Brazil’s lottery privatization process took a key step forward last Friday as the government formally approved a structure and timeline for the proposed procurement, with an auction now tentatively scheduled for December.
The government is seeking a private sector operator to assume control of LOTEX – the Brazilian state-owned lottery company – for a 25 year concession.
LOTEX will be auctioned off to the highest bidder, with the bidding to begin at R$1 billion, roughly USD$320 million. The initial call for bids is expected to come in October, and the auction slated for December. The process will be overseen by BNDES, the country’s social development bank.
The winning operator will be allowed to keep 18.3 percent of all gross revenues earned from lottery operations, with 65 percent going back to customers in the form of payouts and 16.7 percent going to the federal government to help subsidize social security, the prison system and sports.
The government’s expectation is that the new operator will be able to significantly grow the country’s lottery market over the next 10 years.
“We hope that this auction will attract the best instant lottery operators in the world, and that they will be able to add significant value to the entity and increase competitiveness in the lottery market, as well as help modernize the sector in Brazil,” said the nation’s Ministry of Finance.
As Brazil is a middle income nation with more 200 million residents, a gross domestic product of $1.8 trillion in 2016, and a massive underground gambling market, the opportunity figures to draw significant attention from international operators.
“The instant lotteries will include printed, online and land-based based kiosk formats,” said Edgar Lenzi, president of Curitiba-based BetConsult. “Since the Brazilian gambling market doesn`t have any format of similar legal gambling, we believe that [lottery games] will fill this gap, including the street machines market, which makes this opportunity very special.”
Lenzi anticipates that while the sale will attract a number of international operators, a cohort of domestic companies are also aiming to get in on the action.
“Even though the rumors from the media and the gambling sector point that only giant international players are looking for this bidding, we believe that other companies could be participating in this opportunities by joining efforts to create a consortium [bidding entity],” he continued.
Importantly, the plan is a significant shift from an earlier proposal to sell off just a 51 percent stake in Caixa Instantanea, the government-owned bank that currently operates the lottery, to a international operator. A protracted struggle between the Finance Ministry and Caixa over the terms of the process was put to rest when President Michel Temer sided with
Finance in pushing for the full sell off, the Brazilian newspaper Folha de S. Paulo reported.
To submit a qualified bid, respondents must have demonstrated experience in an instant lottery business in which monthly gross revenue from ticket sales is more than $32 million. They must also demonstrate prior involvement in a lottery operation in which they have invested at least $56 million.
The plan is part of a broader privatization initiative by the Brazilian government. It is also now seeking to gain $6.4 billion by selling off Electrobras, the state-owned electric utility that accounts for almost one-third of the country’s power-generating capacity.
