Lottery leaders convene in D.C. to discuss future of games

Insider Buzz: Lottery leaders convene in D.C. to discuss future of games

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La Fleur’s annual symposium draws hundreds of lottery personnel, vendors

By Todd Northrop

This week leaders from nearly every U.S. and Canadian lottery met in Washington, D.C. at the annual La Fleur’s Lottery Symposium to discuss the future of government lotteries, especially with regard to Internet sales and play.

Emboldened by a U.S. Department of Justice opinion issued in Dec. of last year clarifying that the Wire Act only has bearing on sports wagering, state lotteries have immediately shifted focus to Internet ticket sales and other ways of exploiting the Internet for increased revenues.

Another reason for the sudden rush to the Internet is that casinos and Indian gaming interests are also interested in exploiting the Wire Act clarification — possibly introducing competition for the first time to state lotteries.

The theme for the symposium was “I3”: Internet + Interactive + Intrastate.  Over the course of two days, speakers and panelists from various state lotteries and lottery vendors defined the world of Internet gaming and how the lotteries could exploit it.  Also discussed was previous failures and the lessons learned from the setbacks.

Another topic of universal interest for both lottery personnel and lottery players was that of a new national game to supplement and complement the two biggest multi-state games, Mega Millions and Powerball.  Talk of a new national game has been on-going among the lotteries for several years, and the new clarification to the Wire Act has seemingly extended the conversation further by opening new possibilities.  So lottery players shouldn’t hold their breath waiting for the new national game; it may not be ready for another year or more.

The symposium was in some ways an odd mixture of intense optimism combined with fear and trepidation.  Both lottery personnel and lottery vendors expressed bold predictions and enthusiasm for expansion of lottery marketing and sales efforts into the uncharted territory of the Internet and mobile delivery.  But this was juxtaposed with with stories of false steps and concerns about legislative and public reaction that will probably paralyze most lotteries into a “wait and see” approach.

D.C. Lottery got right to the edge

The symposium kicked off with a cautionary tale from Buddy Roogow, Executive Director of the D.C. Lottery, entitled “iGaming Lessons Learned”.  In the presentation, Roogow explained the painful lessons learned when the D.C. Lottery had the rug ripped from beneath its feet just as they were about to launch Internet gaming in the District.

At that early point in the symposium, the tone was set for excitement dampened by reality.

The lessons learned from the D.C. Lottery’s setback, as well as from other lotteries throughout the conference, was that communication with the public should be greater and should occur earlier, and that how the lotteries phrase things to the public matters greatly.

Roogow gave an example of such phrasing during his discussion of the iGaming failure.  “We called the locations where gaming could occur as ‘Hot Spots’, and that was interpreted as mini gambling parlors,” Roogow said.

Roogow also hinted that the misinterpretation could have been been seeded and fostered by the casino industry, which sees iGaming initiatives as an intrusion into their market.

Roogow warned that lotteries must take great care to control the terminology and explanations surrounding gaming, to avoid the possibility that a small group of industry and community activists, possibly driven by ulterior motivations, will derail such initiatives in the future.

iLottery vs. iGaming

An important concept stressed by state lotteries and lottery vendors during the symposium was the differentiation between what is termed “iLottery” and “iGaming”, as well as the player base for each.

iLottery was defined as “green gaming”, and is similar to the lottery products offered today at lottery retailers around the nation.  Whether it is instant scratch games, lotto draw games, or any of the other varieties of games offered by state lotteries, the players of such games generally do not think of themselves as “gamblers” in the traditional sense.  It is more of a “soft gambling”, and represents a market of least resistance that state lotteries can more easily transform and expand with less competitive and legislative pressure.

iGaming, on the other hand, refers to “red gaming”, which players more readily identify with traditional gambling.  Examples include poker, blackjack, and other gambling products typically found in casinos and offshore gambling Web sites.  Although state lotteries will experience far more difficulty in entering the iGaming market, the sentiments expressed by lottery personnel at the symposium indicated that they felt entitled to enter the market, sooner or later.

