illinois lottery internet pilot 4-pager 3-22

Illinois Lottery Internet Pilot Program, Illinois Lottery, 2012

TM

Illinois Lottery Internet Pilot Program

The mission of the Illinois Lottery is to maximize growth in an ethical and socially responsible manner. The Lottery’s plan hinges on the premise of increasing the number of people who play lottery as opposed to selling more to the most frequent, or core, players.

To bring in more players, the Illinois Lottery brand must become more relevant to more people across the state. The Lottery is exploring ways to bring in new consumers, especially those who have grown up with the Internet, to buy games from our entire product portfolio via our existing retail locations. It is also launching an Internet Pilot Program to offer a limited selection of products for sale via the Illinois Lottery website.

The Internet Pilot Program is authorized to last 36 to 48 months. Lottery products sold over the Internet will be offered with stringent safeguards in place to prohibit underage and out-of-state gaming and to defend against problem gaming.

At the end of the day, bringing lottery products to new consumers via the Internet will increase sales overall and at brick-and-mortar retailers, allowing the Illinois Lottery to increase its contributions to causes for the common good of the people of Illinois.


A Mandate from the Illinois Legislature

> In 2009, the Illinois Legislature passed amendments to the Lottery Law mandating an Internet Pilot Program to launch the sale of Mega Millions and Lotto on the Internet to mirror the buying habits of consumers in Illinois.

> On December 23, 2011, a U.S. Justice Department decision confirmed the legality of Internet sales of lottery products, paving the way for state lotteries to sell lottery tickets on the Internet and opening the door for the Illinois Lottery’s Internet Pilot Program.

> When the Legislature passed the law mandating Internet sales of lottery products, the Illinois Lottery had not yet begun to offer Powerball, a multijurisdictional game like Mega Millions. Additional legislation is pending to add Powerball to the Internet Pilot Program.

The Impact on the Lottery’s Retail PartnersInternet MM/PB Play is Likely to Expand the Number of Retail Lottery Players; Retail Revenue Impact May Be Neutral

Cross-Channel Lottery Purchasing in Illinois3 in 4 Potential Internet Lottery Players Say They Would Buy Tickets at Retailers as Well as on the Internet

Number of Retail Players5.25M > 5.70M (+9%)

Retail Revenue$275M > $282M (+2%)*

Internet Only or Internet & Retail

Reasons for Not Purchasing at Recent Large JackpotsThe Internet Pilot Program will not remove any products from the

retailer network. Lottery retailers remain the primary sales channel where players will have access to the full portfolio of Lottery products. Retail is and will continue to be the key channel in the Lottery’s growth strategy. Adding new channels such as the Internet will strengthen the overall sales platform.

Research conducted in February 2012 found that the Internet Pilot Program will increase sales at retail locations throughout the state by +2% ($275 million to $282 million) and players at retail locations are forecasted to increase from 5.25 million to 5.70 million or 9%. These increases in sales will allow for even greater contribution to profit in the range of $22.5 million to $40 million including only Mega Millions. Adding Powerball, the additional profit will increase an estimated $13.5 million.

Quick Facts:

>

> More than 1,000 new Lottery retailers have been licensed in the past nine months.

> IGR Research has shown that Internet Mega Millions and Powerball play is likely to increase million to $282 million.

>

Instant games (retail locations only) represent more than 60% of Illinois Lottery sales (growing at an annual rate of 30%) and will not be included in the pilot.

The number of retail players will increase from 5.25 million to 5.70 million, or about 9%.

Current Retail Players5.25 million

Continuing Retail Only

3.69 M

Continuing Retail & Internet1.23 M

New Retail Only

Players+0.27 M

New Retail & Internet Players+0.51 M

Will Play Internet Only

-0.33 M

Current Retail Revenue $275 million

Continuing Retail Only

$201 M

Continuing Retail & Internet$151 M

New Retail Only

Players+$9 M

New Retail & Internet Players+$28 M

Will Play Internet Only

-$11 M

* If “Retail & Internet” Players do 40% of their spending at retail and 60% on the Internet.

Will Play on Internet Only

26%

Will Play at Retail & on Internet

74%

Source: IGR 2012 Source: IGR 2012

In addition, Internet-based sales and marketing of Lottery games will draw new consumers and grow sales at retail by creating a new understanding of and new demand for Lottery products. To further the Internet-retail connection, the Illinois Lottery will co-promote across the channels, offering a variety of integrated promotions that engage social media and Web technology to drive consumers into retail locations.

