Caixa Econômica Federal, a state-owned financial institution in Brazil, is at loggerheads with the government over its plans to launch a betting offering.
Political tension over Caixa’s plans reached a peak last month as local news reported President Luiz Inácio Lula da Silva has requested a meeting with Caixa’s president, Carlos Vieira, to discuss the matter.
In October, Brazil Senator Damara Alves condemned the launch, which is planned for November, describing the plans as “perhaps one of the greatest moral and social setbacks in the country’s recent history”.
Caixa’s move has raised questions over whether a state-owned financial institution should be involved in a sector that has gained a hugely negative reputation among politicians, who are increasingly concerned about the harms related to betting.
Is President Lula just looking for election support?
Despite this political pushback, Caixa’s legacy federal lottery monopoly could help propel its upcoming betting brand as consumers respect and know the brand well.
These plans have been known for a while, with Caixa applying for a licence to operate in the regulated market in August last year. Its licence to operate was formally authorised on 29 July this year.
With an election coming up next year, Fabio Ferreira Kujawski, partner at Brazilian law firm Matthos Filho, believes President Lula is trying to appease the significant evangelical faction of Brazil’s Parliament with his pushback against Caixa’s plans.
“I think the government is wanting the taxable revenue [from Caixa] on one hand, which is good. [It could be] making a lot of money and collecting a lot of taxes,” Kujawski tells iGB.
“On the other hand, they’re trying to make a [comment] to the society that we are against this [move], and that Caixa should not be involved in gambling at all because that’s not the principal reason why [we have] such a big bank controlled by the state.”
Kujawski suggests the negative press surrounding the gambling sector and the timing of the general election next year have led to the rise in discourse around Caixa’s betting plans.
Caixa’s difficult position as a state-owned entity
Lula’s government is making moves elsewhere to restrict Brazil’s nascent betting sector, with additional ad restrictions on the horizon and multiple bills seeking to raise the gambling tax rate in discussion.
A provisional measure to increase the tax rate from 12% to 18% was vetoed in October, although an additional proposal has been launched to double the current rate to 24%.
Notably, Caixa President Vieira previously labelled the rise to 18% as “reasonable”, going against the views of the vast majority of the regulated sector.
The company’s mammoth status could help support it through tightening regulations, while much smaller operators will likely be forced out of the market if the measures are enacted.
Kujawski warns Caixa could also be in a difficult position in terms of opposing Parliament’s plans, due to its state-owned status.
“Caixa is in a situation where it cannot publicly oppose what the federal government is saying,” Kujawski explains. “That’s why they said 18% is not that bad, while we know that 18% is a disaster for the legal market.”
If new restrictions are to come in as many fear, H2 Gambling Capital Managing Director Ed Birkin suggests Caixa, as well as the black market, could be set to profit.
“Let’s say they double the tax rate and they ban all advertising,” Birkin says. “Do you know who benefits from that? Apart from the black market, obviously it’s Caixa.
“They’re well known. They’ll probably still be able to advertise on their lottery products and all the other things. So they’re still have all the brand recognition. They can probably absorb higher taxes than commercial operators can.”
Will Caixa be successful in the betting sector?
Beyond whether the bank and lottery monopoly should be allowed to operate a betting business, stakeholders have also questioned whether Caixa will be able to compete with the other already established operators in the regulated sector.
Despite Caixa possibly profiting from incoming restrictions, it will come up against huge international entrants with seismic investments behind them.
H2 Gambling Capital is forecasting players Betano, Bet365, Superbet and Sportingbet as the top four operators in Brazil by market share. Notably, these players have been operating in Brazil since, or even before, the licensed market opened in January.
Caixa holds a state monopoly for the federal lottery in Brazil, and it is reportedly preparing its 15,000 lottery outlets to operate betting options. The bank has partnered with Playtech to supply this technology, ahead of the launch.
Birkin believes Caixa won’t make it to the very summit of the market, despite its existing lottery audience and the trust and loyalty that surrounds such a well-known institution.
“I do not believe that they will be one of the number one operators,” Birkin says. “Lotteries have never done particularly well against commercial operators in the online betting and iGaming market.”
Caixa’s expectations
Vieira has said the bank expects to achieve betting revenue of between BRL2 billion ($371.8 million) and BRL2.5 billion next year. The upper band of that estimate would place Caixa at a 7.5% market share for 2026 according to H2 estimates.
Birkin thinks Vieira’s prediction is “highly ambitious”, with the crossover between lottery and sports betting not historically a hugely successful venture.
“It would be completely unheard of for a lottery operator to get to a podium position, or even a top five position in a commercial market,” Birkin adds.
However, it could be said that Caixa won’t need to match the same levels of marketing investment as competitors that have entered Brazil, as it could lean on its legacy lottery brand and potentially even its player database. This is partly why Birkin believes Caixa will likely be a profitable betting business.
“In terms of the financials, they can be profitable with a lot lower market share than other people in the market,” Birkin concludes.
“They already have all the land-based network there, they already do have online operations. So it financially makes sense for them. It should very much be additive to their earnings. The financials are more compelling than they would be for commercial operators.”
Despite the ongoing political tension surrounding betting in Brazil, the sector has largely operated as normal in its first year. And although President Lula has called on Caixa to discuss its plans, stakeholders believe the bank’s betting business will likely launch as planned.
Looking ahead to Caixa’s proposed betting launch, experts say that while it could struggle to convert lottery players, the bank and lottery monopoly could benefit from increased restrictions placed on the sector.