Brazil set to privatize lottery in December

Brazil is set to privatize its lottery operations by the end of the year, a move that many analysts see as a significant step toward the commercialization of gambling in Latin America’s largest economy.

The country’s Secretary for Economic Monitoring announced that it will be bidding out Brazil’s Exclusive Instant Lottery (LOTEX) concession on December 2017. Public bank Caixa Economica Federal (Caixa) continues to operate the lottery even as instant ticket sales were halted in 2015 ahead of the privatization.

In its Thursday industry update, Union Gaming said that ten of the biggest names in gaming industry are expected to compete for the lottery concession, which will come with an with an initial term of 25 years. The minimum bid for the lottery operation is set at R$916 million (US$290 m based on current exchange rates).

Scientific Games, IGT, Intralot, and Pollard were reportedly among the 10 multinational investors that had expressed interest in the instant ticket concession and had actively participated in the LOTEX roadshows in Las Vegas and London over the past two weeks.

“Though it appears from our discussions that many of the major suppliers are still noncommittal on whether they would participate in the auction given some degree of uncertainty surrounding the regulatory landscape in Brazil and market opportunity,” analyst John DeCree said in a note issued on Thursday.

Brazil, which has over 200 million residents, is considered one of the last major untapped gaming markets in the world. Despite its attractiveness, Brazil’s instant ticket business is still in its infancy.

DeCree cautioned investors to carefully manage the sizeable upfront fee, which he said is more suited to an established market. He also expects the competition to heat up among the ten bidders.

“Given the potential for a bidding war and size-able upfront investment, we would not be surprised to see IGT and SGMS or other major suppliers team-up and follow a similar JV structure as Scratch & Win in Italy,” he said.  “We think a JV would make sense here, allowing multiple partners to diversify the risk of entering a new market like Brazil, where it can be difficult to predict how the industry will mature over the duration of the concession. We also suspect a local partner would be valuable asset to include in any prospective consortium to help navigate the local landscape and business environment.”