Tom Waterhouse of Waterhouse VC traced the history of the gambling industry in Brazil and the rise of other vertical industries. How did this market become a business opportunity worth billions of dollars?
January 1st is a watershed in the Brazilian gambling industry. For many years, the Brazilian gambling industry has been a gray market, dominated by offshore operators and loosely regulated local institutions. Today, the country has established a clear regulatory framework and adopts a zero-tolerance attitude towards unlicensed gambling.
Brazil is far from routine policy updates. It is expected to become one of the largest regulated gambling economies, with gambling revenue expected to reach $6.3 billion by 2038.
For operators, this regularization means a huge but highly competitive opportunity. For suppliers, it means fertile ground for innovation and strategic cooperation, as companies seek to differentiate themselves to compete for market share.
For Brazil, this is a long-awaited opportunity to reclaim billions of dollars in tax revenue. If Brazil succeeds, the returns will be enormous.
This month, we will delve into the historical forces that have shaped the Brazilian gambling industry and the regulatory, technological, and cultural conditions that ultimately determine its future success.
From casinos to the streets, the emergence of jogo do bicho
For over eighty years, Brazil's gambling industry has been largely underground. The turning point occurred in 1946, reportedly when President Eurico Gaspar Dutra, influenced by his religious wife, ordered the closure of casinos.
Charming attractions such as Casino da Urca and Copacabana Palace were repurposed, closing once thriving entertainment centers.
But history has proven that bans never kill demand; they only push it underground. Cruise ships with casinos in international waters proved to be a popular solution, while jogo do bicho (the animal game) became the country's de facto national lottery.
The activity was first introduced in 1892 to raise funds for the Rio de Janeiro zoo and was banned three years later, but it continued to thrive for over a century as a shadow economy closely linked to football, gangs, and carnival culture.
Card games have long been a major part of Latin American culture, and poker (classified as a skill game) thrives both online and offline.
The COVID-19 pandemic accelerated this growth, leading to a surge in online poker participation.
Notably, Flutter's PokerStars brand chose to focus on Brazilian poker games, an interesting differentiation in an increasingly competitive market. Today, Brazil has become a global powerhouse in poker games, cultivating top professional players who compete and win on the world stage.
Although horse racing is becoming increasingly niche, it still exists. Horse racing has the potential for high profits and all-weather betting. Under clearer regulation, horse racing may experience a revival.
Record-holders like Jorge Ricardo and João "Magic Man" Moreira, Brazilian jockeys, enjoy international acclaim, and local interest in horse racing is growing (along with cooperation with operators), which may inject new vitality into horse racing.
The Beautiful Game
However, few things ignite people's passion more than football. Football accounts for over 80% of all betting in Brazil, followed by basketball, esports, and mixed martial arts—areas where Brazilians excel.
Historically, most football bets were placed through street bookmakers, but the internet revolution in the early 21st century changed this pattern.
The surge in mobile device usage and the increasing prevalence of digital payments, especially the central bank's instant payment platform Pix, have made online gambling easy. By 2018, billions of dollars in untaxed funds flowed into overseas sports betting, highlighting the regulatory vacuum and intensifying calls for reform.
Cryptocurrency Era
In 2018, Brazil first legalized sports betting under the leadership of then-President Michael Temer, but the lack of a clear regulatory framework led to chaos in the gambling industry.
Meanwhile, the rapid rise of cryptocurrencies and crypto casinos made Brazil—a country with the highest digital penetration rate in Latin America—a major target for offshore operators, but many of these operators offered almost no player protection.
It wasn't until December 2023 that the government took the first step in regulation, by which time gambling had deeply rooted itself in Brazilian culture, with 39 of the top 40 clubs sponsored by gambling companies.
By 2024, Brazil had become the largest source of traffic for gambling websites worldwide, accounting for 15% of global visits. Local surveys show that 68% of Brazilians participate in some form of gambling, and 18% of the population (about 26 million people) own cryptocurrencies.
The online gambling market is thriving, but Brazil itself is losing billions of dollars in potential tax revenue.
