The Innovation Group introduces Brazil gaming forecast model
25 Aug 2016
Status of Brazil's Gaming Legislation and Regulation
With over 200 million inhabitants, Brazil is one of the largest untapped gaming markets in the world. Brazil's most recent effort to address gaming represents the most ambitious since its prohibition 70 years ago. Standing legislation would allow both destination casinos and bingo halls (similar to slot halls), and potentially online gaming opportunities. The Special Commission on National Development approved Bill 186 by a wide margin last December, and is currently negotiating revised versions from the Senate, under the hand of Senator Fernando Bezerra, and the Chamber of Representatives where a vote on Deputy Guilherme Mussi's rewrite is expected to occur next week.
While the final distribution of casinos and bingo halls will be determined over the course of the next few weeks, the following distributions are the most recent:
- In states with at least 25 million inhabitants, 1-3 full casinos (table games and slot machines) would be permitted depending on the population of the State, with a maximum of 10% of the floor area dedicated to gaming;
- In any Municipality, at least one bingo hall would be permitted, with a maximum of 500 units per location, depending on the population of the Municipality;
- Jockey Clubs and Stadiums with a capacity above 15,000 fans are allowed up to 300 bingo machines;
- Broad online gaming has been reintroduced in recent drafts, after being removed from the initial version of the bill previously.
- Taxation is expected to be sustainable by international standards, potentially at 10% of gaming revenue, plus some moderate operating and regulatory fees;
- Participation by local Brazilian companies will be required at some level in all gaming developments and operations, thus identifying suitable potential partners early in the process is advised;
- Government has taken a proactive role in defining parameters for regulation, recognizing there is great sensitivity in this area. Enforcement would be driven at the Union (National) level, which should provide greater oversight and transparency, as well as policies to ensure probity, combat money-laundering and other regulatory risks.
The Innovation Group has been at the forefront of global gaming expansion for over two decades. The company assists governments in creating commercially viable regulatory environments that deliver on economic development goals, while providing critical information to operators and developers for sizing markets and constructing the most competitive and successful gaming establishments. The Innovation Group serves the industry foremost through the development of accurate forecasting tools that become the backbone of building a gaming industry.
A national gaming forecast model for Brazil has been developed by The Innovation Group. Revenue projections for Brazil were based on the most current legislation, with a multitude of adjustments required to account for demographic and economic diversity across the country:
- The eligible gaming customer base was adjusted to account only for those above subsistence level incomes;
- Penetration rates were based on a combination of current Latin American gaming behavior and higher more aspirational rates found in the more fully developed North American gaming markets, and to reflect the differences between rural and urban residents;
- Base international tourism growth and induced tourism from gaming are both considered in the analysis;
- Online gaming revenue and cannibalization potential were not considered in the initial demand model, pending the inclusion of internet gaming in the final bill.
- U.S. $6.55 - U.S. $7.24 billion in GGR (Gross Gaming Revenue) from casinos and bingo halls, with substantial non-gaming revenue available in addition;
- 138.1 - 146.6 million visits to casinos or bingo halls;
- U.S. $47.46 - U.S. $49.40 average spend per casino or bingo hall customer per visit, with higher-end players spending much more;
- 244,000 gaming positions could be required, well within the current legislative threshold which would allow above 550,000 positions under any scenario. (A gaming position is defined as the number of gaming machines plus the number of individual seats at gaming tables).
- The model implies that GGR would equate to approximately 0.3% of Brazil's GDP, compared to current results of 0.1% in Mexico (a slots-only market), 0.3% in Chile, 0.4% in both the United States and Canada and 0.6% in Argentina;
- At 244,000 positions, there would be approximately 900 residents per position in Brazil upon market stabilization, compared to 1,200 in Mexico, 1,185 in Argentina, 465 in Canada and 370 in the United States.
The consortium is urging clients to give careful thought to the best strategies for market entry. The obvious play for larger companies will likely be to flock to Rio de Janeiro or Sao Paulo with the ambition to develop large destination resorts. This may be a home run for a few, with the promise of high revenue and EBITDA volumes. Others will stick to route operations in bingo halls, a proven high ROI (Return On Investment) play globally. However, the market will be extremely sensitive to the diversity of socioeconomic strata in Brazil. Intense poverty, unpredictable local politics and security concerns could make some of the most obvious locations the most difficult and the least lucrative. We believe there will be "sleepers" throughout the vast stretches of Brazil, pockets of opportunity to evaluate.