H2 Gambling Capital Managing Director Ed Birkin warned that exaggerating the size of Brazil's illegal gambling market could lead to the government implementing stricter restrictions. Due to different estimates of the illegal market size, Birkin believes that inaccurate figures might backfire, putting licensed operators under more regulatory pressure.
Since the regulation of Brazil's online gambling market began in January this year, there has been widespread concern about the prevalence of the illegal market both inside and outside the industry. Genius Sports Latin America Integrity Director Tiago Barbosa stated to a government committee this week that about 70%-80% of bets in Brazil are illegal.
Birkin believes this figure is greatly exaggerated, estimating that the illegal market accounts for about 30% of the total market. He pointed out that exaggerating the illegal market could lead policymakers to perceive the industry as overly harmful, thus increasing regulatory pressure on legal operators. He mentioned that this claim is often driven by some operators who perform poorly, using it to cover up their lack of competitiveness in the legal market.
Birkin mentioned that in January, due to new KYC restrictions, legal licensed companies are still struggling to attract players, initially fearing that the illegal market share could reach 60%-70%. H2 data shows that Brazil's market revenue in January was 2.2 billion reais, nearly doubling to 4 billion reais by April. However, some still insist that illegal operators account for 60%-70%, which Birkin believes is completely unfounded.
He explained, "If the legal market size doubled, did the illegal market also double since January? Absolutely not. Such claims would inflate the entire market size to 20 billion dollars, which is clearly unrealistic."
Pressure from new regulatory measures
Less than eight months after the start of regulation, Brazil's gambling industry is already facing new pressures. The total income tax rate for operators is planned to increase from 12% to 18%, pending permanent effect by congressional vote. Meanwhile, watershed restrictions and new advertising regulations are also about to be introduced. Some industry insiders oppose, believing it will foster the illegal market, but the government turns a deaf ear. Birkin pointed out, "The government doesn't care about legal or illegal markets, only sees gambling as a social issue, thinking that people spend too much money and need to be severely cracked down on."
He added, "With legal market revenue of 4 billion reais in April, some still claim the illegal market accounts for 60%, making the entire market out to be 10 billion reais. This is completely without evidence, utterly absurd."
Warning from the Dutch experience
Birkin also cited the Dutch case. Since the launch of the legal online market in October 2021, extensive promotion has driven rapid market growth, but it has also raised concerns about gambling harm. The Netherlands subsequently took strict measures, limiting advertising, raising tax rates, and setting deposit limits, with H2 estimating that illegal operators account for about 50%. Birkin believes, "A similar situation could be replayed in Brazil, a story that is not uncommon in other markets."
Licensed operators need to take responsibility
Birkin finally emphasized that if Brazil implements new regulatory measures, licensed operators should bear some responsibility. The top 19 brands dominate the Brazilian market, with the remaining websites having an average share of about 0.1%. He pointed out, "The blame should no longer be placed on the illegal market, as the industry itself performs poorly in the legal market. If taken as true, the legal market will face more restrictions."
"The industry might not like this fact, but must face up to the responsibility, otherwise the new rules will only restrict the development of the legal market."
