Over the past decade Lottery participation rates in mature European markets have been steadily dropping. This can be predominantly attributed: to the natural attrition of the traditional Lottery customer base; alternative forms of entertainment emerging through the interactive channels (predominantly mobile Apps) and this, in conjunction with the lack of draw game innovation; evolving consumer decision making processes and preferences; and more significantly, the lack of engagement by younger generations.
While these factors are in play, our industry involvement indicates that solutions exist, are readily accessible and are driven by the Player base itself. These solutions fundamentally relate to a long overdue “realignment” with the core Lottery values and the development of a variety of “Collateral Participation Benefits” which add tangible value for the Player.
This is good news if you, like us, want State Lotteries to continue to provide the social benefits that Lotteries were created to facilitate.
It is therefore suggested that if we understand the influencing dynamics, we can bring the age-old lottery model into the 21st century, ensure that its social benefits endure and that the tendency towards any form of harmful gambling is minimized.
Evolution of Consumer Beliefs and Values
Developments in interactive technologies are consistently reshaping the way we perceive and interface with the world around us. Accordingly consumers, now more than ever, are exposed and able to access readily available information which empowers them to reassess their traditional beliefs and the way they interface with businesses.
Any consequent shifts in consumer preferences ultimately relate to both sides of a coin. On one side, the ability to understand the importance of change and to make decisions about where to invest/spend resources. On the other side, the realisation that businesses/corporations do not always have the customer’s best interests at heart. And consequently, that more appealing alternatives may exist that better respond to their requirements, convenience and overall satisfaction.
According to the 2017 Edelman Earned Brand study:
“57% of consumers around the world will buy or boycott a brand solely because of its position on a social or political issue… with 30% saying that they make these belief-driven purchase decisions more than they did three years ago…”
This study further highlights two key engagement drivers:
“the rising consumer expectation that brands will help solve societal problems…”
“Millennials buy on belief (60%), as does Gen Z (53%) and Gen X (51%)”
So, if we acknowledge that State Lottery Operators are traditionally perceived as “champions of welfare causes”; what considerations conflict with this belief and why are we (especially the younger generations), are now engaging less with Lottery products?
State Lottery Evolution
Historically, many State Lotteries were founded to respond to extraordinary cases of human suffering. To provide relief for victims of war, epidemics, natural disasters, etc. More recently Lottery Operators at large have proudly maintained their social contribution character by playing a vital role in financially supporting many welfare projects and by providing (direct/indirect) employment to thousands of families.
Traditionally, Lottery participation formed part of a weekly consumer routine and in return provided some entertainment through the anticipation of winning a “Life Changing Prize”. At the same time, participants were indirectly rewarded in the knowledge that a substantial part of their funds contributed, went to social welfare causes.
Within that framework and for many years, Lottery Draw Game participation (including Raffle Tickets and Scratch Cards) was generally perceived as a socially acceptable and inexpensive form of entertainment. In contrast to some other forms of gambling (casinos and horse racing) Lottery players filled in a coupon with their “lucky numbers”, paid with some loose change and waited for the “Saturday Night Draw”.
However Lotteries are traditionally State run and consequently a vehicle to serve Government policy. As Lottery Operations grew, so has the Governments’ interest in exploiting this source of financial liquidity. Eventually Lotteries’ revenues to the State became a significant part of Governments’ fiscal budget and provided liquidity for funds reallocation wherever needed.
As Government requirements for additional revenues increased, so did the pressure on Lotteries to increase sales. This was subsequently accomplished with the:
• increase of the number of draws in a week and the addition of new Draw Games;
• introduction of new Games / Gaming Segments;
• development of high pay-out and/or multi-jurisdictional Draw Games;
• the incremental increase in ticket prices;
• the increase of the number of retail outlets and the introduction of interactive platforms.
