adopts a broad interpretation of the term “lottery.” This encompasses not only traditional lottery formats but also fixed-quota bets, which include sports betting and online gaming. Law no. 13,756/2018 classifies “fixed-quota bets” as a form of lottery, and the subsequent Law no. 14,790/2023 further extends this definition to incorporate online games as a category of fixed-quota bets. Therefore, references to “lottery” in legislation generally encompass fixed-quota bets, except when expressly excluded.

A little bit of history – how we got here

Back in the middle of the last century, some laws emerged concerning the regulation of lottery services in Brazil. The first, Decreto-Lei no. 6.259/1944, authorized the Union and the States to provide lottery services. Later, Decreto-Lei no. 204/1967 denied the right of States to provide lottery services, by giving exclusivity to the Union. Since then, the Union has been the sole provider of lottery in Brazil – with some exceptions provided by the same Decreto-Lei no. 204/1997.

However, in 2020, the Supreme Court (“STF”) ruled that such a monopoly did not align with the Brazilian Constitution, since it does not provide any exclusivity to the Union. Indeed, judging by the lawsuits filed by Rio de Janeiro State and the Brazilian Association of States Lotteries, STF deemed that the Constitution did not place any restriction on the States providing lotteries.

STF concluded that the Union has the exclusive powers to legislate on lotteries, as provided by the Constitution. However, these powers do not imply the Union should have a monopoly on the provision of lotteries. Hence, States can provide such services, provided that they respect the federal legislation, including by not offering any lottery type not referred to in such legislation.

The recent Supreme Federal Court judgment reopened the market for States to provide lottery services, prompting several Brazilian States to begin granting authorizations and concessions to lottery operators.

In 2018, Law No. 13,756 legalized sports betting in Brazil, allowing the Ministry of Finance a two-year period, extendable by an additional two years, to issue regulations. However, comprehensive regulation was implemented later, with several rules enacted in 2024, which left certain issues unresolved and continued to affect the gambling market.

Subsequently, in 2023, Law No. 14,790 legalized online gaming and introduced significant amendments to previous legislation, establishing the foundation for the current regulatory frameworks. As a result of these developments, a regulated market for sports betting and online gaming commenced on January 1, 2025.

In short, Brazilian law and Supreme Court precedent state:

• Lottery, sports betting, and online gaming are legal public services.
• Law no. 14,790/2023 allows federal and state governments to authorize or grant concessions to private operators.
• The federal government regulates gambling, while States may run lotteries within their own borders.

Discussions between the Union and the States

The STF’s rulings on three cases concerning the federative powers over lotteries established significant guidelines, but did not fully resolve the ongoing debate.

According to the STF:

• The Union does not hold a monopoly over lottery operations; however, it maintains the authority to legislate on this matter.
• States are permitted to provide lottery services as long as such services are confined to their respective territories.
• States may enact legislation regarding lottery services without contradicting federal law, including prohibiting the operation of lottery types not specified by federal regulations.

The STF’s decision has enabled States to offer lottery services, but this development has introduced several challenges. Notably, some States have not implemented measures to restrict these services to their own territories, leading authorized companies to operate without boundaries and provide offerings throughout Brazil.

Territorial jurisdiction presents particular difficulties for sports betting and online gaming, as regulating internet-based bets is inherently complex. While some operators wishing to serve the Brazilian market must obtain federal authorization – entailing multiple requirements and a fee of 30 million Brazilian Reais – others pursue State or Municipal licenses, which involve lower costs and fewer obligations, yet still commence operations nationwide.

The situation developed rapidly as the Union filed a new case with the STF, seeking a decision to declare the contractual terms of Loterj (Rio de Janeiro State Lottery) unlawful on the grounds that they did not explicitly prohibit authorized companies from operating beyond the borders of Rio de Janeiro. The STF subsequently issued an injunction requiring Loterj to mandate the use of geolocation technology to block bets and users located outside the State of Rio de Janeiro. However, this order is limited to Loterj’s contracts and does not automatically impose restrictions on other states regarding the acceptance of users and bets originating from outside their respective territories.

The issue of territory is closely linked to another matter coming from the authority held by States to operate or delegate lottery services. Since States can authorize companies, the requirements for operating lotteries, sports betting, or online gaming differ across States. In seeking to attract more operators, some States reduce entry requirements, allowing a broader range of companies to participate. While this does not necessarily lead to negative outcomes – there are companies which comply with State regulations – it is nevertheless the case that a company may choose State authorization over stricter federal standards.
If there are no geographical restrictions, these companies can provide services across the country once they receive local authorization. In cases where permit procedures lack thorough oversight and due diligence, misconduct or damages caused by such companies may affect the entire sector.