Conference speakers were sharply divided on which market — iLottery or iGaming — should be addressed first by state lotteries, but the majority opinion among lottery personnel seemed to be to tackle iLottery first, and later expand to iGaming.

The most controversial moment of the symposium, judging from audience reaction, occurred on Day 2 of the conference, when Frank Fahrenkopf, President and CEO of the American Gaming Association (AGA), addressed the impact of the DOJ’s Wire Act opinion.  The AGA represents the casino industry.

Fahrenkopf asserted that even though state lotteries have the ability to enter the iGaming world, they don’t have the financial resources to do so, except perhaps California.

Even though state lotteries make billions in revenue, Fahrenkopf said, unlike Casinos they are required to operate with huge margins that benefit the state governments.  Casinos, on the other hand, operate on thin margins, and seek to reward the players in order to be successful.

To be successful running games like poker, a huge liquidity in capital is required, and California is the only state with the potential to achieve the necessary liquidity, due to its large player base.

However, when Terry Rich, CEO of the Iowa Lottery, pressed Fahrenkopf for what the minimum amount of liquidity would be for a state lottery to be successful running a game like poker, Fahrenkopf said he didn’t know.

During his presentation, Fahrenkopf urged the need for federal legislation to govern certain aspects of online gambling, but during the subsequent question and answer period, Gordon Medenica, Director of the New York Lottery, said the state lotteries were doing just fine without the complication that would be imposed by new federal legislation.

National Premium Game

One highly-anticipated panel discussion held during the conference dealt with the development of a new “national premium game”.

The panel consisted of several members from a group organized by the states tasked with the creation of the new game, including Margaret DeFrancisco, President and CEO of the Georgia Lottery Corporation; Terry Rich, CEO of the Iowa Lottery; May Scheve Reardon, Executive Director of the Missouri Lottery; and Gary Grief, Executive Director of the Texas Lottery.

The new game is being developed to supplement and complement the existing multi-state Mega Millions and Powerball games, but not to mimic them. The thinking is that another big jackpot game would not help to solve the problem of “jackpot fatigue”, in which players need bigger and bigger jackpots in order to keep them interested.

Also, the lotteries are looking to increase participation by coveted younger 18-35 demographics, who are sometimes described as “digital” players, because of their familiarity and comfort with technology.  To attract this group, the panelists described the upcoming national game as having online components.

Although the panelists would not describe the exact way the future game would be played, DeFrancisco did indicate that it would be a “hybrid” game that incorporated aspects of scratch games, but that it would not work like current instant games on the market today.  She said that the new game will have interactive components, hinting that the Internet may be used to provide that interaction.

The process to develop the new national game has been on-going since 2009, although lottery personnel at the conference indicated that discussions of a new national game went back several years earlier than that. 

According to DeFrancisco, the game was designed “by committee”, which made the process harder, but ultimately produced better results.

The target price for a new national premium game ticket?  Probably $5.  But exactly what players will get for that $5 was not revealed, nor was the size and nature of the prizes, or the odds of winning.

There is still much work to be done to ensure the new game meets the legalities in all states that have a lottery, so that no state would be excluded from participation.

Also, marketing of multi-state games traditionally involves duplicated investments by the states, since each state typically wants to customize advertisements for their own population.  To reduce redundant marketing efforts and costs for each state, the premium game task group is striving to nationalize the marketing effort — apparently not an easy task.

The panelists claimed that the group is targeting a 2012 launch date — possibly as early as September 2012 — but the start date could easily slip into 2013.

The initial makeup of the national premium game is seen by the group as a starting point for future expansion, rather than a one-off game.  It is being designed so that new “components” to the game can be added or changed in the future, in order to guard against player fatigue that is experienced with the current slate of multi-state games.

DeFrancisco compared the need to change the game frequently with today’s “app” generation, in which users of Apple iPhone or iPad use and grow tired of apps within a short time, and are always on the lookout for the next new and exciting app to download.