In a relatively short period in time the Lottery industry appears to have been transformed into a gambling network …at a level in which it has needed to address issues of Responsible Gaming and Problem Gambling
Yet, while notably big Prize Draw pay-outs (especially multi-jurisdictional Draw Games) still receive popular support by capturing the public’s imagination and engaging a broader range of demographic profiles. Shifts in Player preferences towards “high churn, instant gratification and perceived skill games” (Sports betting, VLTs, Casino games) which intrinsically provide lower “Gross Gaming Revenues” (GGR) to the operator, ultimately result in decreasing revenues to the State .
As revenues to the State decline and the distance between Lottery and Commercial Gaming Operators became smaller, so have Governments moved towards:
• the development of a new regulatory framework;
• the issue of additional gaming licences;
• the introduction of gaming taxes; and
• the consideration of privatising of their State Lottery Operation.
Lottery Evolution and Public Perception
Over the past two decades, State Lotteries have gone to great lengths to develop products and distribution services that appeal to a broad range of Player profiles. In most cases they have been quite successful in doing so. Yet, they may have also fallen into the trap of shifting the public’s perception away from their traditional identity as they appear to focus more on the regular “Gambler” rather than the recreational “Lottery Player”.
In today’s comparatively more informed society, any form of recreational gaming/gambling is not perceived as a social taboo however addictive gambling is, and it is frequently a focal point of social discussion
State Lotteries have been, and inherently are, “all player inclusive” champions of social welfare causes (such as: the arts, sports, culture, education etc.). Their core products and main differentiaton has always been the Lottery Draw Games (the monopoly status of which is still broadly protected by regulation) and have traditionally consolidated their presence through their land-based distribution network.
Within a competitive, open and regulated Gaming landscape it is vital for State Lotteries to accommodate evolving and shifting Player preferences. Yet we suggest that this must not obstruct focus and the prospect of further enhancement of a Lottery’s unique and differentiating attributes i.e. its draw Games and Agent’s Network.
“Good Causes”… Where’s the money?
According to the EL Association 2016 Report:
“money contributed to society by 49 EL Members in the EU (that reported their contributions) amounted to €21.3bn. The funds have been channelled towards sports, funds for other good causes and taxes for treasury…”
While Lottery Operations generate a phenomenal amount of money for good causes, the management and distribution of these funds are the responsibility of the respective State Treasuries. This process is often unclear to the general public as to who manages the distribution process, what amounts reach the intended recipients and what amounts are redirected to cover fiscal shortfalls.
This lack of clarity and transparency obviously creates a conflict of interest. Since the public may not understand the process and associate the lack of Good Causes funds visibility a fault of the Lottery rather than the Government .
The need for Draw Games Innovation
As mentioned, big Prize Draw pay-outs (especially multi-jurisdictional Draw Games) receive popular support by capturing the public’s imagination. However more intuitive (customer focused) draw game innovations have been few and far apart.
There are two notable and well received exceptions.
(1) The “Second Chance Draw” which gives lottery ticket and/or scratch card purchasers the opportunity to register tickets that have not won a prize into an additional pre-defined Prize draw.
(2) The “Bonus / Seasonal Prize Draws”- which guarantees an additional number of big prize winners at no additional cost to the Players.
In various Lottery panel discussions, there is an increasing call to re-examine the traditional “hourglass” division pay-out structure – one in which, the majority of the prize pool is distributed to the highest and the lowest matching number pay-out divisions.
Some Lottery professionals have suggested that there is a need to develop greater Draw matrix flexibility. E.g. in high roll-over jackpots, an increase in the allocated prize pool for division #2 and #3 winners or alternatively; to fund such prize increases, with a slight reduction to the Lottery’s GGR. Furthermore, the questions have also been raised regarding the “value” of small division pay-outs especially when considering the allocated portion of the Prize Pool required to fund it and whether this truly encourages player engagement (“Goods vs. Money” section below) .
“Under normal circumstances, I do not play the lotto. If I happen to be at a convenience store, I may play the state lotto, but even then it’s a ridiculous waste of money… The odds are horrible…”
Millennial – Jeff Van Dien, Portland, Oregon
Land Based Agents Have the Power to Engage
No matter how you look at it, the greatest asset a State Lottery Operator has is its human resources and its most critical component is its Lottery’s ambassadors – its land-based Agency network.