70%

60%

50%

40%

30%

20%

10%

0

$170M $200M $250M $325M

Meant to play, but forgot

Not convenient to buy a ticket

Didn’t have the money

I was out of state

Didn’t know the jackpot was that high

Ticket price went up

I only play at higher jackpots

Decided to play a different lottery game

I limit how open I play

Question: Why didn’t you buy any Powerball tickets for the $170M/$200M/$250M/$325M drawing?

Answers:


New Mega Millions/Powerball Players Expected

Illinois-specific research (617 interviews completed across Illinois among adults 18 or older; sample was weighted to be representative of age and geographic distribution) suggests that 20% of those who will purchase online have never before played the Illinois Lottery, and 53% will be light or lapsed players.

Expanding the Customer Base in a Socially Responsible Manner The Illinois Lottery takes responsible play seriously and is committed to having the strictest controls in place to prevent underage participation, out-of-state purchases and problem gaming. Expanding consumer access to lottery games does not mean problem gaming will significantly increase. In fact, Internet technology tools actually provide superior controls for problem gaming with the use of sophisticated customer relationship management programs. These tools establish a direct link with players, allowing for the first time the ability to limit play of the games offered over the Internet. The Lottery will be able to study real-time purchasing patterns of its players for the first time in the history of lotteries.

System integrity will be a mandate to prevent underage play. The registration process will require identity and age verification before a player is permitted to place a wager:

> The player’s lottery account is a fully regulated, FDIC-insured bank account.

> In accordance with federal regulations, the issuing bank conducts a “know-your-customer” ID review for all registered players, including age verification.

> Prospective players must pass this review before being allowed to make a purchase.

Geo-filtering is performed at the time of every ticket purchase to prevent out-of-state play. The Lottery will use Internet Protocol (IP) address geo-location data to instantly verify that Internet players are within state borders. Leveraging third-party technology from Neustar IP Intelligence (formerly known as Quova) license for geo-location, the Lottery is able to review the IP address location each time a user makes a Lottery purchase.

> > 52% of projected additional players are 18-34 years old, compared with 17% of the current customer base.

>

> Incremental Mega Millions/Powerball revenue will come largely from people who do not consider themselves regular players: young adults (ages 18-34), women and college graduates.

> Average yearly income of a new player is $104,000.

In countries, such as Finland (first lottery online), the United Kingdom, Italy and others in Europe, that have introduced Internet sales over the past decade, retailers have benefited from an increase in Lottery playership and enjoy more retail sales driven by the broader player base.

74% of potential players indicate they would occasionally buy tickets at both retail locations and on the Internet.

Mill

ions

of I

llino

is A

dul

ts

Frequency of Playing Mega Millions & Powerball

Once a week or more

1–3 times a month

Less than once a month

Never play MM but play lottery

Never play lottery

1.03

1.76

1.39

2.83

2.23 2.22

1.76

2.78

1.781.62

730,000 more weekly

MM/PB players

600,000 players new to lottery and MM/PB plus 450,000 lottery players

new to MM/PB

Source: IGR 2012Current MM/PB PlayersPotential Players with MM & PP on Internet


“Everyone wins with Internet distribution of lottery products.” —The Public Gaming Research Institute

ConclusionAt the end of the day, the Illinois Lottery exists to provide a vital source of funding to public education and capital projects. Lotteries are based on a model of play that requires a high number of participants wagering a small amount of money against very long odds to win a large prize. Today, too few people play the lottery in Illinois and overall perception of the Lottery is low. Research shows that only 33 percent of Illinois residents have a positive view of the Lottery and 25 percent of people in Illinois have never played the Lottery.

> Retailers win because online sales and promotions will drive traffic to the stores and actually increase sales (both lottery and incremental) at brick-and-mortar retail outlets. Internet sales could increase the number of players by as much as 1 million, or 9%, at retail, of whom 70% do not currently purchase lottery products.

> Consumer protection groups and responsible gaming advocates win because the focus is on attracting new player segments, not on increasing sales to current players, and because Internet technology provides substantially superior controls than those available through traditional retail sales, including player registration, age verification, geo-location, spend limitations and self-exclusion.

> Players win because they will enjoy the enhanced user experience, the convenience of being able to purchase Lottery products on the Internet as they do other items.

> Illinoisans win because bringing Lottery products to new consumers via the Internet can potentially increase sales by more than $100 million. This in turn will grow the revenue generated by the Illinois Lottery, which benefits the Illinois Common School Fund and the Capital Projects Fund, thereby enabling the state to maintain its commitment to education and to fund projects that will create jobs for thousands of Illinoisans.

illinois lottery internet pilot 4-pager 3-22

Documents