On January 1, 2025, Brazil officially regulated its online gambling market, setting the stage for a significant shift in the gaming industry. However, the early months of regulation have been overshadowed by concerns regarding the size of the country’s illegal gambling market. According to H2 Gambling Capital, the prevailing estimates of the illegal sector’s size are exaggerated, potentially leading to adverse consequences for the legal operators.
In recent developments, Tiago Barbosa, Head of Integrity for Latin America at Genius Sports, addressed a government committee, estimating that 70%-80% of bets in Brazil are illegal. This figure has sparked widespread debate among industry stakeholders. However, Ed Birkin, Managing Director of H2 Gambling Capital, argues that such high estimates are misleading. H2’s analysis suggests that the illegal market comprises a more modest 30% of total gambling activity in the country.
Birkin cautions against overstating the illegal market’s size, suggesting that it could prompt policymakers to impose stricter regulations on the legal gambling industry. He points out that some operators may use these inflated figures to divert attention from their own performance issues. “The narrative of a vast illegal market is being driven by underperforming operators. Instead of acknowledging their challenges in the legal market, they find it easier to blame the illegal sector,” he says.
Initial concerns about the illegal market’s share arose in January when licensed operators faced hurdles in player onboarding due to new Know Your Customer (KYC) restrictions. Despite these challenges, the market flourished. H2 estimates indicate that Brazilian gambling revenue reached BRL2.2 billion in January and almost doubled to BRL4 billion by April. Despite this growth, the narrative of a 60%-70% illegal market persists, which Birkin finds implausible.
“Talking about 60%-70% being illegal just doesn’t add up,” Birkin asserts. “With the legal market doubling, the illegal market supposedly doubling doesn’t make sense. If that were true, we’d be looking at a $20 billion total market, which is simply unrealistic.”
The potential for new restrictions looms over the Brazilian market, less than a year into its regulation. A proposed tax increase on operators’ gross gaming revenue, from 12% to 18%, awaits decision by Congress. Additionally, new advertising restrictions, including watershed policies, are under consideration. Despite industry objections that these measures might exacerbate illegal gambling, Birkin believes the government is less concerned with market dynamics and more focused on addressing gambling as a societal issue.
“In Brazil, there’s a perception that gambling is a massive social problem,” Birkin explains. “When the legal market reached BRL3 billion in a month, there was public outcry over the number being out of control. By April, when the discussion turned to 60% of the market being illegal, it implied a BRL10 billion market. Using that figure to argue against restrictions is nonsensical, especially with no supporting evidence.”
Birkin draws parallels to the Netherlands, where a similar scenario unfolded. The Dutch market experienced rapid growth after the online market launched in October 2021, driven by heavy advertising. However, concerns over gambling-related harm led to a government crackdown, resulting in reduced advertising, higher taxes, and player deposit limits. H2 now estimates that illegal operators account for approximately 50% of the Dutch market.
“The Netherlands faced the same challenge,” Birkin notes. “Excessive advertising inflated the market. The backlash led to restrictions, ultimately stifling growth. Brazil risks following the same path.”
He emphasizes that if Brazil’s regulatory landscape tightens, the licensed industry must acknowledge its role. The concentration of power among a few major brands means that outside the top players, the market share per site is minimal. “Operators need to stop blaming the illegal market for their shortcomings. They’re not achieving the revenues they expected,” he observes.
As the Brazilian market navigates these challenges, Birkin argues that perpetuating the notion of an overwhelmingly illegal market only invites further regulation. “The industry’s acceptance of this false narrative will lead to more restrictions on the legal market,” he states. “Ultimately, the industry must bear some responsibility.”
This ongoing debate in Brazil highlights a broader issue faced by emerging regulated markets worldwide. Balancing the interests of legal operators, government concerns, and consumer protection remains a complex challenge. As Brazil’s gambling industry evolves, stakeholders must carefully consider the narratives they promote and the potential consequences of their actions. The future of Brazil’s gambling market hinges on finding a sustainable path that supports growth while addressing the concerns of regulators and the public alike.
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