Casino Enterprise Management

Brazil’s economy grew at its fastest annual rate since 1995 in the first quarter of 2010, and is now set to show its fastest growth in more than 20 years. Bid winner for the World Cup in 2014 and the Olympic Games in 2016, Brazil is soon set to showcase its growing wealth and position as a global power player on the world stage. Yet the gaming industry still remains a highly controversial and divisive issue in both the Lower and Upper Houses of the Brazilian Congress. Will this South American nation, home to 185 million people, ever green-light casinos and more fully regulate the gaming sector?

At first glance, Brazil seems like an ideal market for the casino industry. First, its economy is the strongest in the region and it continues to grow at a sustainable rate. While the U.S. and much of Europe struggle to pull themselves out of the economic crisis, Brazil’s economy shows signs of expanding by between 4.5 and 5 percent in 2011.

This expansion comes after Brazil enjoyed its longest period of economic growth, which lasted 30 years under President Inacio Lula da Silva, who implemented prudent fiscal and monetary policies and kept inflation low. His successor and former chief of staff, Dilma Rousseff, promised voters to continue with the former president’s economic policy, which increased the minimum wage by 45 percent and brought more than 20 million people out of poverty into the ranks of the lower middle classes.

Amongst fears that the Brazilian economy might be overheating, which could lead to inflation (a recurring woe in Brazil’s economy), Rousseff, in her latest major interview to the press, has reaffirmed her commitment to fiscal restraint, saying that a return to high inflation will not be tolerated “under any circumstances.”

It is as a result of these polices and continued growth that Brazil is increasingly being perceived as a future global superpower and is now closing in fast on France and the U.K. as the world’s fifth biggest economy. The World Cup and the Olympics will not only help consolidate this position, but will also lead to a huge government investment in infrastructure nationwide.

The government has pledged $14.4 billion in investment in infrastructure alone for the Olympic Games. In effort to build the new stadiums and carry out the necessary work on roads, hotels and airports, American companies could also, according to a recent report, invest hundreds of millions of dollars in Brazil in a move supported by President Barack Obama. This is seen as another step toward a strengthening of economic relations between the Unites States and Brazil.

The World Cup will also lead to a massive influx of money to improve infrastructure nationwide. It is the second time that Brazil will host the tournament (the first was in 1950), and investment for the event is estimated to stand at $18.7 billion, with almost 80 percent of the money coming from the public sector.

Together it is expected that these two events will also boost tourism from an annual 5 million foreign tourists to 8 million. It will also highlight Brazil’s breathtaking natural beauty to a world audience.

Large-scale casinos in five-star hotels would surely add to Brazil’s already vibrant and world-famous nightlife. In fact, Brazil used to be world famous for its casinos—especially those in Rio de Janeiro. Unfortunately, every casino in the country was forced to close in 1946, when the president banned casinos and all gambling in Brazil (apart from state lotteries).

This, however, has not stopped Brazilians from gambling, especially in bingo halls and street lotteries. Bingo halls were first allowed in Brazil in 1993 under the so-called “Zico Law.” Zico was the nickname of famed soccer player, Arthur Antunes Coimbra, who served as minister of sports in the early ‘90s. Under the Zico Law, bingo halls were permitted in order to raise tax income for ailing sports clubs. This law was amended in 1998 by another famed soccer player who also served as minister of sports, Edson Arantes do Nascimento, better known as Pele. Under the “Pele Law,” in order to raise additional income for sports, bingo halls would be permitted to house slot machine parlors as annexes to their property.

Although the bingo industry was worth an estimated $2 billion per year by 2004, the legal status of the officially regulated 1,100 bingo halls was still uncertain. This was because although the Zico Law was approved in principle, the legislation as to exactly how bingo halls would be regulated never went through Congress. As a result, the majority of bingo halls remained open due to stays of closure or were granted a license by the local government where they were located.

In 2004, President Lula da Silva and his party created a commission to look into more fully regulating the sector. Under new proposals, tax income made from the industry would have been designated to combat poverty; the administration also appeared to be paving the way for other types of gambling.