Sports betting and online gaming face significant scrutiny in Brazil, with some political figures and segments of the media questioning the permissions granted by recent laws. News coverage often does not distinguish between companies operating under regulation and those acting without authorization, and unregulated operations give rise to many of the arguments against sports betting and online gaming. Any controversy involving an authorized company – even if the authorization was issued by a single State – could be used to support increased regulation or a complete ban.

The Union strikes back – restrictions from Section 35-A

During the legislative process leading to Law no. 14790/2023, Congress amended Law no. 13756/2018 by introducing Section 35-A, which aims to regulate the authority of individual States. Among its provisions, Section 35-A sets out restrictions on the States’ ability to offer lottery services, including limitations on advertising and a key prohibition preventing any single company from holding more than one concession – the effect being that no company may operate lotteries in more than one State within Brazil.
This regulation notably restricts competition, as it grants exclusive operational rights to Caixa Econômica Federal, the federal public bank currently administering Brazil’s national lottery. Furthermore, by barring companies already operating in one State from participating in tenders in other States, the rule diminishes competitive opportunities in newly established State lotteries.

Questions have been raised regarding the constitutionality of this restriction, particularly with respect to potential undue influence exerted by the federal government over State autonomy in lottery administration. This issue is viewed as a possible infringement of the ‘federative pact’ set forth in the Brazilian Constitution. The matter has prompted an unconstitutionality claim filed with the Supreme Court by seven States and the Federal District, wherein these entities contest the imposed limitations.
STF has already granted an injunction to suspend the effectiveness of two items from Section 35-A – one that introduces the limit of one concession per company and another that restricts a company operating in one State from advertising in another. On the merits, five Justices have already deemed in favour of the States.

The rapporteur justice Luiz Fux suspended the effectiveness of §2, stating that:

“The restriction of §2 […] constitutes a violation of the federative autonomy of the States […] in addition to depriving them of a legitimate means of self-financing.”

Thus, an economic group may hold more than one state concession.

Regarding §4, the precautionary measure was also favourable to the States. Justice Luiz Fux emphasized that globalization drives broad-reaching marketing actions and that restricting advertising only to the State territory is not reasonable. He gave the example of the Federal Lottery sponsoring athletes in national and international competitions, concluding:
“It does not seem reasonable […] that a state lottery cannot, for instance, carry out a marketing action at a Brazilian national football team match abroad, simply because the event physically takes place outside the granting state’s territorial limits.”

The injunction currently permits:

• Granting multiple state concessions to one economic group.
• Advertising outside state borders.

Third layer – municipalities

Following the STF’s decision to open the lottery market beyond federal control, some Municipalities have begun authorizing companies to operate lotteries, including sports betting and online gaming. Municipalities claim that, since the Union no longer holds a monopoly, they share the authority with States to offer these services. Their argument is based on two references to Municipalities in the Justices’ decisions, despite no explicit statement granting them this power.

Currently, several municipalities – including major cities such as São Paulo, Belo Horizonte, and Porto Alegre – have taken steps to operate their own lotteries. In some instances, lotteries are already active; for example, Bodó, a small city in Rio Grande do Norte, has become a destination for foreign companies interested in operating sports betting and online gaming in Brazil.
Bodó serves as a case study for other Municipalities: despite its small size, it has attracted numerous companies that have paid 300,000 Brazilian Reais for authorization. Bodó does not impose geographical restrictions on these companies, allowing anyone to place bets through its regulated operators.

With over five thousand Municipalities in Brazil, the market is significant, although not all will choose to operate lotteries. The presence of municipal lottery operators introduces competition that may impact federal and state lottery operations. Municipal authorities also face various challenges in running these lotteries.

The Supreme Federal Court (STF) is set to determine whether Municipalities possess the legal authority to operate lotteries. The political party Solidariedade has submitted a claim to the Supreme Court , requesting that municipal laws authorizing lotteries be declared unlawful. Rapporteur Justice Kassio Nunes did not grant the injunction. Instead, he notified fifteen Municipalities to present their reasons before following with the judgement.

There are two principal arguments regarding the Municipalities’ intention to operate lotteries. The first is that the Supreme Court has not explicitly extended to Municipalities the right it granted to States when addressing the Federal Government’s lottery monopoly. In the cases reviewed by the STF, only State authority was considered, without determining whether Municipalities may also provide these services. Furthermore, current federal legislation does not grant this authority to Municipalities.
Another argument challenging the authority of Municipalities is based on Section 30, item V of the Brazilian Constitution, which grants Municipalities the power to operate – directly or through concession and authorization – services of local interest. This provision indicates that Municipalities have limited authority regarding public services, being responsible primarily for those related to urban affairs.

