Lottery

HOW THE LOTTERY INDUSTRY IS BOUNCING BACK FROM COVID-19

COVID-19 HAS CAUSED COUNTLESS ISSUES for several industries since the majority of the world was plunged into lockdown in March 2020. But how have lotteries bounced back?

BY CHARLIE HORNER

To this day, the effects of the pandemic can still be felt as both small and big businesses battle almost a year of lost revenue struggling to meet fixed costs.

But throughout 2021, many US lotteries are posting record financial results against a backdrop of adverse trading conditions. As Q2 results from lotteries were published, it was becoming clear that the impact of the pandemic was fading away, though many CEOs warned of further disruption to follow in a statement of cautious optimism.

Sports betting and iGaming are, undoubtedly, witnessing a meteoric boom in the US marketplace. Nonetheless, it cannot be forgotten that the lottery industry is experiencing a considerable period of growth in a time where many industries globally are struggling to fight back against the pitfall of the pandemic.

What techniques has the industry deployed to stem this growth at a time when costs must be managed carefully? Do consumer habits in relation to leisure activities during a time of boredom have an impact on the bottom line of US lotteries balance sheets?

Lotteries exist to provide funds to local communities for education, infrastructure and other good causes. In a time when communities have struggled the most since the Second World War, it is essential to examine how lotteries have managed to produce historic levels of growth to support those in need.

AS Q2 RESULTS FROM LOTTERIES WERE PUBLISHED, IT WAS BECOMING CLEAR THAT THE IMPACT OF THE PANDEMIC WAS FADING AWAY

Digital growth and participation

Modernisation is a key factor in driving the growth of lotteries both during and post the pandemic, given the emphasis on limiting social contact. The need of the industry to move away from paper-based tickets to digital tickets as well as provide players with digital games on mobile devices has amplified since March 2020, though with the rise of iGaming, it was becoming a necessity regardless of the pandemic.

Jackpocket, the online app which allows lottery players from 10 US states to buy lottery tickets, published its ‘state of digital lottery play’ report for Q3 of FY2021 recently. It revealed an increase of 21% in players choosing to play the lottery via digital channels across the 10 US states where it is operational.

CEO Peter Sullivan said that it was a sign of things to come as the industry continues to modernise: “As we experience high jackpot moments moving forward, I believe that we can use Q3 2021 as an indicator of what’s to come, with digital lottery growing over 21% since last quarter alone.

“Every day, consumers are opting for mobile solutions where they might not have existed previously, like the lottery.”

With mobile apps becoming ubiquitous in the gaming industry, it is only befitting that lotteries follow suit. Increasingly, lotteries are successfully implementing ilottery games for users to play on mobile apps and more companies are entering the marketplace to supply the games.

NeoPollard Interactive (NPi) has emerged as one of the key players in the ilottery sector and has contributed to the enormous growth of its clients in the past year.

The gaming supplier congratulated its partners at the New Hampshire Lottery following its record-breaking growth, catalysed by ilottery sales.

Since launching its online lottery offering during FY2019, the Granite State’s lottery has seen its GGR increase by 332%, with NPi praising its trailblazing efforts in ‘establishing the viability of modernising lottery offerings through the ilottery channel’.

Liz Siver, General Manager of NeoPollard Interactive, commented: “The New Hampshire Lottery has proven to be a leader in the ilottery space since launching its ilottery program in partnership with NPi over three years ago.

“We are extremely proud of our successful partnership with the New Hampshire Lottery, and we remain dedicated to delivering cutting edge technology, engaging game content, and value-added support through our Power Suite of ilottery services.”

Furthermore, new entrants are penetrating the ilottery market in an attempt to take advantage of the growth seen elsewhere. Inspired recently announced it would be launching an ilottery portfolio, with the first edition being supported by LotoQuebec.

“Inspired’s online casino content has proven popular with our customers and we are glad to be their first customer in the ilottery market,” said Anne-Marie Voyer, Director of Lottery Products & Development at LotoQuébec.

