South of the border: Will those looking at Latam strike gold before their US peers?

Excitement exploded across the online gambling industry in May 2018 when a US Supreme Court judge’s gavel confirmed PASPA’s repeal and set the ball rolling on state-by-state sports betting legislation. The land of the free had also become the land of opportunity for the sector, and some firms moved at lightning speed to implement their US-conquering strategies.

But south of the border, in Latin America, regulators were also knocking their heads together to come up with gambling legislation in several countries, some of which have the potential to dwarf the US and its lumberingly slow state-by-state process – in the short to medium term at least.

One of these countries is Brazil. The most populous nation in South America – home to more than 200 million people – is also attracting advancing gazes from some of gambling’s biggest players. One clued-up consultant suggests there are already 250,000 illegal land-based gambling establishments in the country, so just imagine the potential appetite for sports betting when it is legalised, potentially as soon as March 2020.

As with most things in Brazil, gambling legislation has been a slow process and most certainly has not happened overnight. The debate rages on in congress and throughout a government which has changed hands since the rumours of regulation began rumbling nigh on seven years ago now. But if recent reports are to be believed, fuelled by an interview with Ministry of Economy Undersecretary Waldir Eustáquio Marques Júnior, the country’s licensing process could finally be unveiled in March of this year.

So, what will it look like? At present, prospective sportsbook operators are looking at a 3% tax on turnover, rather than the previously expected level of 1%. “That piece of regulation is not interesting for us as sportsbook operators, or even as online casino operators because we can make a loss,” says Thomas Carvalhaes, LeoVegas country manager for Brazil, Peru and Chile.

Luck of the draw

Carvalhaes takes umbrage with the fact the potential legislation has been based on lotteries. Lottery is the main form of legalised wagering in Brazil and, as such, much of the team assembled to formulate new laws on sports betting have taken learnings from the lottery sector, including the turnover tax. Whether these guidelines are relevant or even applicable remains up for debate.

“Some ministry members have studied gambling and are really experienced and know exactly what they are doing – but not everyone,” Carvalhaes adds. “They made this legislation based on lottery, but lotteries cannot make a loss. You sell tickets, and those tickets win or lose, but the house never makes a loss because the banks are the ones footing the bill. That was their only prior experience, though it does not translate to sports betting and that is exactly what is happening now.”

Operators are thought to be lobbying against this element of the legislation as turnover in Brazil is based on the overall volume of bets and includes bonuses. The industry is believed to have provided a counter suggestion of a 10% or 13% tax on gross gaming revenue (GGR), but recommendations so far have fallen on deaf ears.

Betsson is one of many gambling powerhouses that believes there are riches to be found in Brazil. The Malta-based operator acquired a 75% majority stake in Brazilian online horserace betting firm Suaposta before Christmas to speed up market entry as and when the conditions are announced.

Suaposta is currently the only online operator authorised by the Brazilian government to offer horseracing betting in Brazil and is run by the Rio Grande do Sul Jockey Club (JCRGS). It offers betting on 600 racetracks, together with live streaming of races every five minutes. The Suaposta brand relaunched in 2018 following a management buy-out from its previous owners, Latam-focused operator Codere.

Betsson said Suaposta’s use of Google and Facebook in its marketing, together with local online payment methods, was “highly valuable” ahead of the launch of a regulated market, but chief strategy officer Peter Zäll insists Betsson’s early moves will be dictated wholly by the final market conditions – including whether to implement a multi-brand approach in the country.

“Right now, we are looking into the market,” says Zäll. “We have found an interesting partner in Brazil, but they have not released the licensing process yet or what the conditions are going to be. [Our approach] depends on the conditions and requirements from a regulatory perspective.” He adds: “We will decide on brand, platform and product if and when the market finally opens up, but we need to see the licensing process and the requirements to assess exactly what the opportunity looks like.”

This tentative approach is not so unusual in Brazil, a grey market dominated by the likes of bet365, Bodog, 1xBet, Betboo and Sportingbet. Early-mover advantage could pay dividends, but at the same time, few would be surprised if sports betting legislation was delayed beyond the 2020 due date.

Rio de Janeiro, Brazil

Conservative estimates

One Latam-focused gambling expert, speaking on the condition of anonymity, told EGR Intel: “People say 2020 but I am not convinced it is going to happen this year. There has been discussion around this for the last six or seven years, and it has never materialised. The current president, Jair Bolsonaro, has been elected with a lot of support from the evangelicals. They have very strong representation in the senate and in congress, and they are against it. They have made it very clear that they are not going to support it.” He adds: “It is now with the politicians and I don’t think it is going to happen. Number one, because they don’t know what they are doing and number two, because a very conservative president has been elected.”