Interactive platform developments are imperative to ensure the future viability of any Lottery Operator. To an extent the industry has also briefed the benefits (cost, time and access efficiency) of POS Lane networks . However, no one should undervalue the significance the traditional agent network has had and continues to have, as a preferred point of purchase of what still constitutes the core of a Lottery’s customer base.
Overall, apart from providing invaluable “Brand Publicity” and customer services support. The land-based agents network also contributes the greatest part of a Lottery Operators’ GGR. Yet in most cases a Lottery Operator’s development strategies overlooks the agents’ contributions and interests (e.g. interactive channel developments).
As a result, most European Lottery agents have been experiencing a steady decrease in their revenues from Lottery product sales. This ultimately undermines the Agent’s loyalty to the Lottery Operator and potentially results in the loss of the agent’s interest in promoting, dedicating time and effort to lottery sales. The result – Declining Lottery Engagement.
Two Critical Disruptions
Era of Mobile Devices
Social media platforms and digital gaming engagement (predominantly via mobile devices) are becoming an ever-increasing recreational source across all age groups and demographic profiles. These instant access points of alternative and personalised entertainment naturally compete for consumer’s attention, time and disposable income from what most Lotteries currently offer .
The obvious challenge Lottery Operators are facing is to develop mobile applications that are practical and create the right circumstances (incentives) to encourage mobile app download and, in particular, usage.
“Social networking, listening to music, watching videos and playing games represent the bulk of what people do with their smartphones and tables. Essentially it’s about communication and entertainment, two things that help people to cope with the level of stress in today’s world.” – Artyom Dogtiev
Prize-Linked Products and Services
Offering prizes as part of a customer reward program is becoming an increasingly popular way for corporations to establish direct links with their existing and potential customer base. On a fundamental level the use of a prize in a giveaway, contest or sweepstake acts like a catalyst in motivating people to engage.
These types of corporate marketing and/or customer retention campaigns are a great way for businesses, (including Lottery Operators), to:
• build on brand integrity and consumer trust,
• retain customers by rewarding them for their loyalty,
• differentiate an offering by providing meaningful value to targeted demographic groups,
• gather vital customer information, and
• monitor consumer behaviour.
These “Prize-Linked Rewards” fundamentally represent a manifestation of a wider “do good” attitude of the corporation and become an entrenched function of their CSR policy.
The worth of the offering in these programs is not just the financial value – although it is very important. The real impact comes from linking the brand, customer and the customers’ inherent beliefs and values in an engaging, fun and rewarding manner.
Accordingly, additional collateral benefits are often incorporated which fit well into the Corporate Social Responsibility strategy. Indicatively, parts of the prize pool can be directed to social welfare causes on behalf of the customer or they can extend a corporation’s CSR. For example, in the case of a bank – to fund a Financial Inclusion programme with the support of prize draws.
Admittedly, many corporations still have a fragmented view of how to develop a comprehensive 360° customer rewards programme. However, as they come to appreciate the marketing value such a programme can provide these reward programmes will inevitably impact on a Lottery’s offering since ultimately, participation is becoming part of a consumer routine and requires no additional financial commitment!
The Millennial Challenge
“Some observers believe that Millennials’ relationship with the lottery will be shaped predominately by their life-stage progression, a view that may be limiting and misses a unique opportunity to capture the momentum and energy of a wave that can help to propel the industry forward. What’s more, since Millennials’ digital gaming habits are likely to get stronger as they age, neglecting to appeal to them today risks losing this group for the long term.” Gerard Caro, IGT Report.
“Entitled”, “narcissistic”, “lazy”, “delusional” . The largest and most educated generation in human history is also “entrepreneurial”, “optimistic”, “idealistic” and leverages interactive technologies and social media in its quest to understand and interface with the world around it .
