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Gamblers Pay 400% Loan Rates to Fund Betting Frenzy in Brazil - BLOOMBERG
(Bloomberg) -- At the headquarters of the United Nations, surrounded by leaders of countries across the globe, Brazil President Luiz Inacio Lula da Silva launched into a tirade about the evils of gambling.
It was an odd topic to raise at the UN’s annual September meetings, especially because this panel had been convened to debate efforts to preserve democratic norms, but Lula was too worked up to care. Gambling, he railed, was destroying the finances of countless people, especially the poorest, who are “piling up debt” to finance their vice.
A few days earlier, his finance minister, Fernando Haddad, had a similar outburst in Brasilia, declaring the problem “an epidemic.” Haddad talks incessantly about gambling. So too does Central Bank President Roberto Campos Neto, who confesses to nervously watching household debt numbers swell and worries, like Lula, that much of it stems from gambling. The three men together are pushing frantically to rein in Brazil’s newly liberated on-line betting industry.
Gambling addiction is a familiar, and growing, problem around the world — from the US to the UK to Australia — in the wake of the legalization of all sorts of new betting platforms. But what makes Brazil unique is the sense of urgency this boom has caused among policymakers, who detect in the population here a greater vulnerability to the intoxicating allure of gambling.
Nearly one out of every three Brazilians lives below the poverty line. And poverty amplifies the desire to make an instantaneous fortune betting on the hometown soccer team or spinning the virtual roulette wheel. A recent central bank report underscored the magnitude of this problem and sent shockwaves through Brasilia: 20% of the money the government handed out for its flagship social program in August was spent at on-line gambling sites.
“The vulnerability that comes with poverty,” says Daniel Dias, a professor at Fundação Getúlio Vargas Law School, “is something that sets us apart.”
Add to this the fact that many Brazilians are now gaining access to loans for the first time in their lives — via mobile apps and credit cards that charge annual interest rates up to 438% — and you have an explosive cocktail. So many Brazilians are now wracking up gambling debts that Nubank, Latin America’s largest bank, released a statement in September simply to reassure investors that it had limited loan exposure to troubled bettors.
One of them is named Beatriz Azevedo dos Santos.
Dos Santos began gambling two years ago, when she was just 17. It started innocently enough, just a few small bets on a virtual casino game called Crash. She tasted enough early success — “I’d win some and lose some” — to prove, she thought, that the non-stop hype pumped out by all the big-name Brazilian social influencers was true: fortunes really could be made gambling.
For someone eking out 500 reais ($87) a week delivering pizza and burgers on her little red-and-black bike in the hardscrabble city of Recife, it was an irresistible fantasy. “I wanted a luxurious lifestyle,” dos Santos says. “People made it look easy.”
She started boosting her wagers — 2 reais became 10, 20 and then, suddenly, hundreds — and would play for hours on end, wracking up in the process an unpayable pile of debt. When her bike was stolen, she cashed the 1,700 reais insurance payment she got and quickly gambled away every cent of it. She hit up her mother, her brother, even her landlord for cash that she’d squander.
“I felt I had control over the game,” she says, “and that winning only depended on me.”
Soccer, Jogo do Bicho
For decades, Brazilians gambled illegally, on widely popular lottery-style games like jogo do bicho and in clandestine bingo halls. Betting was made legal in 2018 and grew unregulated until the Finance Ministry implemented more precise rules last year in a bid to boost tax revenue and in the process inadvertently sparked the current frenzy.
There are two main ways Brazilians gamble. First is through apps and websites offering online casino games similar to those found in a real casino: slot machines, roulette and other games of chance. Then there’s soccer, by far the most popular sport in the country. Bettors plunk down money on everything from which team will win a championship to the number of penalties that will be committed in a match.
Like in the US, gambling is now seemingly everywhere. Social media is flooded with ads of friendly tigers offering immense riches and influencers suggesting lavish live styles are just a roulette spin away. Catchy jingles featuring betting companies’ names — like Betano, Betnacional and Blaze, which peddles Crash, the game dos Santos is hooked on — play incessantly on TV and radio. Others are splashed across the jerseys of Brazil’s top soccer teams: Superbet, Esportes da Sorte, Pixbet.
