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Brazil’s newly regulated market for online gambling did not have to wait long to see its first legal twist, with a Supreme Court justice issuing an order on Thursday (January 2) to rein in the conflicting licensing system established by the state of Rio de Janeiro.

Issuing an injunction in response to a civil case filed by Brazil’s federal government, Supreme Court Justice André Mendonça ordered Rio’s state lottery authority to promptly prevent state-licensed operators from accepting bets from players beyond the state’s borders.

In accordance with a 2023 licensing decree, LOTERJ has permitted its licensees to accept bets from other Brazilian states or even international jurisdictions provided the players first acknowledge that the transaction legally occurs within the state of Rio de Janeiro.

In doing so, Mendonça said that Rio lottery authority LOTERJ was “flagrantly violating” the jurisdictional competencies of both Brazil’s federal government and other Brazilian states regarding lotteries.

“The relaxation of the territorial requirements weakens the supervision and control of lottery activities, with potential harm to the federative pact,” Mendonça wrote in his 35-page order.

The injunction gives LOTERJ five days to comply by obliging Rio’s licensed operators to block players outside the state’s borders through the use of geolocation technologies.

The judge’s order is not the last word on one of the most closely watched legal issues in Brazil’s online gambling market.

The injunction will be subject to review by the full bench of Federal Supreme Court justices in February when they will vote on whether to uphold or overturn the order. The Brazilian Solicitor General’s civil case against Rio de Janeiro then will be heard and ruled upon in full by the court at a later date.

Nevertheless, Thursday’s injunction was swiftly welcomed by those industry executives and legal observers who have been critical of Rio de Janeiro’s position amid concerns that LOTERJ’s regime could undercut the federal government’s own national licensing framework that became effective on New Year’s Day.

A Rio licence is subject to an upfront fee of R$5m (US$800,000) compared to R$30m for a federal licence, with Rio’s monthly tax rate of 5 percent on gross revenue also considerably lower than the equivalent 12 percent in place for federal licensees.

LOTERJ has also been applying regulatory and licensing standards that differ somewhat from those of the Brazilian federal government’s Secretariat of Prizes and Bets, or SPA, which is responsible for regulation at the national level.

As of Thursday, LOTERJ had issued state licences to 26 online betting sites, with only one of them also obtaining a federal authorisation. LOTERJ’s director testified before a Brazil Senate committee in December that the state lottery had received licence applications from some 94 operators overall.

Among the more prominent Rio licensees set to be affected by Thursday’s order are Pixbet and Esportes da Sorte, which sponsor leading Brazilian football clubs Flamengo and Corinthians. Neither of those two operators has yet obtained a federal licence from the SPA, although both companies have applied for one.

At the centre of the legal dispute is Brazil’s December 2023 federal legislation on fixed-odds betting, which included a provision to expressly prohibit state-licensed lottery games or betting from being offered outside that state’s territory.

The state of Rio de Janeiro and LOTERJ argue that Rio is exempted because LOTERJ’s licensing process began before a cut-off date established by the 2023 legislation.

In his order, however, Justice Mendonça noted that LOTERJ’s original licensing decree of April 2023 would have obliged all operators to use geolocation to limit bets to within the state of Rio de Janeiro. 

The amended version of the decree to remove that requirement and enable interstate or international play was not published until late July, or one day after the cut-off date established by federal law. 

With Brazil’s national regulatory regime now in full effect, what is not in dispute is that states may continue to issue their own licences or concessions for fixed-odds sports betting and online gaming for players located exclusively within their borders.

At least three other states beyond Rio have already issued local authorisations, while the northeastern state of Ceará last month adopted a decree enabling the state to follow suit in the near future.

In October, another injunction issued in a separate Supreme Court case held that state-licensed operators could not be prevented from advertising beyond that jurisdiction or from obtaining multiple licences or concessions from various states across Brazil.