Naturally cynical towards authority (Government or big business) and disgruntled with the ills they have inherited, this generation is motivated by social values, cultural diversity, family, career and intrinsically focused on “living in the present” and “experiencing life” .
In their every-day reality many Millennials are struggling to find suitable employment (matching their qualifications), are historically underpaid, carry high student and/or personal debt and opt (many out of necessity) to live at their family home. While their vision for a financial future and independence, with runaway housing prices and poor pension prospects, appears rather grim .
Having experienced first-hand the 2008 Global Financial Crisis and the subsequent economic instability the Millennials are likely the most price/to value-conscious and risk averse generation ever .
At the risk of being overly-stereotypical, with comparatively less disposable income and diverse interests when it comes to what they considered entertainment, they prefer to spend much of their time on social media channels. They spend little money on music, digital games, internet/mobile services and save some money to travel. However, when it comes to transacting with business, Millennials prefer access to convenient interactive platforms and demand to be generously rewarded for their loyalty .
Therefore, the challenge is to engage these Millennials with Lotteries and/or prize-linked products which are (i) low cost (ii) represent a social worth (iii) are immediate and interlink with a social network, and (iv) represent intrinsic value or reward.
Lottery Participation Benefits – LPBs
Traditionally, State Lottery Operations have been protected by their monopoly status. However, as industries are evolving to tackle the digital era challenges, so does the need arise for Lottery Operators to transcend beyond their traditional boundaries. They need to reassess their business policies, investigate ways in which they could leverage their brand equity and diversify their offering to incorporate value-added propositions.
Many of these propositions could be developed and managed by the Lotteries themselves. Yet, it is also suggested that Lotteries should look outside their industry and enter into synergetic ad hoc collaborations and longer term joint-ventures with other high profile and reputable brands that reflect the “right image” and wish to engage with a Lottery’s sizable customer base.
The introduction of such propositions could (amongst other):
• Advance brand equity – especially to younger generations
• Provide additional forms of player amusement
• Cost efficiently supplement prize pools
• Counterbalance the intrinsic “zero-sum” gaming propositions
• Engage and drive customer participation and attract new customers
• Establish meaningful, from the customer’s perspective, communication links (e.g. App installation and usage)
• Differentiate a Lottery’s offering against competition
• Reactivate and enhance agents’ loyalty as new revenue streams could be realised
• Generate additional profitability
• Make a greater impact on society
In order to maximise the impact such services could have, we recommend both a micro and a macro level approach. To offer products and services that:
(1) respond to the needs and expectations of specific player demographic groups and individuals, and
(2) appeal to the greater consumer base.
“When it comes down to it, isn’t that (creating welfare/positive value) the objective of most organizations?” – Varun Malik
Goods Vs. Money
Typically, more than 35% of a prize draw prize pool is allocated to fund lower division prizes (€1 to €10). Traditionally this may have been seen by players as a pleasant consolation prize and worked well for Lottery Operators as, most often, these prizes were instantly converted into next draw ticket purchases.
However, taking into account the increasing disparity between first division prizes and lower prize pay-outs the question arises: Would it not be more meaningful for players to receive a portion (or the whole) of the lower division prize pool in the form of goods and/or services, or even be given that option?
Lottery Operators have the ability to achieve substantial volume discounts and the prospect of further reducing any procurement costs with the potential sponsorship contribution from participating corporations. In managing this, the ultimate value of goods could substantially surpass the nominated monetary prize value.
Overall, It is suggested that the selected Prize goods should be relevant to a chosen Gaming Segment and the anticipated appeal it has to correlating player groups.
The above is quite positive and potentially adds an extra dimension to Lottery engagement. However, it does not go as far as to strongly redefine the relationship between the Lottery Operation and its potential customer base; nor does it realign prevailing perceptions towards Lotteries in contrast with what they inherently represent.
“Consider the notion of a Lottery working with Society and through participation, everyone benefits… not just good causes as per the traditional model”… David Evans
Lottery operations have the opportunity to “take up the call” again and address two critical challenges.
