Brazil Instants Games- Breaking out of the Poverty

TrapMiami , October 25th 2012

Regulatory Framework

• Caixa Economica Federal Operates the National Lottery

• Some States are entitled to have their own lotteries (Decree of 1967).

• The state lottery of Rio de Janeiro has outsourced its operation, with active oversight

• Hebara runs Passive and Instant Games for the state of Rio de Janeiro

Sales

Source: La Fleur, IMF, Caixa, Hebara

JURISDICTION POP GDP GDP PC SALES PC SALES

  (MM) (Billion) $ ($ MM) $

PUERTO RICO 4 9 26.588 72 18,00

TRINIDAD 1,3 22 17.060 17 13,08

ST LUCIA 0,2 1 7.379 1 5,00

NICARÁGUA 5,8 7 1.239 15 2,59

RIO DE JANEIRO 16 199 12.423 33 2,06

COSTA RICA 4,7 40 8.874 9 1,91

CHILE 17,1 243 14.403 30 1,75

MEXICO 113,4 1185 10.146 195 1,72

DOMINICAN REPUBLIC 9,9 54 5.545 16 1,62

ECUADOR 14,5 65 4.428 20 1,38

JAMAICA 2,7 15 5.267 2 0,74

EL SALVADOR 6,2 23 3.855 4 0,65

ARGENTINA 40,4 435 10.959 25 0,62

URUGUAY 3,4 49 13.866 2 0,59

BRAZIL 190 5469 12.789 104 0,55

PERU 29 169 5.904 8 0,28

Latam vs Top 25

0

50

100

150

200

250

300

350

400

450

500Per Capita Sales ($)

Latam vs Top 25

Massac

husetts L

ottery

Lottomati

ca S.

p.A

Georgi

a Lottery

Corp.

New Yo

rk Lo

ttery

Connecticu

t Lottery

Corp.

Pennsyl

vania

Lottery

South

Carolin

a Lottery

New Je

rsey L

ottery

Tenness

ee Lo

ttery

Arkansas

Ohio Lottery

New Ham

pshire

Florid

a Lottery

Atlantic L

ottery Corp

.

Maine L

ottery

Missouri L

ottery

Vermont L

ottery

Texa

s Lottery

Kentu

cky

Illinois L

ottery

La Fr

ança

ise des

Jeux

NICARÁGUA

Virginia

Lottery

North Caro

lina L

ottery

D.C. Lottery

Loter

ie Roman

de

TRIN

IDAD

ST LU

CIA

PUERTO

RICO

ECUADOR

DOMINICAN REP

UBLIC

COSTA RICA

MEXICO

EL SA

LVADOR

RIO DE J

ANEIRO

JAMAICA

CHILE

ARGENTIN

APER

U

BRAZIL

URUGUAY0.000%

0.200%

0.400%

0.600%

0.800%

1.000%

1.200%

Spending vs GDP PC

Poverty TrapLow Payout

Few winning experiences

Low attractivenessFor consumer

Low demand/sales

Low attractiveness

for retailer

High percentage comission

High percentage return to

stakeholders

LOW RETURN TO STAKEHOLDERS

Best Practices1. Price Points 2. Prize Payout3. Prizes4. Distribution 5. Branding

Turn Around – Jan 2011

• Collaborated with law makers showing the need to make regulatory changes to allow for an increase in payout

• Increased payout from 50% to 56% • Increased number of retailers by 50%• Introduced R$2,00 and R$ 3,00 price points• Introduced new prizes to appeal to different

consumers • Initiated Marketing Campaign – Branding

Sales Performance – Jan 2011 to Aug 2012

104% Increase

Challenge

Need to Increase Sales Still Further

Growth CycleHigh Payout

More winning

experiences

Enhance Brand

Perception

Higher price points

Appeal to broader

consumer base

High Sales

High return to

stakeholders

HIGH RETURN TO LOTTERY BENEFICIARIES

Higher Price Points – US Market

arizo

na

arkan

sas

califo

rnia

colorad

o

connecti

cut

florida

georgi

ailli

nois

indiana

iowa

kentucky

louisiana

maine

marylan

d

massach

ussets

michiga

n

minnessota

missouri

n. ham

pshire

new je

rsey

new yo

rk

n. caro

lina

ohio

oregon

pennsyl

vania

s. caro

lina

tenese

etex

as

virgin

ia

washingto

n

wisconsin

-

20

40

60

80

100

120

$ 20 e +$ 10$ 5$ 3$ 2$ 1

Source: La Fleurs

Higher Price Points –Italy

€ 0,4

€ 1,5

€ 4,0

€ 7,9

€ 8,9 € 9,3

€ 9,8 € 10,5

€ 11,0

€ -

€ 2,0

€ 4,0

€ 6,0

€ 8,0

€ 10,0

€ 12,0

2004 2005 2006 2007 2008 2009 2010 2011 2012

€ 20

€ 10

€ 5

€ 3

€ 2

€ 1

Italy

Source: Scientific Games

Increase the Reach of Instants

ODDS

PRIZES

INSTANTS

PASSIVE GAMES

JACKPOT GAMES

Expansion Plan 2012• Reduce retailer comission from 15% to 10%

o Guarantee minimum nominal average of last 3 months

• Increase payout to up to 70% (63% avg)• Introduce TBVS based on mobile technology for

ticket activation/validation• Introduce consignment• Implement a bigger product mix• Introduce R$ 5,00 ticket with 70% payout• Introduce new game mechanics

Payouts vs Sales – US examples

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 201150

52

54

56

58

60

62

64

66

68

70

-

500

1,000

1,500

2,000

2,500

57.5 57.5

56.256.7

56.1

57.2 57.5

62.8

64.4 64.3 64.4

6665.2

67.3

68.6 68.7

FLORIDA

AVG PAYOUT %SALES

Payouts vs Sales – US examples

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 -

500

1,000

1,500

2,000

2,500

50.0

52.0

54.0

56.0

58.0

60.0

62.0

64.0

66.0

68.0

70.0

72.0

56.4 57.0

58.9 60.0

62.0 62.5

63.0 63.0

66.9

68.4 68.5 68.5

67.2

68.8 69.5 69.3

PENNSYLVANIA

AVG PAYOUT %SALES

Payouts vs Sales – US examples

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 -

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

50.0

52.0

54.0

56.0

58.0

60.0

62.0

64.0

66.0

68.0

70.0

55.0 55.0 55.0 55.0

65.0 65.0 65.0 65.0

66.9 67.0 67.6 67.6 67.5 67.5

67.0

68.5

NEW YORK

AVG PAYOUT %SALES

Payouts vs Sales – US examples

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 -

200

400

600

800

1,000

1,200

1,400

50.0

52.0

54.0

56.0

58.0

60.0

62.0

64.0

66.0

68.0

70.0

58.5 58.6 59.5

59.0

60.4 61.0

63.3

62.0

63.9 63.9 64.5 64.5

67.3 67.3

68.8 68.0

ILLINIOS

AVG PAYOUT %SALES

Sales Projections

Jan-11

Mar-11

May-11

Jul-11

Sep-11

Nov-11

Jan-12

Mar-12

May-12

Jul-12

Sep-12

Nov-12

Jan-13

Mar-13

May-13

Jul-13

Sep-13

Nov-13

Jan-14

Mar-14

May-14

Jul-14

Sep-14

-

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

45

47

49

51

53

55

57

59

61

63

65

Avg Payout %SalesSa

les

Thank You!

Karina.firme@hebara.com.br