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STATE OF LOTTERY INDUSTRY Recession’s Impact on Sales and Profits. Arch Gleason President and CEO, KY Lottery Corp. President, World Lottery Assn. Areas to be Covered. Global sales in the economic downturn North American historic sales performance Rockefeller Institute gaming study

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state of lottery industry recession s impact on sales and profits

STATE OF LOTTERY INDUSTRYRecession’s Impact on Sales and Profits

Arch Gleason

President and CEO, KY Lottery Corp.

President, World Lottery Assn.

areas to be covered
Areas to be Covered
  • Global sales in the economic downturn
  • North American historic sales performance
  • Rockefeller Institute gaming study
  • Recent North American sales performance
  • Secrets of success
  • Sales challenges
  • Moving forward (Kessinger observations)
slide3

“Face it, Dave – statistically speaking, you’re more likely to be killed by an alligator than you are to win the lottery.”

when did this start
When did this start?

The National Bureau of Economic Research has determined the U.S. recession began in December 2007.

slide7

TOTAL %

CHANGE

SALES UP

NO

CHANGE

SALES

DOWN

Global Sales, CY06 vs CY07

by Geographic Regions

5

1

0

11%

slide8

TOTAL %

CHANGE

SALES UP

NO

CHANGE

SALES

DOWN

Global Sales, CY07 vs CY08

by Geographic Regions

2

4

0

1%

us online v instants sales growth cy
US Online v. Instants Sales Growth (CY)
      • Instant Sales
  • 10 Yr CAGR (1999-2008) +8.02%
  • 5 Yr CAGR (2004-2008) +6.72%
      • Online Sales
  • 10 Yr CAGR (1999-2008) +1.08%
  • 5 Yr CAGR (2004-2008) +0.75%
us online sales trends cy
US Online Sales Trends (CY)

10 Yr CAGR (1999-2008) +0.80%

5 Yr CAGR (2004-2008) +1.06%

us multi state lotto cash games sales trends cy
US Multi-State, Lotto & Cash Games Sales Trends (CY)

10 Yr CAGR (1999-2008) +0.14%

5 Yr CAGR (2004-2008) +0.96%

rockefeller study observations
Rockefeller Study Observations

Gambling revenue is seeing it’s first decline since 1970.

rockefeller study observations16
Rockefeller Study Observations

Lottery revenue is approximately 75% of state gaming revenue.

rockefeller study observations17
Rockefeller Study Observations

Since 1998, state revenues from gambling activities have increased 60% (from $15B - $24B in 2008) and ranged between 2.1-2.5% of total state generated general revenues.

rockefeller study observations18
Rockefeller Study Observations

States with Highest Shares (%) of General Revenues from Gambling, FY07:

rockefeller study observations19
Rockefeller Study Observations

More than half of states show less than 2% reliance on gambling revenues – 12 states show 1% or less.

cy08 vs cy07 us scratch sales
CY08 vs CY07 US Scratch Sales
  • 1.2% total change
  • $364.6 million sales increase
  • $30.9B in overall sales
cy08 vs cy07 us online sales
CY08 vs CY07 US Online Sales
  • - 2.6% total change
  • $595.1 million sales decrease
  • $22.5B in overall sales
cy08 vs cy07 us total sales
CY08 vs CY07 US Total Sales
  • - .4% total change
  • $230.5 million sales decrease
  • $53.4B in overall sales
cy08 vs cy07 canada scratch sales
CY08 vs CY07 Canada Scratch Sales
  • 4.5% total change
  • $86.4 million sales increase
  • $2B in overall sales
cy08 vs cy07 canada online sales
CY08 vs CY07 Canada Online Sales
  • -3% total change
  • $156 million sales decrease
  • $5B in overall sales
cy08 vs cy07 canada total sales
CY08 vs CY07 Canada Total Sales
  • -1% total change
  • $71.6 million sales increase
  • $7.2B in overall sales
us scratch sales jan mar 09
US Scratch Sales Jan – Mar 09
  • -1.5% total change
  • $121.3 million sales decrease
  • $8B in overall sales
us online sales jan mar 09
US Online Sales Jan – Mar 09
  • - 2.7% total change
  • $156.9 million sales decrease
  • $5.8B in overall sales
us total sales jan mar 09
US Total Sales Jan – Mar 09
  • - 2% total change
  • $278 million sales decrease
  • $13.8B in overall sales
canada scratch sales jan mar 09
Canada Scratch Sales Jan – Mar 09
  • -2.2% total change
  • $10.4 million sales increase
  • $468 million in overall sales
canada online sales jan mar 09
Canada Online Sales Jan – Mar 09
  • 23.2% total change
  • $227.4 million sales increase
  • $1.2B in overall sales
canada total sales jan mar 09
Canada Total Sales Jan – Mar 09
  • 10.5% total change
  • $182.2 million sales increase
  • $1.9B in overall sales
us scratch sales apr june 09
US Scratch Sales Apr -June 09
  • -3% total change
  • $20.9 million sales decrease
  • $7.6B in overall sales

Pulltabs and VLT’s excluded

2 states not reporting

us online sales apr june 09
US Online Sales Apr -June 09
  • 4.9% total change
  • $267 million sales increase
  • $5.7B in overall sales