Unfortunately, in the same year, the bingo industry became the focal point for one of the worst corruption scandals in Brazil’s history when it was discovered that there were links between bingo halls and organized crime. Worse, gangsters who had made their fortunes running numbers had not only become involved in the bingo industry, but they were also found to be bribing members of the Worker’s Party (da Silva’s party) and other high ranking government officials in return for stays of closure and influence.

The corruption scandals revolving around bingo halls so early in da Silva’s administration had a profoundly negative effect on the industry as a whole. The president was forced to do an about turn, and in 2004 he announced his intention to close all bingo halls and slot parlors throughout the country. This led to a massive wave of protests nationwide, as the closure of bingo halls meant that 30,000 people would lose their jobs. The act was later declared unconstitutional by the Brazilian Senate, and since then bingo halls have remained open pretty much as they were before 2004. That is to say, in a state of legally enforced limbo.

So will the gambling landscape change under the new administration of Rousseff? Although in its early days (Rousseff was only officially inaugurated as president on Jan. 1), while serving as da Silva’s chief of staff, Rousseff came out in support of legalising the famous “Animal Game,” an illegal but extremely popular street lottery.

The Animal Game (where numbers are replaced by animals) is estimated to be worth billions of dollars each year. It has been around for more than a century in Brazil and is deeply entrenched in Brazilian culture. The move, which was aimed at ending organized crime’s control over the game, was also supported by da Silva but later abandoned after the corruption scandals of 2004. Although there has been a crackdown of late, there are at present no plans to legalize it. Nor is there an executive-led impetus to finally place the bingo sector in order. But there are signs that significant changes could be afoot.

In November, before the new administration went into office, legislators who are allied with the new government put forward proposals that were quite similar to the suspended legislation of 2004. Under their proposals, the industry would be more closely regulated and the estimated $4 billion gaming tax revenue generated per year from the bingo halls and slot parlors would be designated to fight poverty and improve the health sector. It was believed that Rousseff was in support of such measures, especially as one of her main goals is to eradicate poverty in Brazil.

New legislation was then put forward in December to allow bingo halls and slot parlors. Under the new bill, slot machines and bingo games would have to return 70 percent of the stake back to the player and 14 percent of gaming tax revenue would be destined for the health sector. But the law was ultimately rejected, by a majority of 212 to 144, under accusations that the industry had illegally sought influence among members of the Lower House and claims that bingos in Brazil were used for money laundering and only added to the problems of organized crime.

In fact, despite moves to put the bingo and slot parlor industry in order, it would appear that almost half of the members of the newly elected Lower House are opposed to gambling on principle. According to a poll carried out by local media giant Globo, out of the 513 men and women who are now serving in the new Congress, 255 said that they were opposed to slot machines and bingo halls operating in Brazil.

All the same, there are renewed moves in the Upper House to further regulate the sector and green-light casinos. According to new proposals put forward by Sen. Mozarildo Cavalcanti, casinos would be permitted in certain underdeveloped zones in order to increase tourism. In separate legislation put forward by Cavalcanti in February, bingo halls would also be permitted. Slot parlors would not, however, be allowed.

This is not the first time that legislation has been put forward in the Congress to permit casinos and bingo halls. In fact, similar legislation to allow casinos has been on the table in the Senate for more than three years now. The real problem is that the executive branch has shown a reluctance to become involved in such a divisive issue ever since the bingo scandals first broke in 2004. Whether this will change under the new leadership of Rousseff as yet remains to be seen.

Despite these setbacks, the Brazilian gaming sector could be changing, albeit slowly. Since 2004, Latin America has been moving toward regulating the industry and Brazil is one of the last countries in the region to tackle the issue of gambling head on. Local lawmakers are increasingly aware of this and are now beginning to point at their Latin American neighbors—especially Argentina—as a possible model for the future. With new and ever-more sophisticated technology available to monitor each transaction in real time, tax income generated from a more fully regulated industry could only be a boost to Brazil’s already fast- growing economy.

James Marrison has been covering the casino industry in Latin America for over seven years and has written in-depth features on every country in the region. Marrison has worked as a research contributor for Global Betting and Gaming Consultants and serves as a consultant for industry professionals for the Gerson Lehrman Group. Marrison is also a researcher into the online gaming markets in Europe.