Lotteries: Progress after the pandemic?

Though legally speaking, many states have been able to set up ilottery programs since the Department of Justice gave its opinion that the Wire Act related only to sports betting back in 2011, thus far very few have done so.

In some ways this disinclination to invest in online is understandable given the evidence from abroad. Even those European lotteries that have been relatively successful from a digital perspective have largely found that retail remains the preferred channel for lottery players.

Partly, this is due to demographics—it is widely recognized that older people are more likely to play the lottery than younger people. And partly it is due to ease of access—in many countries tickets can be bought at supermarkets and petrol stations, so people don’t have the same incentive to make the move online as they do with other products.

However, the sudden arrival of novel coronavirus (Covid-19) has changed things significantly. Widespread lockdowns have made it difficult—in some cases impossible—for players to buy their tickets at retail outlets.

This has created a dramatic fall in retail sales, such that organizers of nationwide games such as Mega Millions and Powerball have had to cut jackpot sizes to make up for the lower sales.

For individual states the impact is going to be brutal. “Unfortunately, we estimate that lottery contributions to the state could be $50m lower than projections for fiscal year 2020 as a result of the Covid-19 virus,” says Gordon Medenica, director at the Maryland Lottery and Gaming Control Agency.

“In Maryland, the lottery was on track to achieve another record-breaking year, but in mid-March it became impossible to maintain that trajectory. At that time, to combat the spread of the virus, Maryland’s governor shut down non-essential businesses such as bars and restaurants, which account for 15% of our retailer base.

“Our lottery sales took a significant hit as a result of that action, as well as added social distancing and stay-at-home directives. We also made the decision to cancel all lottery advertising and also cancelled launches of new scratch-off games that were scheduled to go on sale in April. Our sales declined by as much 30% in the weeks that followed.”

The Digital Age

States such as Maryland are especially disadvantaged as without an ilottery program, if players can’t access retail outlets, they simply can’t play.

But what about those states that have ilottery offerings – are they faring any better during the pandemic?

Liz Siver, general manager for NeoPollard Interactive, which partners with half of the US lotteries that sell products online, says so far the signs are encouraging. “Across our network, key performance indicators have hit record-breaking levels as lottery players sought online options during this unprecedented time.”

Kelley-Jaye Cleland, director of sales and product development at the New Hampshire Lottery Commission, says between March 21 and April 25 online sales of e-instants increased by 92%, while draw-based purchases were up 39%.

“For a non-jackpot run month, and limited advertising, we had some impressive KPIs,” she says, adding that April was a record month for total deposits and net gaming revenue.

The numbers are similarly strong for Pennsylvania Lottery, where executive director Drew Svitko says: “Ilottery is breaking records and has more players than ever before because people are playing our online games, including Powerball and Mega Millions, from home during the stay-at-home order.

“Before the pandemic hit, Powerball and Mega Millions online sales were making up about 2% of total weekly Powerball and Mega Millions sales. In recent weeks, online sales are making up an average of 6% of total Powerball and Mega Millions weekly sales, however, we have had days above 10%.”

But despite the uplift in online sales, overall revenues are still down, admits Svitko. “While we are happy to see that growth online, a majority of our sales still come from our traditional games, which have decreased 25% since mid-March, and it’s important to note that the increase in online sales is not enough to offset the sales the lottery has lost on the traditional side of the business.”

Adapt to Survive

But while states may recognize they can’t make up for all lost sales via online, they have been adapting their offerings to try and capture as much revenue digitally as possible during the crisis.

In Pennsylvania, this has largely been via changes to its media spend, says Svitko. “We have slightly shifted our advertising strategy. For example, we are increasing our digital and TV buys as lottery players are staying home instead of purchasing outdoor billboard space.”

In New Hampshire Cleland says as well as prioritizing digital advertising over radio and TV, the Commission has also upped its game on product innovation. “In April we started launching two e-instants a month to ensure there was ample refreshed content for our players,” she says. “Previously we only launched one per month, with the exception of the first few months of launch. We anticipate this being a permanent change.”

As to whether or not the players who have recently signed up online due to the pandemic will become regular online players, the jury is still out.

“It is tough to tell,” says Cleland. “For many players they may find that purchasing online is safe and convenient. However, we do not offer all of the draw-based games online that are offered in store. However, from some of the trends we are seeing, like our e-instant growth increase even while our scratch ticket sales increase, leads us to believe the adoption of ilottery is complementary to retail, at least for certain products.”

In any case, the evidence from states with ilotteries during the pandemic is strong enough that it’s likely states that have so far been unmotivated to move online might soon change their tune.