Juan Pablo Córdoba López, co-founder of consultancy firm iGamingLatam.com, refutes the claims of the non-believers, however. While right-leaning politicians were indeed against the sports betting bill originally, their thinking may have changed as the process developed – with money to be made.

“Some are saying March, others are saying October, but this is Brazil so it could be tomorrow for all we know,” says López, who has also worked for Codere in Brazil and Jackpotjoy in Uruguay. “But it is definitely going to happen. Everyone in congress right now is aware that gambling is going to exist in Brazil. Some were against it because they thought regulating gambling would encourage gambling in Brazil, but now they are aware that even if they don’t regulate, gambling is still going to be there anyway. Now they realise they are wasting an opportunity to raise some funds with a new law,” he adds.

Brazil was brought into sharp focus by GVC CEO Kenny Alexander last year when he claimed the South American country could be as big an opportunity for the London-listed operator as the US. Speaking after GVC’s Q3 2019 results, Alexander reaffirmed his commitment to the market in no uncertain terms.

He said: “A lot of people are talking about the size of the US opportunity, which obviously also has great potential, but given the huge advantage we have in Brazil, I think the Brazil opportunity is not far behind. It is a market we have been in for a long time and we have built that brand up – Sportingbet and Betboo – since 2008, so we’ve got a big head start. We are generating a meaningful amount of net gaming revenue and the potential of the market is very large. We like Brazil.”

Assessing his competitors, Alexander added: “[Poker]Stars are big over there for poker, but we don’t focus on that side of things. Sports is pretty much a one-horse race. Bet365 have done bits and pieces but I don’t think they’ve had much of an impact. William Hill tried once and failed, and they will try again. We’ve been there now for quite some time alongside a couple of smaller local operators but that will definitely change. We can’t kid ourselves – others will undoubtedly have it on their roadmaps.”

Alexander insists regulation will be a positive for GVC despite its relatively dominant position in the country’s ongoing grey sports betting market. It will provide an ultra-competitive environment which should not allow the operator to rest on its laurels, while GVC could be given free rein to fire out some real-money marketing bullets in the country. His comments are particularly interesting considering GVC’s sizeable investment in the US to date with BetMGM and Roar Digital. Unlike many smaller scale operators, it is not facing a direct choice between Latam and the US and is able to weigh up both opportunities with considerable experience on both sides.

Keeping it local

One reason for GVC’s success in Brazil is its focus on localisation. Speak to anybody in South America’s egaming industry and they will tell you that localisation is the difference between making it and faking it. Trying to replicate a well-trodden, European path to success in this part of the world will almost certainly fail, and an over-reliance on forcing square pegs in round holes is a criticism that has been levelled at Europe’s know-it-all mature marketers on both sides of the equator.

“Brazil and Latin America in general are very relational. We like the human relationship,” says Carvalhaes of LeoVegas. He suggests that players in mature European markets like Germany and Norway shy away from human contact in favour of email and live chat support – the polar opposite of customers in Brazil and the neighbouring countries. “Because of the warm culture you find here, players expect the call and expect a degree of human empathy.”

LeoVegas has always shouted from the rooftops about localisation in Europe and Carvalhaes is keen to adopt and develop that strategy in the three Latam countries he looks after – which is no mean feat. “Looking only at Brazil, a massive country of continental proportions, you have 26 states,” he tells EGR Intel. “Being localised for Brazil already becomes a difficult challenge because it is culturally different in every area. What makes sense in São Paulo isn’t going to make sense in the Amazon.”

There are those who would suggest that launching in three complex and vastly different Latam egaming markets is biting off more than can be chewed – especially for LeoVegas, which is already snowed under with regulation in Europe, having shut down its Royal Panda casino brand in the UK last month. In most South American countries, there is a clear leader which occupies a dominant position in the market, but that same operator does not usually fare well in the adjacent countries.

“GVC tried other markets like Chile and Peru but they had so many differences that only operators targeting one single market in Latam will be successful,” says López. “If you are an operator with a good brand planning to go to Brazil and you think, ‘let’s sponsor a football team and that’s it’, you are going to lose a lot of money. Many operators have spent millions on marketing, only to have forgotten about the product or the customer support,” he adds.

