Struck by cancer in his early 30s, Cláudio found solace in a pastime that has hooked millions of his fellow Brazilians: online gambling.

Punts on football results were “just a bit of fun” at first, but following his diagnosis a few years ago the wagers grew bigger. As his losses racked up to R$200,000 (US$35,000), bills went unpaid and the electricity was cut off in his home.

“I started taking out loans from banks, without telling my wife. I was very ashamed,” said the investment professional, who asked not to give his surname.

Internet gambling has exploded in popularity in Brazil following the legalisation of fixed-odds sports betting in 2018, turning the football-mad nation of more than 200mn into the world’s seventh-largest market by revenue, according to data provider H2 Gambling Capital.

But a lack of regulation has helped fuel an epidemic of addiction, with potentially damaging consequences for Latin America’s largest economy, bankers and doctors have warned.

The craze threatens to dent consumer spending, especially among lower-income Brazilians, say retailers and analysts. The country’s banking association has also raised concerns about indebtedness caused by online betting.

Roberto Campos Neto, Brazil’s central bank governor, has said the “worrying” growth of gambling could begin to hit loan repayments. “The correlation of people on low incomes and the increase in betting has been strong,” he said recently. “We’re starting to have the perception that it will have an impact on defaults.”

Some economists predict the trend has the potential to hit Brazilian growth this year.

Brazil’s dilemma echoes that faced by the US, where sports betting is now legal in the majority of states, and the UK, whose long tradition of legalised gambling has been supercharged by the internet.

With compulsive gambling triggering mental health issues, treatment referrals at the Clínicas public hospital in São Paulo have tripled in a year, said psychiatrist Hermano Tavares. “The health system is not prepared,” he said.

Police and prosecutors also allege some illicit sites are used for money laundering by organised crime.

Most games of chance such as casinos and slot machines have been prohibited in Brazil since the 1940s, with a few permitted exceptions including horseracing and state-run lotteries.

The South American country now ranks first for visits to gambling websites, with 15 per cent of the global total in 2024, according to analytics provider SimilarWeb.

Football teams and broadcasters have benefited from advertising, while the government will soon start taxing the business.

International brands such as bet365 and Betfair vie with homegrown operators for wagers that in 2024 could total R$130bn, according to PwC.

At least 24mn consumers — more than 10 per cent of the population — placed online bets in August totalling R$20bn, according to a central bank study.

The activity could shave 0.3 per cent off Brazil’s GDP this year, a report by Santander found, although the trend’s possible effects on the economy are hotly debated.

The retail sector is feeling the pinch, said Danniela Eiger, an analyst at brokerage XP. Several Brazilian chain stores have blamed the phenomenon for weak sales, while a survey of gamblers by a retail association found one-fifth had foregone clothing or travel purchases in favour of bets.

“Betting is competing for consumer money,” Eiger said. “It has slowed the recovery we hoped to see in demand.”

Some 5mn people from families on Brazil’s main social welfare programme together spent about R$3bn on bets in August, according to a central bank report, equivalent to one-fifth of the total benefit paid out. The National Association of Games and Lotteries disputed the figure, suggesting it was only a fraction of this amount.

The sector has also challenged the extent of the economic impact and says most gamblers are not addicts.

A study commissioned by the Brazilian Institution for Responsible Gaming (IBJR) lobby group argued gambling had not led to an overall increase in indebtedness and suggested it accounted for just 0.5 per cent of household spending, taking into account winnings.

Those on both sides of the debate put many of the problems down to a failure to introduce regulation when online sports betting was liberalised six years ago.

Until recently many sites operated from overseas jurisdictions and so were not subject to local law or taxes, with no official oversight in Brazil or obligation to report suspicious activity there.

A lack of rules led to “a market that is a real mess”, said André Gelfi, local head of gambling platform Betsson and IBJR president. “You have everything from advertising to minors to fraudsters on the internet.”

The government of leftwing President Luiz Inácio Lula da Silva accused its predecessor of inaction and has introduced regulation due to come into effect at the start of 2025.

The rules will introduce taxes on gaming companies and winnings, limit the promotion of gambling by influencers, restrict advertising and outlaw the use of credit cards on betting sites.

Digital operators must now register a local entity and were required to request licences costing R$30mn each by September. The government, which has estimated gambling could yield as much as R$12bn annually in taxes, has blocked 3,400 sites that did not comply, leaving more than 260 accessible.

Supporters believe this approach will drive a shake-out, with bad actors eliminated as industry-wide standards are established.

Lula has suggested a ban on digital betting if the new measures do not fix the problems, and officials want to stop the use of welfare payment cards for betting.

The finance ministry, which oversees the sector, did not respond to interview requests.

“New regulations do not necessarily mean everything will be resolved overnight,” said Ian Cook, at business advisory StoneTurn. “But it’s a strong sign of progress for a lucrative industry that was otherwise left to self-regulate for several years.”

With his cancer in remission, Claudio has found support at Gamblers Anonymous. “My friends were able to play recreationally and I couldn’t because I was compulsive,” he said. “It’s a disease like any other that can affect anyone, regardless of social class, education or gender.”