Brazil’s Burgeoning Online Betting Market: A Race for Position
With the launch of Brazil’s legal online betting market just around the corner, international operators are vying for position in the sector. How might mergers and acquisitions (M&A) and media partnerships shape the market in the short term?
Looking back at the launch of betting in the US six years ago, a flurry of M&A deals helped position some of today’s leading brands, which were striving to get ahead in that highly anticipated market. Could the imminent launch in Brazil mirror some of the trends seen in the US?
One such operator was Flutter, whose initial equity investment was 37.2% in daily fantasy provider FanDuel in 2018 for R$4.18 billion, before increasing its stake to 95% in December 2020.
Looking to tap into Brazil’s equally tempting betting market, Flutter closed a deal in September to acquire an initial 56% stake in local operator Grupo NSX’s Betnacional for R$350 million.
The group is excited about the opportunity for betting in Brazil and has told shareholders that it will continue to acquire local brands within its key market as part of its portfolio of “local hero” brands.
Analysts are extremely optimistic about Flutter. Chad Beynon of Macquarie predicted in December that the group’s online market share in Brazil could grow 150% by 2030, to 25%. This would likely put it at the top of what is expected to be an extremely competitive market.
Macquarie’s analysis shows that the company has created approximately R$200 of incremental value per share for investors thanks to nine acquisitions since 2019. In addition to its Flutter Edge technology, the NYSE-listed group and its work in M&A could achieve a global market share of approximately 20%, according to Macquarie.
The sudden increase in M&A activity in Brazil is not unexpected, as local expertise and products are extremely valuable in foreign markets. In May, Adam Patterson, an economist at the UK consulate in Brazil, pointed to high regulatory costs as a driver for M&A in Brazil, while gaming consultancy Ficom Leisure highlighted access to local knowledge and technological advances as key benefits of entering the market via M&A.
Obtaining this local position through M&A is a key factor in Brazil, as operators are legally required to have a local representative to support their license. While some are opening their own offices across the country, acquiring already established operations may be cheaper and easier to manage.
A source advising on M&A stated that Flutter was dissatisfied with managing its South American business from an office in Portugal. The acquisition of Grupo NSX gave them access to operations in Brazil and market experts.
Ficom predicts that three main categories are eyeing positions in the Brazilian market. These include European giants such as Entain and Betsson, as well as Asian companies operating as operators in the underground market and looking to reinvest in regulated markets, or listed companies targeting international development.
A Cautious Approach to Entering Brazil’s Betting Space
There is also a third group: North American brands looking to expand into Brazil as part of their international growth strategy and establish themselves in a market that may have some similarities to the US.
However, the M&A consultant believes that some North American companies may be slow to enter the Brazilian market. DraftKings is one example, as it appears to have no immediate desire to operate in Brazil.
During its second-quarter earnings call, CEO Jason Robins said there were no plans to enter the region organically or via M&A, although if the operator did, it would be through M&A.
“I’ve spent a lot of time talking to DraftKings and Fanatics and they said, ‘we want to operate [in Brazil], but do we need to be there from launch? We’d like to know who’s going to be successful, rather than assuming someone is already successful [in the parallel market]’,” the source said.
Many are likely to have learned from their experiences in the US market and are opting for a cautious approach after witnessing the exodus of operators from the US this year.
“I think you’ll probably see more M&A in the second and third quarters of next year. The North Americans will open their wallets and pay for certainty, rather than betting on uncertainty,” they add.
Could the Media Partnership Model Work in Brazil?
One US giant that wasted no time in securing a position in Brazil was MGM Resorts International. In August, the group formed a joint venture with media giant Grupo Globo to launch its BetMGM brand in the country and benefit from the media group’s vast reach.
Grupo Globo is the largest media group in Latin America, with a consumer network of approximately 70 million daily users across TV, digital, radio and print media.
The deal reopens an interesting conversation about media partnerships with betting operators in Brazil, as the trend apparently did not work out in the US.
Fox Bet, operated by Flutter, closed its doors in July 2023 after four years in operation, while Penn Entertainment relaunched its Barstool Sportsbook as ESPN Bet after selling its stake in Barstool back to its founder Dave Portnoy in August 2023. There is also MaximBet, which operated for a very short time.