Brazilian Gambling: From Gray to Green
In 2024, Brazil intensified efforts to bring the gambling industry under formal supervision and banned credit card, cash payments, and crypto transactions.
However, 2025 marks a real turning point—under the leadership of President Lula, the country officially launched a fully regulated sports betting and online gambling market, implementing a zero-tolerance policy for unlicensed operators. Regulatory agencies have closed or blocked over 8,000 illegal websites, although it is estimated that 16% of offshore activities still exist.
Excluding offshore operators is a challenge, but Brazil has a key advantage with Pix. Owned and controlled by the central bank, Pix currently handles 96% of transactions, offering instant payments—a major advantage for the gambling industry.
Unlike other jurisdictions with decentralized regulation, Brazil's centralized system grants direct regulatory control to the central bank, making it difficult for illegal operators to operate the service.
Cost of Competition
But the entry barrier is high, and the competition is fiercer. A five-year operating license costs $6 million, and only well-funded companies can enter the market. New regulations require companies to be established in Brazil, and at least one Brazilian must hold at least 20% of the company's capital.
Additionally, facial recognition technology is required for identity verification, along with sufficient financial reserves. Moreover, platforms must specifically support Pix payments, giving priority to domestic operators that have already integrated with the system.
A 12% tax on total gambling revenue is attractive, but it also intensifies competition. Only licensed operators using the "bet.br" domain can sponsor teams or sports events, making formal market entry crucial for brand visibility.
Top clubs like Flamengo, Corinthians, and Palmeiras have secured sponsorship deals worth over 100 million reais per year from operators like Pixbet, Esportes da Sorte, and Sportingbet.
These partnerships are crucial, especially since new regulations prohibit signing bonuses. There are even reports of football teams foregoing advertising contracts in favor of higher offers, such is the premium on brand exposure in such a competitive market.
In addition to the 12% tax on total gambling revenue, players must pay a 15% withholding tax on net winnings over $547. Brazil's gambling revenue will be used to promote education, tourism, and sports through a lottery-style reinvestment mechanism.
Due to the high costs of customer acquisition and retention, intensifying competition, the success of the Brazilian gambling industry may belong to only a few.
Flutter's acquisition of a partial stake in NSX, owner of Betnacional, for $356 million, including the option to acquire the remaining 44% over the next 10 years, highlights the financial commitment required and the strategic necessity of strong long-term local partners.
Flutter expects to lose $90 to $100 million in 2025 due to aggressive customer acquisition, sending a clear message: only well-funded operators with the right partnerships and sharp execution can thrive.
This acquisition may summarize the conditions for success in Brazil: deep local integration (Betnacional is tailored for Brazilians), a strong brand image (known as "Aposta dos Brasileiros"—the Brazilian bet), and high-impact localized marketing through celebrity ambassadors like Vini Jr and major media partnerships (such as sponsoring Big Brother Brazil).
The cost of market penetration is high, and although some local brands may scale back their ambitions, true success always belongs to those who stand out.
Winning in Brazil requires more than just investment—it requires a deep understanding of local culture, from marketing and communication strategies to betting types and promotional activities. This is why locals are so popular, because they truly understand what bettors want.
Ultimately, rising costs will drive consolidation, thereby stimulating an increase in merger and acquisition activities. At this stage, gaining an early advantage may make local valuations appear cheap, but this also carries inherent risks—the Brazilian regulatory framework is still in its infancy, and tightening rules and restrictions are still possible.
Supplier Surge
In addition to traditional sports, esports is also thriving—to the extent that Portuguese is now the second most-watched language on Twitch. As demand for professional gambling markets, data services, and localized technology continues to grow, this surge highlights broader opportunities for suppliers and strengthens our fund's focus.
Brazil's uniqueness in allowing operators to offer a full range of betting products, from casinos to live betting, makes it an extremely attractive market for suppliers. As operators seek to stand out in their products, suppliers offering tailor-made unique solutions for Brazilian operators will benefit immensely—essentially unaffected by competition and regulatory costs.