Moreover, the state lotteries expressed the need to avoid becoming the latest “Post Office or Eastman Kodak”, which are seen as being slow to change or innovate.  According to the panelists, the states need to have a stable of new ideas and games in reserve, ready to deploy once the current game becomes stale.

The panelists described the national premium game as the last of three initiatives started in 2009, the other two being the cross-selling of Mega Millions and Powerball, and the increase in price of one or both of the games to the $2 price point — both of which have already been accomplished.

Thinking fast, but moving slow

The afternoon of Day 1 of the conference featured several lottery vendor presentations, and provided perhaps the clearest window into the goals and fears of the state lotteries’ move to the Internet.

Presentations were given by GTECH, INTRALOT, NeoGames, Pollard Banknote, and Scientific Games, and following the presentations the five presenters sat for an informal question and answer period.  (This very useful and informative conference format was utilized several times during the symposium, each time moderated by either Terri or Bruce La Fleur, both of whom were engaging and well-informed.)

Each vendor presentation added to the overwhelming sense that great opportunity awaits the state lotteries by expanding their online presence and functionality.  The vendors provided statistics, demographics, and experiences from other countries that point to the eventual online and mobile directions the lotteries must orient themselves.

During the QA period following the presentations, each vendor representative was asked their prediction for how many state lotteries will be offering lottery tickets for sale online by the end of 2013, keeping in mind that one lottery — Illinois — already offers lottery tickets for sale online.

That one question provided the most incongruent moment of the conference. After giving a clarion call to action to the state lotteries in their presentations, predictions for how many will actually be online a year and a half down the road ranged from 1 to 5, with most respondents indicating 3. The consensus was that most lotteries will take a “wait and see” approach.

How could the vendors be so pessimistic in their assessments of how slow the lotteries would act? It was best summed up by NeoGames Vice President of Sales and Business Development, Moti Malul.

“I can’t believe the amount of fear I sense in this room,” Malul said to the assembled conferencees. “Fear of going online, fear of marketing, fear of changing.”

Malul said that the lotteries need stop worrying about the big plan, and act on something — anything. “It does not matter what you do, as much as it matters that you act now,” he said.

Personal report

In a break from traditional news reporting, I wanted to provide a brief personal account of my experience at the La Fleur’s Lottery Symposium.

First, I found the conference to be very well-organized and -run by Bruce and Terri La Fleur.  I have attended several conferences in the past in different industries, and this one was very favorable in comparison.

One of the best features of the conference schedule was that every attendee could listen to every speaker and topic.  At many conferences, the attendees must decide which discussion topics they want to sit in on, among several that are happening simultaneously.  The fact that each topic occurred in sequence offered the opportunity to attend them all — a valuable and appreciated prospect.

I knew going in to the conference that the lottery industry tends to be somewhat insular — mainly focusing inward and not necessarily welcoming of outside influences that may be seen as “disruptive” to the way things are traditionally done.  Lottery executives tend to focus on sales and marketing, as is the nature of their product, and all the attending lottery vendors are well-familiar to them as companies that serve their needs and interests. 

So here I come, perhaps the only attendee at the conference from “outside the bubble”, focusing mainly on the wants and needs of lottery players, rather than the needs of the lottery itself.  How would the lotteries react?

I must say I was encouraged.  Even though every single lottery director and staffer I introduced myself to had an initial startled reaction to my introduction as “the owner of Lottery Post”, they quickly warmed and I had several pleasant — albeit somewhat superficial — conversations. 

Some indicated that several people in their organizations, including board members, regularly visit and read the site.  So lottery players, be encouraged that your voices matter!

Also, I had some good, in-depth conversations with several of the lottery vendors attending the conference.  Many were excited by the prospect of potentially being able to reach out directly to lottery players through Lottery Post, so again, this is ultimately great news for lottery players.

I looked upon attending the symposium as somewhat of a test case for the future, as well as its usefulness in helping members and visitors here to gain insight into the sometimes nebulous world and workings of the lottery.  I think it was a good start, and I look forward to exploring similar conferences and events in the future.

This article was written by Todd Northrop, the founder of Lottery Post.