Earlier this month, the Powerball jackpot surpassed $2bn for the first time, soon after the top Mega Millions prize hit $1.34bn. What are the impacts of these mega jackpots, and will the lottery sector change if they become more frequent? By DANIEL O’BOYLE
In late July, a couple of people made a billion-dollar decision at a Speedway gas station near Chicago O’Hare airport, buying the winning ticket for the third-biggest draw in US lottery history.
Many wondered whether the holder of the winning ticket was even aware of the life-changing event after eight weeks passed with the $1.34bn prize remaining unclaimed. But no—it turns out the anonymous winners had been talking with various financial and legal advisors before deciding to split a lump-sum payment of $780.5m.
“When we met with the winners’ lawyers there was a real buzz of excitement in the room,” Luis Rodriguez from the Illinois Lottery said. And no wonder. To most, there’s a clear impact when jackpots hit major milestones.
“A billion dollars is a big number and it generates a lot of player excitement and buzz in the media,” Matt Whalen, IGT SVP of sales and operations, North America Lottery, says. “It becomes part of the national conversation, people are talking about it at the dinner table and that drives sales.
“That sales increase is driven by three things. One, there’s lapsed players, who used to play but have taken time away. Then there’s new players of course, who get caught up in the excitement, and then finally regular players who might play more per draw.”
There’s one aspect above all, though, that explains the significance of major jackpot milestones: free advertising.
“Lotteries have advertising budgets, but as the jackpot grows, they stop advertising,” Whalen explains. “The media attention provides all the advertising they need, and then they can bank those advertising dollars for future times.
“Why use your advertising dollars when the national media is doing it for you?”
REGULAR OCCURRENCE?
That July jackpot marked the fourth separate occasion in which a US lottery’s top prize exceeded $1bn, all since 2016, following format changes the prior year that made rollovers more likely.
Once a major novelty, ten-figure sums are slowly becoming something that customers may start to expect almost once a year.
So the question, then, is whether customers will soon experience fatigue around the types of jackpots that make headlines today.
“[Jackpot fatigue is] a thing,” Scientific Games vice president of systems marketing Leslie Badger says. “We will see it taking a little bit longer in terms of what point in the jackpot roll you start to see the sales take off.
“Back in the day it used to be as soon as it hit $100m lotteries would start to get that little bit of a frenzy. Then it was more like $200m, $250m, and now it’s probably more like half a billion.”
But that doesn’t mean Badger is worried about the overall impact. When a jackpot does hit the threshold for “big”, there’s no slowdown in the impact.
“So it’s certainly true that it takes longer for the more casual players to come in,” she continues. “But I also think they may be buying more because when we look at the total sales, sales are still fairly healthy. It just maybe takes longer to start to happen.”
While the January 2016 Powerball jackpot has yet to be eclipsed in sales, Badger notes that the name recognition of the Powerball brand and its status as the first ten-figure jackpot both played a role in that fact. Each of the following three billion-dollar jackpots have generated similar amounts of sales.
The large volume of interest, though, creates challenges for companies like Scientific Games and IGT, which must meet the sudden rush of demand from customers.
“From our perspective, luckily when you’ve got a company that’s been doing this for years and years, I think Scientific Games really fine-tuned our ability to be prepared for larger jackpots, whether that’s in paper stock, whether that’s in playslips—even though actually during higher jackpots most people are quick-picking,” Badger says.
“So you know Scientific Games is prepared and able to scale when the need is there. We don’t want our retailers to ever be down during a big jackpot because it impacts their commissions and reputation among their regular players.”
Whalen says it’s a similar situation at IGT, which processes the majority of lottery transactions in the US.
“About 80% of the transactions for these large jackpots go through IGT systems,” he says. “So when these events happen, it takes an enormous team to ensure that they go off smoothly and there’s no issues.
“We receive thousands more calls per day on our hotline. Everything from novice retailers asking how you do something, to someone helping solve problems. Our engineering teams and operations teams are on high alert, on a conference call 24 hours a day, monitoring the systems. The systems themselves are built in a fault-tolerant way to handle those jackpots.
“This doesn’t happen by accident.”
Scientific Games president of digital and sports betting Steve Beason, meanwhile, notes that ilottery solutions businesses must create products equipped to handle events several times larger than the typical traffic experienced on a draw day.
“When Scientific Games is awarded government contracts for large lotteries, we build our systems to handle peak performance,” Beason says. “So most days we’re running at 10% of capacity, then when you have a large jackpot you increase your system performance by tenfold. You have to be ready to make that happen.”
BETWEEN THE JACKPOTS
What happens in between those jackpots, though? The effect can’t last forever, but both Whalen and Badger note a ‘halo effect.’
That effect may become larger, though, as ilottery becomes more prevalent. While the retail halo effect is short-lived, driven by factors such as players buying tickets for more than one draw, the online effect is larger, as players sign up for the first time and can then receive marketing communications from state lotteries.
“On the digital channel, you see this halo effect last a little longer, right, and that is primarily driven by the fact that the increase in registrations where now we have the ability to do the whole CRM and keep people active, offer bonuses and things like that,” Beason says.
It’s clear then that jackpot milestones matter. But is there a way to keep hitting them?
Unsurprisingly, developing a lottery game is more complicated than making the most rollover-friendly option possible and have players salivating over impossibly high jackpots: players have to actually believe they might win.
Badger explains how lottery content creators struck a balance in 2015 to create the current ecosystem.
“The odds of the top prize are longer,” she says. “So that is what really ultimately drives the fact that the game can get to higher jackpots. Now you again want to balance that because you don’t want to make it so long that nobody’s ever winning the game.
“Luckily, Scientific Games has a lot of experience with sales analytics, so we can still see the impact through modeling.”
Besides the impact of rule changes for draws, big advertised jackpots might seem somewhat random. However, broader economic factors may make these type of draws more common.
As Whalen points out, lotteries advertise the amount of money a player may win if they take an annuity option paid out over decades. This sum is influenced by interest rates, meaning a rate hike allows lotteries to advertise higher jackpots than they would in the low-interest-rate environment that has been prevalent in the past decade.
“As interest rates rise, it takes less money to buy that annuity, so it allows sales to climb quicker because your advertised jackpot goes up at a quicker rate,” Whalen says.
It’s possible that the lottery sector has already found an ideal balance, and major jackpots won’t get any more frequent any time soon.
However, Beason—having seen the impact that major jackpots can have—says Scientific Games is looking for ways to replicate the impact of Powerball and MegaMillions-style massive jackpots in other types of product.
“We’re now looking at how to drive jackpots on other types of products, whether they be hybrid instant ticket products with progressive draws or whether it’s a multi-event sports game where you’re betting on 12 outcomes of 12 games, which has odds that are similar to lottery,” he says. “So we’re looking at trying to bring progressive jackpots into other kinds of lottery games.”