1/ To counteract social and academic reaction to the way they the conduct their business.
“A fairly sizable body of literature has explored the relationship between the socioeconomic characteristics of a state’s population and lottery ticket sales. These studies generally find that lottery sales are higher for individuals who belong to minority groups, individuals with little or no college education, residents of urban areas, and individuals between the ages of 45 and 65”. – Thomas A. Garrett / Russell S. Sobel.
2/ Make a genuine impact on the challenges faced by today’s society.
For example, much research identifies how the Millennials are distressed about their short and long term financial future . The challenges they face in saving money in the present and contributing to a future pension plan. How socioeconomic changes are creating “unbanked generations” with potentially disastrous ramifications for both the Finance Industry and Governments alike .
Thus, it follows that the natural question to ask is:
Wouldn’t be a novel idea if Lottery Operations could actually assist its customers in long-term saving, or to save money in their everyday shopping and home bills or be offered affordable insurance plans…?
Well, I’m glad to report that this is not just a novel idea. That crucial innovations that resolve a number of seemingly intractable issues faced by the Lottery industry today have already been developed: They have received (wherever presented) broad Institutional and Governmental support and are being implemented.
If it’s any measure of how successful this approach has been, it should be noted that in one particular country of implementation, a client of ours has been granted a Fatwa and Religious Ruling for the Sharia compliance of the Products and Services co-developed.
This model is the result of the cumulative effort of a team of leading professionals dedicated in developing solutions that counteract the “zero-sum game” proposition associated with traditional Lotteries. This model takes into account the dynamics described in this report, and goes even further in creating totally new value propositions that reward customer participation. The ultimate objective being, to give back to society in a novel way and to create a genuine win-win situation for all parties involved.
“The Lottery Industry’s future will belong to visionary corporations and creative thinkers. Corporations that focus on real social values, provide real customer centric services and consistently evolve to meet customer needs and expectations….”.
Special thanks for their inputs and guidance: Christophe Stourton, Teemu Lehtinen, William Taylor, David Evans and the Omarco Team.
- 2016 EL Report – EU El Member sales Y.O.Y. 2011-2015 0.5% / GGR 0.4% – The argument is that sales are maintained via repeated cross-sell to the core customer base.
Reports: Per Binde / Anil Dawar / John W. WelteEmail authorGrace M. BarnesWilliam F. WieczorekMarie-Cecile TidwellJohn Parker – “Gambling Participation in the U.S.—Results from a National Survey”
- Anders Leonhard / EL Association Report 2016 – EU El Member sales Y.O.Y. 2011-2015: DBG -1.5%, IWG 4.1%, SB 8%.
- Lottery Operators have a natural obligation to raise public awareness of the funds contributed. This in turn, puts pressure on the Government to be more accountable.
- Zack Huffman reporting for VICE.
- T. A. Garrett. “The results show that ticket sales are significantly influenced by the size of the top prize and the odds of winning it, but ticket sales are not significantly affected by the expected value of the lower prizes.”
- Offering Lottery products via retail chains e.g. supermarkets, convenience stores.
- Due to rapid increase of POS/Capita, Interactive Channels growth, market share competition.
- Statistica.com – 2018 est. Smart Phone users 2.53b reaching 2.87b in 2020.
- Simon Sinek on Millennial and Internet Addiction – https://www.youtube.com/watch?v=OPaQPWfqjmw&t=12s
- http://www.youngadultmoney.com/2017/11/08/statistics-millennials-and-money/ https://millennialmoney.com/the-millennial-generation/
- Aime William’s – FT©. – Special thanks for your most insightful work.
- Matt Cohen / Mrinalini Krishna / Matthew Harrington
- Kendra Thompson, Edward Blomquist – Accenture / MILLENNIALS & MONEY: THE MILLENNIAL INVESTOR BECOMES A FORCE
- Aime William’s – FT©.
- Harlan Landes / First Data.
