August 24, 2016
The Innovation Group Introduces Brazil Gaming Forecast Model and Consortium to Address Client Gaming Opportunities in Brazil

The Innovation Group is pleased to announce the development of a national gaming forecast model for Brazil, and the formation of a consortium with Brazil-based BetConsult and Federico Lannes IGC, to bring clients comprehensive gaming regulatory and development services in Brazil. As its legislature prepares to vote on landmark gaming legislation as early as November, the consortium has been hard at work addressing regulatory parameters with government officials, and preparing analytical tools to estimate revenue potential and profitability under a wide range of bingo, casino, and potentially online gaming opportunities. The companies will participate jointly in leading key portions of the BgC 3 Gaming Conference slated for Brazil in November.
Status of Brazil's Gaming Legislation and Regulation
With over 200 million inhabitants, Brazil is one of the largest untapped gaming markets in the world. Brazil's most recent effort to address gaming represents the most ambitious since its prohibition 70 years ago. Standing legislation would allow both destination casinos and bingo halls (similar to slot halls), and potentially online gaming opportunities. The Special Commission on National Development approved Bill 186 by a wide margin last December, and is currently negotiating revised versions from the Senate, under the hand of Senator Fernando Bezerra, and the Chamber of Representatives where a vote on Deputy Guilherme Mussi 's rewrite is expected to occur next week.
While the final distribution of casinos and bingo halls will be determined over the course of the next few weeks, the following distributions are the most recent:
  • In states with at least 25 million inhabitants, 1-3 full casinos (table games and slot machines) would be permitted depending on the population of the State, with a maximum of 10% of the floor area dedicated to gaming;
  • In any Municipality, at least one bingo hall would be permitted, with a maximum of 500 units per location,  depending on the population of the Municipality;
  • Jockey Clubs and Stadiums with a capacity above 15,000 fans are allowed up to 300 bingo machines;
  • Broad online gaming has been reintroduced in recent drafts, after being removed from the initial version of the bill previously.
A sound regulatory structure is a key consideration and a gating item for many developers and operators. The following key aspects of the legislation are paramount:
  • Taxation is expected to be sustainable by international standards, potentially at 10% of gaming revenue, plus some moderate operating and regulatory fees;
  • Participation by local Brazilian companies will be required at some level in all gaming developments and operations, thus, identifying suitable potential partners early in the process is advised;
  • Government has taken a proactive role in defining parameters for regulation, recognizing there is great sensitivity in this area. Enforcement would be driven at the Union (National) level, which should provide greater oversight and transparency, as well as policies to ensure probity, combat money-laundering and other regulatory risks. 
Gaming Forecast Model
The Innovation Group has been at the forefront of global gaming expansion for over two decades. The company assists governments in creating commercially viable regulatory environments that deliver on economic development goals, while providing critical information to operators and developers for sizing markets and constructing the most competitive and successful gaming establishments. The Innovation Group serves the industry foremost through the development of accurate forecasting tools that become the backbone of building a gaming industry. 
A national gaming forecast model for Brazil has been developed by The Innovation Group. Revenue projections for Brazil were based on the most current legislation, with a multitude of adjustments required to account for demographic and economic diversity across the country:
  • The eligible gaming customer base was adjusted to account only for those above subsistence level incomes;
  • Penetration rates were based on a combination of current Latin American gaming behavior and higher more aspirational rates found in the more fully developed North American gaming markets, and to reflect the differences between rural and urban residents;
  • Base international tourism growth and induced tourism from gaming are both considered in the analysis;
  • Online gaming revenue and cannibalization potential were not considered in the initial demand model, pending the inclusion of internet gaming in the final bill. 
The Innovation Group's casino and bingo gaming revenue forecast model for Brazil yielded the following estimates for Year 3 operation of the initial wave of gaming developments:
  • US$6.55 -US$7.24 Billion in GGR (Gross Gaming Revenue) from casinos and bingo halls, with substantial non-gaming revenue available in addition;
  • 138.1 - 146.6 million visits to casinos or bingo halls;
  • US$47.46 - US$49.40 average spend per casino or bingo hall customer per visit, with higher-end players spending much more;
  • 244,000 gaming positions could be required,well within the current legislative threshold which would allow above 550,000 positions under any scenario.(A gaming position is defined as the number of gaming machines plus the number of individual seats at gaming tables). 
