With the launch of the legal online betting market in Brazil days away, international operators are jockeying for position in the market. Kyle Goldsmith considers how M&A and media partnerships might shape the market in the short-term.
Looking back to the launch of betting across the US six years ago, it was a flurry of M&A deals that helped position some of today’s leading players, as they scrambled to gain early-mover advantage in the hotly anticipated US market. Could the imminent launch in Brazil mirror some of the trends seen in the US?
One such operator was Flutter which invested an initial 37.2% interest in daily fantasy provider FanDuel in 2018 for $4.18 billion, before increasing its stake to 95% in December 2020.
Looking to tap into Brazil’s equally tempting betting market, Flutter in September agreed to acquire an initial 56% stake in local operator Betnacional’s parent NSX Group for $350 million.
The group is excited about the Brazil betting opportunity and has told shareholders it will continue to acquire local brands within its key market as part of its “local hero” brand portfolio.
Analysts are extremely bullish on Flutter – Macquarie’s Chad Beynon in December predicted the group’s online market share in Brazil could grow by 150% in 2030 to 25%. This would likely put it at the summit of what is expected to be a hugely competitive market.
Macquarie’s analysis shows the company has created ~$200 of incremental per share value for investors thanks to nine acquisitions since 2019. Alongside its Flutter Edge technology stack, the NYSE-listed group and its M&A work could reach a global market share of ~20%, according to Macquarie.
The sudden rise in M&A activity in Brazil is hardly unexpected, as local expertise and products are hugely valuable in foreign markets. In May, Adam Patterson, an economist for the UK’s consul in Brazil, pointed to high regulatory costs as a driver for M&A in Brazil, while gaming advisory Ficom Leisure has highlighted access to local expertise and technological advancements as key benefits of entering the market via M&A.
Gaining that local foothold through M&A is a key factor in Brazil as by law operators must have an on-the-ground representative to support their licence. While some are opening up their own offices across the country, acquiring already established operations could prove cheaper and easier to run.
One M&A advisory source tells iGB that Flutter was unhappy about running its South American business out of an office in Portugal. Acquiring NSX Group has given them access to operations in Brazil and experts in the market.
Ficom predicts three main categories are eyeing positions in the Brazilian market. These include European giants such as Entain and Betsson, as well as Asian companies that are either black market operators looking to reinvest in regulated markets or listed businesses aiming for international development.
A cautious approach to entering Brazil’s betting space
Then there’s the third cluster; North American brands looking to expand into Brazil as part of their international growth strategy and gain a foothold in a market that may mirror the US in some ways.
However, the M&A advisor believes some of the US incumbents may be slow to enter the Brazilian market. DraftKings is one example, as it appears to have no immediate desire to move into Brazil.
During its Q2 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 have said, ‘we want to be [in Brazil] but do we need to be there for the opening? We’d like to know who’s going to be successful, rather than assuming that someone’s already been successful [in the grey market],’” the source tells iGB.
It’s likely many have learned from their experiences in the US market and choose to take a cautious approach, after witnessing this year’s exodus of operators from the US.
“I think you’ll see probably more M&A in Q2 and Q3 of next year. The North Americans will get their cheque books out and pay for certainty rather than gamble on uncertainty,” they add.
One US giant that has wasted no time in securing a position in Brazil is MGM Resorts International. In August the group entered into 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, boasting a consumer network of around 70 million daily users across TV, digital, radio and print media.
The deal reopens an interesting conversation around media partnerships with betting operators in Brazil, as the trend seemingly fell flat in the US.
The Flutter-operated Fox Bet closed its doors in July 2023 after four years in operation, while Penn Entertainment relaunched its Barstool Sportsbook as ESPN Bet after selling its Barstool stake back to its founder Dave Portnoy in August 2023. Then there’s MaximBet, which barely got off the ground at all.
In both of these instances, performance fell flat. Industry stakeholders have since argued that the media partnership model is not a sure-fire route to success, as consumers of sports media likely already have betting brands they are satisfied with.
