Just one day after Brazil’s legal online casino market launched on January 1, the Federal Supreme Court intervened to end a long-standing battle between Rio de Janeiro State Lottery (Loterj) and Brazil’s Attorney General Office (AGU) with implications for the new vertical. Justice André Mendonça issued a preliminary injunction ordering Loterj and the State of Rio de Janeiro to stop accepting wagers outside the state’s territory.
Rio de Janeiro has established its own gambling rules that differ significantly from other Brazilian states’s interpretation of federal laws. As a result, Loterj had been issuing licenses under its own framework, including lower taxes and lenient player location rules than the Brazilian federal government apparently intended. That allowed operators licensed by Loterj to serve players nationwide, so long as they claimed to be Rio de Janeiro residents. Other states with more stringent regulatory rules cried foul, prompting court intervention.
Judge sides with AGU
Mendonça’s decision comes in response to AGU’s original civil action from October 2024. It challenged Loterj’s separate licensing framework, adopted in 2023, about a year before the federal regulations. AGU’s complaint argues that Loterj invades federal jurisdiction by offering services outside the state. The ruling suspends a Loterj public notice amendment requiring users to simply declare that live in Rio or are visiting, rather than using geolocation technology to ensure their physical presence there.
Mendonça deemed the amendment contradicts the federal law regulating fixed-odds bettting and establishes a “legal fiction” concerning the state’s territorial boundaries.
As per the ruling, Loterj has five days to implement geolocation technology and stop allowing bets outside the state’s territories. While it suspends Loterj from operating outside its territory, Mendonça’s decision is not final. A virtual Plenary session will review the preliminary injunction between February 14 and 21.
Loterj defends its licensing framework
A day after Mendonça’s decision, Loterj filed its appeal. It defended its regulations, citing a law which it says aligns its tax treatment with that of an e-commerce operator. The lottery also criticized the federal government for its inaction in regulating sports betting under the 2018 fixed-odds betting law. It stated that its actions were a legitimate response to that inaction.
Loterj also argued that the country’s new sports betting and online casino laws, passed in 2023, reaffirm its actions as lawful and necessary. It warned that canceling licenses could lead to lost tax revenue from licensee compensation claims and destroy an entire regulated sector. The ruling affects 25 operators, many of which are primary sponsors of prominent Brazilian soccer teams like Corinthians and Flamengo.
Some of them were also targeted by a federal law that blocked over 2,000 websites classified as “irregular” in October. Operators choose a Loterj license over federally-issued ones due to the state’s more favorable terms. A Loterj licensing fee is R$ 5 million ($824,450) with a 5% tax on gross gaming revenue. Meanwhile, a federal license costs a licensing fee of R$ 30 million ($4.95 million) and a 12% tax.
Mendonça rejects Loterj’s appeal
On January 6, Mendonça dismissed Loterj’s objections, stating the appeal was based on ‘mere disagreement” with the decision. He noted that the original decision contained no errors or omissions.
He clarified the ruling does not mandate geolocation but enforces a clause which restricts lotteries from operating outside their territories. Mendonça said Loterj’s 2023 amended public notice violated federal laws by allowing users outside Rio to declare themselves residents to place bets.
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