Brazil’s Local Lotteries May Bring in $2 Billion a Year

A new economic study conducted by Leme Consultores estimates that municipal lotteries could generate up to BRL11.6 billion (approximately USD $2 billion) annually in federal revenue, intensifying debate over their legitimacy and impact on Brazil’s regulated betting sector.

Commissioned by the National Association of Municipal and State Lotteries (Analome), the study evaluates the fiscal potential of local betting systems amid an ongoing constitutional dispute over their legality. The findings suggest that municipal betting, particularly from smaller operators, could serve as a significant source of federal income, challenging current arguments for centralizing lottery operations under federal jurisdiction.

Legal and Political Context

The issue gained national attention in March when Brazil's Solidarity party filed a Claim of Non-Compliance with a Fundamental Precept (ADPF) before the Supreme Federal Court (STF), seeking to suspend municipal lotteries. The party alleged that these lotteries undermine the recently regulated federal online betting market by allowing companies to bypass federal authorizations.

STF Minister Nunes Marques declined to grant an injunction, allowing municipal lotteries to continue functioning pending a final ruling by the court. This legal limbo has prompted both concern and opportunity across Brazil's gambling and public finance sectors.
Key Findings of the Study

Drawing on licensing data from the municipality of Bodó in Rio Grande do Norte, the study projects that BRL8 billion of the estimated revenue could stem from smaller firms unable to afford or qualify for federal licensing. Federal licenses currently require an upfront fee of BRL30 million, along with rigorous technical and compliance obligations.

“These barriers to entry – especially for small and medium-sized agents – not only affect competition, but also directly reduce the potential for tax collection,” the report states. “The high initial and maintenance costs required by federal legislation may significantly restrict the number of operators able to collect taxes.”

The report further argues that decentralizing lottery operations could mirror successful models found in federal systems such as the United States, Canada, and Australia. In these countries, local and national lotteries coexist, increasing tax revenue and expanding access across different regions.

Support and Skepticism

While the study positions municipal lotteries as a viable means of enhancing economic inclusivity and competition, the sector remains divided. Daniel Romanowski, president of Paraná’s state lottery, voiced concern about the capacity of smaller municipalities to uphold industry standards.

“We have 5,000 cities in Brazil for sure,” Romanowski said. “There are some cities, like my city Curitiba or São Paulo, that have the structure. But there are also cities with just 3,000 people. Whether they can ensure quality systems and suppliers is a big question.”

Critics like the Solidarity party argue that the proliferation of municipal licenses has created a fragmented and potentially unregulated betting landscape, with legal uncertainty deterring more substantial federal oversight.

These barriers to entry – especially for small and medium-sized agents – not only affect competition, but also directly reduce the potential for tax collection.

Constitutional Questions Remain

At the heart of the dispute lies a constitutional question: should gambling authorization rest solely with the federal government, or can municipalities rightfully participate in this sector? The STF has yet to issue a definitive ruling, leaving room for continued legal maneuvering and political lobbying.

In the meantime, the economic data presented by Leme Consultores adds a new layer of complexity, suggesting that halting municipal lotteries could come at a substantial fiscal cost. As Brazil grapples with how best to regulate and benefit from its growing gambling market, the decision may ultimately balance legal clarity with financial pragmatism.