In both cases, performance disappointed. Since then, industry stakeholders have argued that the media partnership model is not a safe route to success, as sports media consumers likely already have betting brands they are satisfied with.
However, Sky Bet is revered in the UK, and many have tried to recreate its hugely successful model. “It’s an interesting case,” says Andreas Bardun, founder and CEO of the local Brazilian betting brand KTO.
“As always, it all comes down to execution. There are probably many more situations where these types of partnerships have failed. If they can pull it off, if they are agile enough, they will be a very strong competitor in Brazil,” he says of MGM’s partnership with Grupo Globo.
But Bardun acknowledges that collaboration between two large corporations can often be stifled by bureaucracy and negotiations. This appears to have been the case in Fox Bet’s downfall. Flutter and Fox initiated a lengthy arbitration process over the media giant’s option to acquire a larger stake in the betting company when the former acquired the Stars Group.
Public Trust is Crucial
Bardun expects more deals to emerge in the early days of the launch in Brazil, although he believes KTO will be among the “big” names in the sector, as the company is targeting a 10% share of the Brazilian market.
“There will be many partnerships and major advances in Brazil, and we would like to be among them.”
There are suggestions that KTO could become one of the main examples for the future of M&A in Brazil, as it has built a solid position in the country through local and regional sponsorships.
“KTO is one of the few [local operators] that a listed gaming company can buy [when considering] operating according to KYC, AML and all the other lovely anagrams,” the source says.
Udo Seckelmann, head of gaming and cryptocurrencies at Brazilian law firm Bichara e Motto Advogados, believes that partnerships with the media can help increase brand awareness and provide a great chance of success.
Seckelmann says that Grupo Globo’s long and rich history in Brazil can provide consumers with a strong connection to the BetMGM brand.
“If we understand that these media companies have been around for a long time in Brazil, when people see that this brand is connected to a betting partner, I think it strengthens it and consumers may feel safer betting on these brands than on others they have never heard of,” he notes.
For Seckelmann, it is also about trust, which he believes is culturally more important for bettors in Brazil than in the UK and the US.
This is especially important when considering the pressure that Brazil’s online gambling sector has been under lately. A two-day hearing at the Supreme Federal Court (STF) in November sought to determine whether betting laws in Brazil are unconstitutional after weeks of political backlash against betting. The outcome of this hearing will be announced in the first quarter of 2025.
This concern stems from a series of reports released at the end of the year suggesting that consumers may be spending beyond their budget on betting.
This negative view of betting has been compounded by the long delay between legalization being approved and regulations being formally released this year. Many have argued that this delay has massively boosted the proliferation of illegal sites.
Trust in the legal market is therefore crucial for the sector to succeed and avoid further political setbacks. “We can’t trust everyone and every brand,” admits Seckelmann.
“I think if Globo and other media brands are coming to the sector and saying ‘we’ve been with you for 50 years, so you can trust us’, [that will be a differentiator for MGM].”
The Opportunity for Physical Businesses
It is not only online that operators are looking at M&A as a means of entering Brazil. Betting in physical businesses also offers attractive possibilities.
Although the Senate vote to formally approve physical betting has been postponed several times to 2025, it is expected to still be approved.
This offers an opportunity for companies such as Hard Rock International, which plans to enter the physical and online markets in Brazil.
Alex Pariente, senior vice president of casino and hotel operations at Hard Rock International, said in September that the group would likely enter the market via M&A.
“Maybe it’s a joint venture, but it will certainly be some kind of partnership, because that’s a model the company has been pursuing,” Pariente said.
“We are actively looking and following the process. I think it’s a little early, but it’s very likely to happen.”
Without a crystal ball, it is impossible to predict what the Brazilian betting market will look like. But the emergence of similar jurisdictions, such as the US, can give analysts an idea of the trends that have worked.
Flutter is likely to gain an initial position in the market, particularly with the support of its financial and technological power. Brazil could follow the example of the UK and the US, with market share being divided between two or three main players.
“It’s too early to say who’s going to be successful,” admits the M&A consultant. “I think specialists in a particular area or demographic have a good chance. But if you try to be everything to everyone, you’ll be totally crushed by Flutter and Betano.”
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