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Brazil’s Supreme Federal Court (STF) will be declaring invalid two controversial articles of the so-called “Law of Bets“, which was legally signed off on in late 2023. “The law governs aspects of Brazil’s lottery regime and, more broadly, the growing business of games and betting.” The subject of the controversy is two rules: prohibition from granting lottery service concessions to the same economic group in more than one state, and restricting state lottery advertising to residents only within the state.
The suit gained momentum after the governors of São Paulo, Rio de Janeiro, Minas Gerais, Paraná, Mato Grosso do Sul, Acre, and the Federal District brought their case. They argued that the restrictive measures reduced competitiveness and undermined the level playing fields for states to grow their lottery business.
STF Majority in Support of Change
On Thursday, September 11, the STF plenary forged a majority against the validity of the restrictions, saying that a definitive judgment would be reached by Friday, September 12. In case the ruling stands, the ruling will enable the same firm to operate lotteries in numerous states and allow advertising campaigns to reach people across the country, rather than being confined by state borders.
The decision is expressly reserved for lottery formats such as number draws, instant tickets, and similar games. Significantly, it does not apply to fixed-odds betting, for which there is a separate legal case.
Arguments from the States
The association of governors contended that the limitations in the law effectively discouraged private operators from joining state-owned concession processes. By limiting the scope of operation of a company to a single state, the regulations discouraged larger and more experienced firms from bidding, thereby compromising competitiveness.
Moreover, governors argued that wealthier states or states with more people would, by their very nature, draw more attention, and the smaller states would end up on the sidelines. This set up an imbalanced playing field, raising competition among states and not a nationwide equilibrium.
Another major argument was based on free competition. The governors indicated that restricting advertising reach significantly curbed state lotteries’ commercial opportunity. Without the possibility to advertise across state lines, lotteries would be unable to increase user bases and revenues, depressing the industry’s overall growth.
The Relator’s Position
Justice Luiz Fux, the case’s relator, cast a vote to declare both prohibitions unconstitutional. He was joined by fellow justices Flávio Dino, Gilmar Mendes, Alexandre de Moraes, Dias Toffoli, and Cristiano Zanin in forming the majority.
Fux asserted that the restrictions included in the legislation were not reasonable and were in violation of the provisions of Article 175 of Brazil’s Constitution, which relates to concessions and authorizations to public services. In his opinion, nothing in the constitutional rule permits excluding a single economic sector from operating in over one state.
Regarding advertising, Fux asserted that the prohibition on states using their own marketing strategies was not only unnecessary but also against the best interests of the states. He pointed out that the law already prevents states from providing lottery services to people in other states, and therefore, further regulation on advertising is unnecessary.
Wider Competition and Regulation Implications
Even though they agreed with the relator, several justices noted that the Legislature is still empowered to regulate state competencies with respect to public service concessions. Regulation, they argued, may ensure economic order and provide for a balanced competitive environment.
Yet the court’s majority decision is an outright recognition that the provisions as enacted were deceiving market forces. With their nullification by the STF, the way is paved for greater private sector participation, more competitive auctions, and perhaps stronger state revenue streams.
The case also points to ongoing tension between federal and state control of Brazil’s lottery and gaming markets. As the country continues to expand and develop its gambling industry, decisions like this one will define not just the law but also the economic chances that will be opened up to players and states.
Source: iGaming Brasil