The Canadian corporation is another example of a lottery fighting back post-COVID with strong results. The firm’s total revenue for Q1 of FY2021/22 improved by 154.9% year-on-year up to $401.3 million, whilst total net income increased by 404.5% up to $195.7 million.

Online lotteries are increasingly turning to digital channels and, with technological advancements coming at the same time as the pandemic striking, it has proven to be an essential lifeline to navigate away from financial woe.

MODERNISATION IS A KEY FACTOR IN DRIVING THE GROWTH OF LOTTERIES BOTH DURING AND AFTER THE PANDEMIC

Consumer habits

With households forced to quarantine, lockdown boredom became prevalent as people quickly became tired of remaining indoors. Many had watched most of Netflix’s catalogue within a few weeks but the thirst for entertainment wasn’t quite quenched as their work and colleges remained closed.

Fortunately, with the rise of ilotteries and the availability of scratch games at local convenience stores open for essential items, consumers turned towards lotteries for their entertainment during lockdown.

Multiple lotteries which broke records for sales or profits during or just after the lockdown have cited their functions as a ‘safe form of entertainment’.

During FY2021, the Iowa Lottery broke its sales record, with an increase of 22% from the previous year up to $452.6 million.

The lottery’s CEO, Matt Strawn, attributed the sales hike to the pandemic as players turned to gaming to defeat boredom: “The Iowa Lottery delivered on its promise of responsibly generating revenue for important Iowa causes, even amidst an enormously challenging period.

“Iowans found lottery tickets a safe, local entertainment option as they spent more time at home while navigating a global pandemic.”

The hike in scratch-off game sales

contributed to its success, so much so that the lottery expects sales to drop in FY2022, regarding the lockdown sales as an anomaly.

Meanwhile, the North Carolina Education Lottery made record transfers to the state’s education fund after attributing its $936 million profits to lockdown boredom sales.

“Just like other sales and marketing brands, we faced multiple challenges during these unusual times,” Executive Director Mark Michalko said.

“We succeeded thanks to the loyalty of lottery players, the support of our retailers all across our state, and a tremendous effort by the lottery staff to find ways to safely complete our mission in raising money for education.”

As a result of individual state lotteries’ positive performance, the giant lottery providers have also experienced a period of growth in the past six months.

Earlier this year, Scientific Games CEO Barry Cottle praised its lottery division for its successful financial contribution during FY2021, explaining to investors: “The instant lottery business continued its strong run, with US calendar year-todate instant game sales up 21% over last year, and up 30% versus 2019.

“Internationally, our Italy instant product JV achieved record performance, up over 20% year-todate versus last year, which was the previous best year-to-date sales ever.”

Since then, SG has offloaded its lottery division in a $6.05 billion sale to Brookfield Business Partners, which lauded the work SG had done with the division to position it as a ‘leading business, which has innovated its industry’.

What next?

Vaccination rollouts across the western world have been relatively successful, with over 58% of the US population receiving two doses of a shot. Several world leaders have referred to a ‘new phase of the pandemic’ as individuals and businesses adjust to the reopening of society.

As such, new challenges have arisen in the lottery industry to ensure that the growth in the last fiscal year is not just an anomaly.

Iowa’s Strawn has already conceded that the beginning of FY2022 has not brought the same levels of growth as last year, but that the lottery remains in a strong financial position compared to its budget projections.

“And that really is what we are seeing in the marketplace as we start the next fiscal year, starting out July 1,” the lottery CEO told Radio Iowa.

“While we are no longer seeing those year-over-year double digit increases — I am pleased to report to the board this morning that lottery sales remain strong.”

Whilst there is certainly room for cautiousness, as there is in any business or industry, the lottery industry, particularly in the US, has bounced back from the pandemic in relatively good shape, unscathed in comparison to many other businesses.

As SG’s Cottle summarised: “With lottery’s long-term customer relationships, its strong recurring cash flows, a demonstrated resilience in down markets, and with multiple growth drivers ahead, lottery is a truly unique business, poised to deliver outsized returns for many years to come.” •

NEW CHALLENGES HAVE ARISEN TO ENSURE THAT THE GROWTH IN THE LAST FISCAL YEAR ISN’T JUST AN ANOMALY