However, Sky Bet is revered in the UK, and many have attempted to recreate its hugely successful model. “It’s an interesting one,” says Andreas Bardun, founder and CEO of local Brazil betting brand KTO.
“As always it comes down to execution. There’s probably a lot more situations where these kinds of partnerships have failed. If they can nail it, if they can be agile enough, they will be a really strong competitor in Brazil,” he says of MGM’s partnership with Grupo Globo.
But Bardun acknowledges that often collaboration between two major corporations can be stifled by bureaucracy and negotiations. This appeared to be a factor in Fox Bet’s downfall. Flutter and Fox initiated a lengthy arbitration case 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 come in Brazil’s early days although he believes KTO will be among the market’s “big boys” as the company is targeting 10% market share in Brazil.
“There will be a lot of partnerships in Brazil, a lot of big pushes moving forward and we would like to be among those.”
Some have suggested KTO could be a prime target for future M&A in Brazil as it has built a decent foothold in the country through local and regional sponsorships.
“KTO is one of the few [local operators] that a listed gaming company could buy [when considering] KYC and AML and all the other lovely anagrams,” the source says.
Udo Seckelmann, head of gambling and crypto at Brazilian law firm Bichara e Motto Advogados, believes media partnerships can help enhance brand awareness and provide a high chance for success.
Seckelmann says Grupo Globo’s long and rich history in Brazil could provide consumers with a strong connection to the BetMGM brand.
“If we understand that these media companies have been around forever in Brazil, when people see that this brand is connected with one betting partner, I think this strengthens the brand and consumers may feel safer betting on these brands [over] others they’ve never heard of,” he notes.
For Seckelmann, it also comes down to trust, which he believes is culturally more important for bettors in Brazil than in the likes of the UK and the US.
This is especially important when considering the pressure Brazil’s online gambling sector has come under of late. A two-day hearing at the Supreme Federal Court (STF) in November sought to determine whether the betting laws in Brazil are unconstitutional following weeks of political backlash against betting. The outcome of this hearing will be announced in Q1 2025.
This concern stems from a number of reports in the summer which suggested consumers could be spending more than they can afford on betting.
This negative view of betting was made worse by the long delay between legalisation being approved to regulations being formally released this year. Many have argued this period massively drove up the proliferation of illegal sites.
Trust in the legal market is therefore crucial for the sector to succeed and avoid further political pushback. “We cannot trust everybody and every brand,” admits Seckelmann.
“I think if Globo and other media brands are coming to the sector and saying ‘okay, we’ve been here with you for the past 50 years, so you can trust us’, [this will be a differentiator for MGM].”
The land-based opportunity
It’s not only online where operators are looking to M&A as a means of entering Brazil, with land-based betting also offering intriguing possibilities.
Although the senate vote to formally approve land-based gambling has been pushed back several times to 2025, it is still expected to go through.
This provides an opportunity for the likes of Hard Rock International, which plans to enter both the land-based and online markets in Brazil.
Alex Pariente, corporate senior vice president of casino and hotel operations at Hard Rock International, told iGB in September the group would likely move into the market via M&A.
“It could be a joint venture, but it definitely will be a partnership of any kind because that’s a model the company has been pursuing in the past,” Pariente said.
“We’re actively looking, we are following the process. I think it’s a bit early, but I think that’s very likely the way it will happen.”
Without a crystal ball it is ultimately impossible to predict how the Brazilian betting market will turn out. But the emergence of similar jurisdictions like the US can give analysts an idea of the trends that have worked.
It is likely that Flutter will gain an early foothold in the market, particularly with the support of its financial and tech firepower. Brazil could follow the UK and US and market share could be split between two or three top players.
“It’s too soon to say who’s going to be successful,” the M&A advisor admits. “I think some of the niche guys who specialise in a particular area or particular demographic have got a good chance. But if you try to be all things to all people, you’re going to get absolutely flattened by Flutter and Betano.”
