American firm has R$50 million to consolidate unlicensed betting houses in Brazil

While 108 companies – which totaled 113 requests – rush to adapt to the regulation imposed on the sports betting sector, which will be in effect from January 1, 2025, the American venture builder Cronwstone Ventures is looking for those that are on the sidelines of the process.

The idea is to buy control of betting houses that do not have the structure and capital to meet government requirements, merge them and form new houses, which should generate around R$30 million in monthly deposits each. To this end, it has R$50 million in cash this year and plans to have another R$300 million to allocate in 2025. The capital comes from Swiss and American investors.

To obtain a license from the Ministry of Finance, betting houses must pay R$30 million and maintain R$5 million in financial reserves. There are currently more than 3,000 betting houses in Brazil, according to estimates by Cronwstone Ventures – and the vast majority are not obtaining a license. “Brazil has created a structure that drives amateurs out of the market,” says Brunno Galvão, the company’s CEO.

Cronwstone Ventures set up its own betting house, Elisa.Bet, which went live after the approval, in the Chamber of Deputies, of the law that regulated online sports betting, in December 2023. “Despite our investment thesis, we didn’t want to make a move until the market was legalized”, says the executive.

The licensing gives the right to three brands. Under the umbrella of each of them, the venture builder plans to consolidate between six and ten bets, creating new brands.

On the radar are around 300 firms that do not have the capital to obtain the license, but do “good work”, with an efficient team, adequate technology or an interesting business model, he comments.

“We are looking at companies that do not have the money to enter into regulation, but receive deposits of up to R$100 million per year,” said the executive. “The brands formed from there should have approximately four million players in their portfolio.”

In addition to online bookmakers, Cronwstone is looking at other players, payment methods, affiliate communities and technology solutions for the sector.

These communities are companies formed by intermediaries who generate business for betting companies, earning commissions for selling bets. Cronwstone’s first acquisition in Brazil was precisely one of these, NoHype, last year, for R$6 million. At the time, the company had 6,000 members, says Galvão, and now it has 13,000.

“Today, affiliates represent 35% of revenue generation,” estimates the executive, based on industry research. “It’s a business model that is just starting out in Brazil.”

Galvão compares the current situation in the sector in Brazil to the beginning of the startup phase in the world. “We are living in a moment that is the gold rush of the century,” he says. According to market estimates, he says, investments in Brazil will reach R$180 billion by 2030.

Although the regulation is recent, the activity ceased to be illegal at the end of 2018, with a law sanctioned by former president Michel Temer. But it was in 2020, with the launch of Pix, that online betting exploded, says Brunno Galvão, due to the ease of making immediate transfers.

According to him, last year, Brazil was the country with the most accesses to betting sites, with three billion, followed by the United Kingdom and Nigeria. Betting revenues reached between R$100 billion and R$120 billion, he says, citing a report by XP Investimentos that uses the BNL platform aggregator. The executive also states that market estimates show that 90% of revenues are converted into prizes for bettors.