‘Really Worrying’
The number of gamblers in Brazil has doubled in the past six months to 52 million, according to research firm Instituto Locomotiva. And the central bank estimates Brazilians spent between 18 billion reais ($3.1 billion) and 21 billion reais a month on gambling this year through August.
Campos Neto, the central bank governor, says a disproportionately large number of those gamblers come from lower-income families. “It’s really worrying,” he said at an event in September.
The central bank numbers don’t capture another ominous trend: the use of credit cards to finance those wagers. Brazil has notoriously high credit-card rates. At some smaller banks, they can approach 1,000% a year. The largest lenders, like Nubank and Itau Unibanco, charge above 300% yearly.
“Usually people who are over-indebted try to find ways to pay. They take out another loans, ask their families for help, go to a loan shark, seek out smaller lenders,” said to Viviane Fernandes, an anthropologist at and researcher at Idec, an institution that protects consumers. “And then they end up with multiple creditors, and it becomes very hard to juggle all that.”
The explosion in gambling was thrust into the spotlight in September after police detained several influencers amid a money laundering probe involving betting companies. Perhaps the splashiest arrest was that of Deolane Bezerra, a lawyer turned singer turned influencer who boasts her wealth — multiple houses in the US, a Rolls-Royce Cullinan and a purple Lamborghini Urus — to her 22 million Instagram followers. Bezerra posted shortly after her arrest that she was innocent and that there was no proof against her.
Full Control
The controversy only added pressure on the government to act. The Finance Ministry pulled forward a January deadline for companies to present paperwork to operate and then moved to ban those who haven’t done so yet. It’s currently examining requests from more than 100 firms based everywhere from the US to China and Australia.
Under the rules, companies will need to create profiles of each customer with personal data and declared income. When excessive gambling time or amounts are detected, the company will have to issue alerts and even block the game temporarily.
Behind closed doors, officials say they’ll have full control starting Jan. 1, giving them scope to limit the amounts people bet, block payment systems and monitor for signs of money laundering. One official likened it to the government being the casino and the betting companies the croupiers.The government is also looking to ban the use of credit cards for betting and regulate advertising so that companies won’t be allowed to promote it as an investment. And earlier this week, the prosecutor general asked the Supreme Court to review the legality of the gambling laws altogether, saying the legislation fails to protect consumer rights and “goes against” the government’s duty to safeguard families. One of the judges partially granted the request late on Wednesday, ordering measures be put in place to temporarily ban beneficiaries of flagship social programs from betting online.
The Brazilian Institute of Responsible Gambling, which represents companies that handle 75% of all online sports betting, said it fully supports the push for greater regulation. And the National Association of Gaming and Lotteries said in an emailed response to questions that it also supports regulation but that any move to ban gambling after a legal framework was put in place would bring legal uncertainty and cause “incalculable damage” to the country.
‘Just a Dream’
The regulatory push comes too late for dos Santos.
Now 19, she has no bike, no job and no hope of paying back a gambling debt that has, as best she can tell, ballooned to 7,000 reais. All of it is on credit cards that she took out from a bunch of banks, including Nubank, Banco do Brasil and Bradesco. She confesses to having no idea what interest rates they’re charging her. (The central bank’s website indicates they all charge more than 300% a year on credit-card debt.)
To mollify her girlfriend, dos Santos recently ceded control of her bank accounts and gambling accounts. The addiction, and the need for that dopamine rush, remain strong, though, and she still sneaks in a bet from time to time.
She knows now how foolish this is. And she knows that she had been duped — by all those glamorous social-media influencers — into thinking that gambling was her ticket out of poverty. You’re not betting, they told her over and over, you’re investing. “Today, I know that was just a dream.”
--With assistance from Franco Dantas and Daniel Carvalho.
