Analysis: Brazil’s online gambling craze may be hitting consumer spending

Betsson AB

20/09/2024 11:00

* 
      Lower-than-expected growth in consumer spending linked to
gambling, economists say
    

        * 
      Family spending on gambling doubled since 2018, Santander
report
shows
    

        * 
      Gambling industry disputes impact on consumption, blames
COVID-19 pandemic
    

  
    By Lisandra Paraguassu and Anthony Boadle
       BRASILIA, Sept 20 (Reuters) - 
    Soccer-mad Brazilians have fallen hard for online sports
betting, yielding a boom of interest from foreign gambling
companies that may boost state coffers but also threatens to
divert funds from consumer spending in other areas.
    Latin America's largest economy has seen lower-than-expected
growth in consumer spending in the country in recent months, a
weakness some banks and think tanks are blaming on gambling.
Such a linkage would echo data seen in some U.S. states touched
by online gambling fever. 
    Brazilian central bank governor-in-waiting Gabriel Galipolo
has chimed in as well.
    "Even major banks are discussing why the recent growth in
income is not reflected in the growth of savings or consumption,
and may be leaking into this type of activity, into gambling,"
Galipolo said at a seminar last month, without elaborating.
    Brazil's online gambling boom underlines profound economic
shifts that can result from the wider availability of betting
and the tightrope for policymakers worldwide as they look to
reap the gains in terms of tax receipts while avoiding the
drawbacks.
    The gambling industry disputes the impact betting has on
consumption and maintains that the drop came with the COVID-19
pandemic that kept people at home for two years.
    "The retail sector is using gambling as a scapegoat," said
lawyer Luiz Felipe Maia, who represents a dozen gambling
companies in Brazil. He pointed out that one safeguard in last
year's law laying the rules for fixed-odds sports bets is a ban
on the use of credit cards for betting. 
    Brazilians spent 68.2 billion reais ($12.2 billion) in the
year ending in June on betting platforms abroad, according to an
analysis by lender Itau Unibanco, based on central bank data.
That would put it among the world's top six sports betting
markets.

    'STOPPED LIVING'
    The Brazilian government expects to receive 3.4 billion
reais in down payments for license requests alone, just before
it starts to collect taxes on betting. Despite those gains,
there are also signs that the gambling craze is already taking
money out of the real economy. 
    Diego, a 38-year-old factory worker in Sao Paulo who became
addicted to sports bets and then online slot machines, said his
losses ate up his salary and left him in permanent debt.
    "I made a lot of money gambling at first, but then I stopped
winning. I couldn't pay my credit card, basic household bills,
my rent," he said, asking that his surname be withheld.
    "I practically stopped living."
    Concern over Brazil's addiction to sports betting led the
government to adopt measures to restrict advertising hours and
exposure to children. Consumer surveys indicate Brazilians are
betting with funds they would normally spend on other goods and
services.
    Family spending on gambling jumped to 1.9% of their income
by this year, double the portion in 2018, according to a recent
Santander bank report. At the same time, households cut to 57%
of their income outlays for food, clothing, electronics, beauty
products and medicine, from a peak of 63% in 2021.
    Another study by PwC's consultancy Strategy&, based on a
national survey of household income, shows that betting took up 
38% of entertainment budgets in 2023, up from 10% in 2018.
    Lower income groups already struggling to pay their credit
card debt comprise 79% of bettors, according to consumer
research center Locomotiva Institute.
    "This money would normally go to the neighborhood shopkeeper
and boost the economy from the bottom up," said Renato
Meirelles, head of the institute. "Now it is being eaten up by
the bets instead of going into the real economy."
       
    INVESTOR RUSH
    Online sports betting in Brazil began in 2018, but the
government did not start regulating the activity until last
year. This has forced multinational companies to have a base in
the country, register and pay corporate taxes. The deadline to
register was Aug. 20, and there was a rush to sign up. 
    Companies including MGM Resorts International  MGM.N ,
Betfair, owned by the Flutter Entertainment  FLTRF.L , Sweden's
Betsson AB  BETSb.ST  and the largest U.S. casino-entertainment
company Caesars Sportsbook  CZR.O  were among those placing 113
registration requests, said the Finance Ministry's secretary in
charge of overseeing betting, Regis Dudena.
        "Brazil is practically a greenfield market in a country
of 200 million people who love sports and like betting. That is
why there is so much investor interest," said Andre Gelfi,
general manager of Betsson Brazil.
  
    Brazil isn't the only major world economy to see a tug of
war between the positive and negative effects of online
gambling.
    A study led by Brett Hollenbeck, a professor at the
University of California, Los Angeles, shows U.S. states that
legalized online bets after the Supreme Court overturned a ban
in 2018, saw an negative impact on average credit scores.
    After three to four years of legalization, the likelihood of
families filing for bankruptcy increased 25% to 30%, it said.
    Another study by economists from the Universities of Kansas,
Northwestern and Brigham Young, entitled "Gambling away
stability," said from each dollar spent on betting, financially
constrained families take the equivalent of $2 from their
savings and increased credit card debt by 8%.

 (Reporting by Lisandra Paraguassu; additional reporting and
writing by Anthony Boadle; Editing by Christian Plumb and Nick
Zieminski)
 ((mailto:anthony.boadle@thomsonreuters.com;  +55 61
98204-1110))