Once the market does regulate, López believes this lesson will have been learned. In his view, localisation is the single biggest trend for Latam heading into 2020 and those who get it right will become the cream of the crop. “What should operators have in terms of product, marketing and customer support to grow their proposal in line with local expectations?” he asks. “That is going to be a key point of discussion, because there will be lots of operators that will try and do the same thing they do in all markets. According to operators that have previously tried to break the market, this is something you need to address at the very beginning,” he adds.

Betting volume is not a concern – it is already there in the significant South American countries due to heaving populations, but churn rate is currently an issue. The average churn rate in Latam is around 70%, which means that seven out of 10 players depositing for the first time never come back to the proposition. That is likely because they expect a localised experience but are often met with a one-size-fits-all white-label wash that does not quite fit the bill.

“These users are expecting something different but log in to find a format exactly the same as the UK or Europe,” says López. “If casino games and slots are too volatile, players will simply leave the casino. Once the sector starts thinking differently, we will see the market grow exponentially,” he adds.

Sponsorship opportunities

López named no names while discussing the low-hanging fruit of football shirt sponsorships, but a quick search of the EGR Marketing website proves he could well be on to something. In August 2019, Betfair agreed a deal to become the official sponsorship partner of the South American Football Confederation, CONMEBOL. Parent company Flutter Entertainment reported that Betfair occupied approximately 2% of Brazil’s grey sports betting market in its 2018 full-year report – hardly making it a priority for such a geographically diverse, publicly listed company.

Crypto-centric Coingaming brand Sportsbet.io is another one to have agreed lucrative marketing deals on the continent. In Brazil, the firm partnered with top-flight football club Flamengo and recruited 2002 World Cup winner Denilson as a brand ambassador, while a similar deal was struck with Rosario Central in Argentina, although its business breakdown in Latam is largely unknown.

More recently, Addison Global’s ambitious sports betting brand MoPlay expanded its horizons into Mexico after mixed success with some tumultuous marketing deals in the UK, including an official betting partnership with Manchester United that has resulted in the club seeking compensation. MoPlay launched in Mexico via a business deal with media conglomerate TV Azteca and its Ganador Azteca subsidiary. This strategy was also used by bet365 to go live in the country back in June 2019.

Addison Global CEO Juergen Reutter said entering Mexico showcased a “significant step forward for the business” after describing the country as a “sports-mad, digital-savvy market with massive potential for the sector”. Reutter is not alone in that thinking. Carvalhaes of LeoVegas would put Mexico ahead of Brazil, purely in terms of profitability.

“If you are talking only about profitability, I think Mexico is the most promising one. Mexico is a more mature market and the Mexicans already have a culture of online casinos and land-based casinos, which you don’t have in Brazil because they were forbidden. There is still a stigma around casinos and around gambling, whereas in Mexico the market is far more mature,” he adds.

Aerial view of Independence Monument, Mexico City

López also namechecks Mexico as one of the top two Latam markets to look out for in 2020. Brazil and Mexico currently generate 50% of GGR in all of Latam, and that is unlikely to change any time soon. He believes that a concentrated effort by licensed Mexican operators to localise their offering will also help to improve the 20% channelisation rate, with most punters seeking out superior deals on the black market at present. Mexico’s largest political party, Morena, is also keen to address illegal gambling by providing a greater standard of security, although this could come with negative side effects for the sector, including an increase in the Special Tax on Production and Services (IEPS) for online sports betting, under a new tax regime.

When regulation does eventually occur in exciting but far-from-finished markets like Brazil and Mexico, legislators could do worse than looking at the example set by nearby Colombia. Colombia has issued a specific law where gambling rights and rules are clear for investors to see, an attractive prospect for operators in the surrounding sea of grey. The country’s regulated industry allows operators to protect their investments, creating an environment of strong legal certainty.

Colombia also has one of the most open corporate regulatory stances regarding foreign investment in Latam, and with a gaming regulation dating from 2001, it has a strong gambling culture among its citizens and is by no means starting from scratch.

Most senior executives, including Betsson strategy chief Zäll, would concede that in the long term the US could well turn out to be the ultimate pot of gold for online gambling operators. “In the long run, I would assume the States will be the bigger market,” he says, comparing Latam with the US. The post-PASPA fever-pitch could very well be justified, but regulatory headaches caused by prolonged and difficult state-by-state legislation is making it harder and harder for firms to go all-in on America.

Below the border, there are more immediate gains to be got at, especially in Brazil. If regulators pull together and conjure up concrete legislation, 2020 could be a fine year for the great and the good of Latam’s online gaming industry – but only time will tell.