The results of The Innovation Group's demand forecast model were triangulated and validated with several metrics including GGR as a percentage of GDP (Gross Domestic Product), and residents per gaming position:
  • The model implies that GGR would equate to approximately 0.3% of Brazil's GDP, compared to current results of 0.1% in Mexico (a slots-only market), 0.3% in Chile, 0.4% in both the United States and Canada and 0.6% in Argentina;
  • At 244,000 positions, there would be approximately 900 residents per position in Brazil upon market stabilization, compared to 1,200 in Mexico, 1,185 in Argentina, 465 in Canada and 370 in the United States. 
The Innovation Group's national gaming demand model can be adapted to reflect multiple legislative scenarios, and can efficiently provide customized analyses for specific states, cities and sites, with sufficient input from clients. To explore the market further, contact information has been included for each consortium member below.
The consortium is urging clients to give careful thought to the best strategies for market entry. The obvious play for larger companies will likely be to flock to Rio de Janeiro or Sao Paulo with the ambition to develop large destination resorts. This may be a home run for a few, with the promise of high revenue and EBITDA volumes. Others will stick to route operations in bingo halls, a proven high ROI (Return On Investment) play globally. However, the market will be extremely sensitive to the diversity of socioeconomic strata in Brazil. Intense poverty, unpredictable local politics and security concerns could make some of the most obvious locations the most difficult and the least lucrative. We believe there will be "sleepers" throughout the vast stretches of Brazil, pockets of opportunity to evaluate.
About the Consortium
The consortium, including The Innovation Group, BetConsult and Federico Lannes IGC, is poised to offer a range of critical gaming development and business related services, taking projects from the pre-development stages through opening day and thereafter. Initially, the group will help companies understand and navigate the complex local business initiation, operating, and tax environments in Brazil. This will include identifying appropriate local partners for international companies. Site selection and financial feasibility will be undertaken to develop a concept and building program, and forecast gaming and non-gaming revenue income streams. The return on investment (ROI) can next be calculated based on an estimate of constructions costs. Then, in anticipation of a competitive tender to secure gaming licenses, the team can customize business and marketing plans, compliance programs, and forecast economic impacts and job creation. The consortium will be fully capable of producing and submitting RFP bid responses to government on behalf of operators and developers, and providing follow-up support in presenting the project to government officials and investors.
The Innovation Group
The Innovation Group is the premier provider of advisory services for the gaming and leisure industries, with offices in New York, Orlando, Denver, Aspen and New Orleans.  The firm has extensive experience working with gaming and hospitality operators, property and technology developers, banking institutions, and governments, and has conducted studies and analyses touching over $100 billion in investment and operating decisions over the last 20 years. The Innovation Group's inventive, forward-looking staff of professionals is known throughout the industry for the accuracy of our analysis and our timely response to client needs. Among our core services, we provide traditional casino and online gaming market feasibility studies, econometric analysis, operations and marketing advisory services, and strategic business plans of the highest quality.  Expanded capabilities in construction management and investment banking are also offered through The Innovation Group's affiliates, Innovation Project Development and Innovation Capital.
BetConsult is a Brazil-based business consulting company supporting a wide range of industries including gaming. The consultancy focuses on market entry, business structuring, and regulatory protocols for bingo and casino gaming companies interested in doing business in Brazil. Specialties include the formation of Brazilian charter companies, documentation, political penetration, licensure, provision of compliance programs, legal studies on Labor law, taxation and other areas;  as well as support with the myriad of hurdles facing international companies wishing to establish businesses in Brazil in: Sport, Bingo, iGaming, Casino, Fantasy and Poker.
Federico Lannes, IGC
Federico Lannes, IGC is an Argentina-based casino regulatory advisor specializing in probity and anti-money laundering (AML) policy in Latin America. Federico Lannes specializes in producing anti-money laundering policies for companies entering Latin American gaming markets. The firm has served private gaming operators and governments in Central and South America and has also participated in public speaking engagements and academic forums on the topic. 

Michael Soll
Edgar Lenzi
Diretor Presidente
Federico Lannes

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