Indeed, some have already been looking to states such as New Hampshire for guidance, says Cleland. “We have spoken with some other states regarding how [we] approached our ilottery program. Given that Covid-19 could come back this fall, I imagine many states are determining how they can help their programs become quasi-pandemic proof to ensure they maintain revenues for good causes.”

Cleland’s views are echoed by NeoPollard’s Siver. “The impact of the Covid-19 pandemic resulted in a renewed focus on digital transformation strategies, particularly ilottery,” she says. “There was no way to predict the current position that lotteries are in today, but this experience solidified the need to advance discussions around ilottery.”

She adds: “Covid-19 has guaranteed that every strategic dialogue with a lottery today includes ilottery.”

Breaking Down Barriers

However, as much as states may acknowledge that an ilottery offering might have helped insulate them somewhat from the impact of Covid-19, setting up a program isn’t necessarily easy.

In Maryland, for example, the Lottery Commission is barred by statute from selling lottery tickets online and Medenica is not optimistic about this changing anytime soon.

“Maryland would of course benefit from online sales, especially in times such as these, but implementation would require buy-in from both lawmakers and our retailers, many of whom still believe, against all evidence, that online lottery sales would hurt traditional brick-and-mortar businesses.”

Even in states where legislative changes aren’t needed, with lottery revenues so badly impacted by Covid-19 and some lotteries having been forced to cut jobs due to the pandemic, there may not be enough internal resource to properly investigate the idea.

Those states without the impetus to go online directly may well opt for an outsourced solution, especially if they fear Covid-19 may continue to impact retail sales.

Even before the crisis, states were increasingly giving the nod, either explicitly or implicitly, to lottery couriers such as Jackpocket.com and Lottery.com and there’s some evidence this has ramped up of late.

In May, Jackpocket, which was already operating in New Jersey, Colorado, Minnesota, New Hampshire, Texas and Washington DC, launched in Oregon and CEO Pete Sullivan says the mobile app courier service is set to launch imminently in another state.

“Obviously these discussions were a long time coming so they would have happened irrespective of Covid. But I think what is happening now with states is that we’ve been on the three-yard line going in for a touchdown and may have been there for a little while, it’s allowing us to cross the finish line and move that last step, which can sometimes be the hardest step,” says Sullivan.

“Lotteries are interacting with us in a new way and understanding that we can provide a quick benefit. So 1) we’ve had new lotteries that we’ve never really had conversations with reaching out asking, ‘How fast can you get here?’; 2) lotteries that were going towards the finish line are hopefully letting us get in there; and 3) lotteries are starting to think, ‘OK, Jackpocket is in my state, what else can we do with them?’”

He says speed to market is a big part of the appeal to lotteries, claiming that from the time of getting the green light the company could be up and running in a new state in as little as three weeks.

The fact that states have to make very little financial investment themselves is also likely to be an even bigger attraction in the current climate than it was before. If lotteries can get some additional revenue from sales via couriers, while the courier forks out for all the marketing, customer acquisition, CRM, payments and ID verification costs, it seems like a bit of a no-brainer for a cash-strapped lottery.

At Lottery.com, which operates as a courier in New Hampshire, Minnesota, Oregon, Texas and California, CEO Tony DiMatteo says the company has also seen an increase in interest since the pandemic began.

“We are starting to get a lot more interest from states to go online and also we’ve had some international interest,” he says. “We have had states reach out to us who we had not spoken to before and they are realizing they have to act.”

However, he adds, “They are still bound by their laws and regulations and so that process is beginning now, which is good, but I still think it is going to take time. It is really difficult for a state, especially during the crisis, to have regulations changed to allow themselves to go online. But I do expect a lot more of them after the crisis to really focus on getting those things done.”

Of course, aside from the increase in interest from potential new partners, the couriers’ existing operations have benefited directly from the crisis.

“Organically we saw probably a 10-15% increase in sales when the coronavirus happened,” says DiMatteo. “Obviously, people still want to play and they can’t go to the store anymore so they search online and find us, so that has been a silver lining in the whole thing.”

Similarly, Sullivan says: “What we are seeing is big uptakes in usership, as well as average spend, and obviously some of that is Covid-related.

“We know we are doing a substantial percentage of Powerball and Mega Millions sales because they are the two numbers that we have real clarity on, on a draw-by-draw basis,” he explains. “Obviously lotteries have to report annually, but there are some places that you can get some of the multijurisdictional game results and we have just seen our market share basically go up by two to three times.”

Numbers like these, and those from the states running their own ilottery programs, are certain to provide food for thought for those US lotteries that have thus far been dragging their heels on getting online. There are sure to be many lasting legacies of Covid-19; one may well be that US lotteries move further into the digital age.