- Paraphrasing Henri Arslanian – Talking on evolutions in the Finance Industry – https://youtu.be/pPkNtN8G7q8
MillennialMoney.com, “The Millennial Generation”,
Sarah Landrum, “How Millennials Are Doing Money Management Differently”, Forbes.com
Accenture, “Millennials and Money – The next era of wealth management”
Matt Cohen, “Millennial Engagement is not a Zero-sum Game” https://www.linkedin.com/pulse/millennial-engagement-zero-sum-game-matt-cohen-mba/
Aime Williams, “Why millennials go on holidays instead of saving”, Financial Times https://www.ft.com/content/94e97eee-ce9a-11e5-831d-09f7778e7377
Mrinalini Krishna, “Millennials Are Risk Averse and Hoarding Cash” June 20, 2017, https://www.investopedia.com/news/millennials-are-risk-averse-and-hoarding-cash/
Anders Leonhard, “Danish Games sells record-wide games to the Danes – but earns less money”, FINANS – 28.02.2018
The European Lotteries Association – Report on Lottery Sector, 2010-2016
Zack Huffman, “Are Millennials Killing the Lottery Industry?”, VICE – Oct 13 2017
Gerard Caro, “Millennials Matter: Tapping Into the Preferences of a Game-Changing Demographic” New IGT White Paper – 09/27/2017
Simon Sinek, “Millennials in the Workplace”, https://www.youtube.com/watch?v=As8XkJNaHbs&t=570s
Gary Green, “The Ugly Truth About Millennials and the Future of Casino Gambling”
Emily Kumler, “Gaming the System: Why We Need Millennials to Gamble”, 7/9/2017
Goldman Sachs (Research) – “Millennials Coming of Age”
LinahAburahmah, HajarAlRawi, YamamahIzz, LiyakathunisaSyed, “Online Social Gaming and Social Networking Sites”, https://www.sciencedirect.com/science/article/pii/S1877050916300254
Ofcom (Research), – “Adults’ media use and attitudes Report 2017”, https://www.ofcom.org.uk/__data/assets/pdf_file/0020/102755/adults-media-use-attitudes-2017.pdf
Sarah Perez, “Time spent in apps grew just 6% last year, down from 11% in 2016”
Artyom Dogtiev, “App Download and Usage Statistics 2017”
Hackernoon.com, “How Much Time Do People Spend on Their Mobile Phones in 2017?”
Peter Tufano, Nick Maynard, Jan-Emmanuel De Neve, “Consumer Demand for Prize-Linked Savings: A Preliminary Analysis” http://www.hbs.edu/faculty/Publication%20Files/08-061_17c22e32-fe06-4b4a-8b5e-e09227fc8104.pdf
Shawn Allen Cole, Benjamin Charles Iverson, Peter Tufano, “Can Gambling Increase Savings? Empirical Evidence on Prize-Linked Savings Accounts” https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2441286
Harlan Landes, “Young Americans Likely to Be Unbanked Regardless of Income Level”, Forbes
Matthew Harrington, “Millennials: The “Risk-Averse” Generation?”, ATD https://www.td.org/insights/millennials-the-risk-averse-generation
Per Binde, “Fewer Swedes gamble”, The Anthropology of Gambling,
Bruce LaFleur, “Lottoland: The Force”
Varun Malik, “Is Market Value enough? A proposed method for measuring an organization’s “Real Value”, https://www.linkedin.com/pulse/market-value-enough-proposed-method-measuring-real-varun-malik/
Anil Dawar, “Even MORE difficult to win as National Lottery player numbers crash to 32%”, Express – UPDATED: 09:28, Thu, Sep 28, 2017
Thomas A. Garrett, Russell S. Sobel “STATE LOTTERY REVENUE: THE IMPORTANCE OF GAME CHARACTERISTICS”, https://pdfs.semanticscholar.org/3651/e3d7f7af27e001d14bf536eb23c37fab283d.pdf
First Data, “The Unbanked Generation: A Guide to the Financial Habits of Millennials”
David Carlson, www.youngadultmoney.com