It is debatable whether lottery services are of ‘local interest’ to cities, despite some Municipalities claiming this based on revenue. The Constitution’s notion of local interest concerns urban services that benefit residents, not financial gains. Defining local interest solely by potential revenue would mean any fee-generating service qualifies, which oversimplifies the issue.
Allowing Municipalities to run lotteries raises concerns about the effectiveness of a multi-authority system, as different federative entities could enforce varying regulations. This could distort competition, with some Municipalities lowering authorization standards to attract companies, potentially granting licenses to unaccountable operators and harming both competitors and other federative entities.

Despite all the arguments in place, the final solution will come when the STF rules on the ongoing case.

Working together may be the key

Regardless of the decision on the Municipalities, the federative entities are required to address disputes over lotteries. Based on current STF rulings and legislation, collaboration appears to be an appropriate approach for resolving these issues.
The Secretariat of Prizes and Betting (Secretaria de Prêmios e Apostas, the federal regulator) recently announced an initiative called Sistema Nacional de Apostas (SINAPO), which is intended to establish a minimum level of coordinated regulation involving both the Union and the States.

SINAPO is currently being developed, and SPA plans to engage the States by providing three specific benefits:

• Access to the national list of authorized companies, adding their authorized companies to general consulting
• Access to the national list of banned bettors (currently being developed by the Federal Government)
• Use of the domain ‘.bet.br’, which may be adjusted to include each State acronomy, so bettors can easily identify the regular State’s operators

In exchange, States are required to comply with general standard regulations, which primarily address the requirements for authorizing companies and control over the geographic location of bettors. It remains to be seen whether SINAPO will be effective, however, it does represent an initial indication of a settlement between the Union and the States.

In the absence of a negotiated agreement among the federative entities – including the Municipalities – issues will continue to be resolved by the Supreme Court, increasing uncertainty and associated costs for both the federative entities and companies seeking to operate lotteries in Brazil. It is important to note that three cases are currently pending before the STF, with one case serving solely to reinforce the Court’s prior decision concerning Loterj’s failure to observe territorial limitations.

The resolution process appears somewhat more straightforward regarding disputes between the Union and the States, primarily because there are fewer stakeholders involved, and some States have already indicated their willingness to negotiate with the Union. Additionally, two court rulings have affirmed the rights of the States, reinforcing territorial restrictions and thereby affecting negotiation leverage.

States may also benefit from federal regulation, as it could reduce their regulatory expenses. By utilizing federal frameworks and enforcement mechanisms, States can streamline rulemaking and enforcement efforts, and better address unregulated operators, rather than allocating significant resources to independently establish and maintain their own systems.

Municipalities may negotiate with States for a portion of revenues collected. For many Municipalities, the potential revenue from operating or delegating their own lotteries is limited, given the associated costs, time required to structure authorization processes, and the need to manage and monitor operations.

From a cost-benefit perspective, receiving a share of State revenues could yield similar financial results without incurring these efforts and expenses. This scenario is particularly relevant for Municipalities that have not yet established lottery operations and would begin to generate income from the State’s lottery instead. Additionally, if the STF rules against the Municipalities, they will not have the option to operate their own lotteries.

Currently, there is no immediate resolution expected as parties await decisions in ongoing Supreme Court cases. While the disputes between the Union and the States are further along than those involving Municipalities, all parties are waiting for additional rulings before proceeding.

Conclusion

Ongoing disputes among federative entities persist due to vague legal guidelines and debates over constitutionality. As most issues end up in the Supreme Court, it plays a pivotal role in shaping the framework through which federative entities can address current challenges.

However, it is unrealistic to rely on external resolutions for every emerging dispute. Although legal frameworks and regulations can support these efforts, further legislative advancements are unlikely in the near future, given the current political climate surrounding betting. Federative entities must develop mechanisms to both prevent and resolve conflicts.

Some initiatives may provide guidance for reaching settlements that address portions of ongoing disputes. Given the range of competing interests, it will be challenging to reach a comprehensive agreement among all parties that resolves every related issue. Nonetheless, indefinite delays are undesirable, as they would result in losses for all stakeholders in the lottery market.

While it is understandable that each party will seek to secure their share of a thriving market, it is essential that concessions are made to prevent undermining the potential benefits. It is neither reasonable nor practical to expect unlimited authority for each State or Municipality to operate lotteries.