Pulltabs and VLT’s excluded

2 states not reporting

us total sales apr june 09
US Total Sales Apr -June 09
  • 1.8% total change
  • $239.4 million sales increase
  • $13.3B in overall sales

Pulltabs and VLT’s excluded

2 states not reporting

preliminary reporting from naspl fy09
Preliminary Reporting from NASPL, FY09
  • Total Sales - $44 Billion
  • Decrease from FY08 –
  • $92 Million (.2%)
  • NOTE – Based on reporting from 38 of 43 US Lotteries
state with greatest total sales change from fy08
State with Greatest % Total Sales Change from FY08

Based on preliminary reporting – RI includes VLT’s

preliminary 3q trends cy09 vs cy08
Preliminary 3Q trends(CY09 vs. CY08)
  • Scratch games range down between .5% and 2%
  • Online games range up between 5% and 13%
  • Major sales driver are the multi-state large jackpot games, up more than 50% for the quarter due to large jackpots.

Based on data from

GTECH and Sci Games

secrets of success
SECRETS OF SUCCESS

Higher price-point games

secrets of success42
SECRETS OF SUCCESS

Higher prize payments

secrets of success43
SECRETS OF SUCCESS

More Games

(instant and/or online)

secrets of success44
SECRETS OF SUCCESS

ITVM upgrades

secrets of success45
SECRETS OF SUCCESS

Increased / maintained ad expenditures

secrets of success46
SECRETS OF SUCCESS

Licensed property

and sports team games

other secrets of success
OTHER SECRETS OF SUCCESS
  • Powerball ad focus on jackpot of $150 million or more – West Virginia
  • Marketing efforts focused on $5 instant games - DC
  • Increased retailer base - Idaho
  • Converted instant-only retailers to full-service - Idaho
  • Social media interaction – Montana
  • Implemented 2nd chance drawings for last top prizes of $50K or more for all $10 & $20 scratch games - Kentucky
measuring impact of recession
Measuring Impact of Recession

Much discussion revolves around what has been the actual impact of the recession.

measuring impact of recession49
Measuring Impact of Recession

Sales growth has been slowing for the past three years, making it difficult to isolate the economy as a significant factor.

measuring impact of recession50
Measuring Impact of Recession

Evidence suggests certain states are experiencing effects from the economy more than others.

measuring impact of recession51
Measuring Impact of Recession

On the instant side, there are nearly as many states up as there are down - therefore it is difficult to isolate the economic impact.

measuring impact of recession52
Measuring Impact of Recession

Performance of block lotto games (Powerball and MegaMillions) are less affected by economic conditions but more affected by jackpot performance.

sales challenges
Sales Challenges

Nearly half of players (46%) have reduced lottery spending.

  • 8% have stopped spending entirely
  • 38% have reduced spending

IPSOS REID observations

sales challenges55
Sales Challenges

Other purchases reduced:

  • 42% on snack foods
  • 41% video/DVD rentals
  • 51% going to movies
  • 49% eating at restaurants
  • 39% buying books and magazines

IPSOS REID observations

sales challenges56
Sales Challenges

Reasons for cutting back

  • 34% have less money than in previous times
  • 19% say lottery tickets are not a priority item for them.

IPSOS REID observations

sales challenges57
Sales Challenges

More women (52%) than men (40%) changed their lottery spending behavior.

IPSOS REID observations

sales challenges58
Sales Challenges

More players from lower income groups (56%) reduced their lottery spending than players from upper income groups (40%)

* $50K was break point for upper/lower

IPSOS REID observations

kessinger observations lottery insights aug 2008
Kessinger ObservationsLottery Insights, Aug. 2008

The convenience store future is not in selling more gas and cigarettes, but in customer service.

kessinger observations
Kessinger Observations

While chain stores dominate, independents can probably better cater to their customers.

kessinger observations61
Kessinger Observations

Lotteries must help retailers increase marketing efforts to enhance winner awareness

kessinger observations62
Kessinger Observations

Lotteries must focus on the basics – remind retailers lottery is 4th leading reason why people shop there (per NACS research).

kessinger observations63
Kessinger Observations

Lotteries must help retailers appeal to core customers – best prospects for business are current customers.

kessinger observations64
Kessinger Observations

Lotteries offering higher price point games help retailers command higher prices – players shop for value, not cheapness.

personal observations
Personal Observations

Higher price point tickets allow retailer to earn greater commissions / profits per transaction at multiples of 5X-10X-20X.

kessinger observations66
Kessinger Observations

Retailers must offer new products, and have non-cluttered space in which to display them.

kessinger observations67
Kessinger Observations

Lotteries must reinforce the value of the lottery brand to retailers.

kessinger observations68
Kessinger Observations

Offer ways for the retailer to build business NOW.

kessinger observations69
Kessinger Observations

Provide an aggressive sales approach to demonstrate the strength of lottery products.

kessinger observations70
Kessinger Observations

NO OTHER PRODUCT returns more to a retailer per square foot than lottery tickets.

personal observations71
Personal Observations

Lotteries must explore new channels and methods to advertise, market, sell and distribute lottery games.

personal observations72
Personal Observations

Lotteries must continue to innovate and develop new, exciting and entertaining products (games).

slide73

With Thanks To:

  • Tom Tulloch
  • Terri LaFleur
  • Gerard Caro
  • Amir Sadri
  • Jim Kennedy
  • Tom Shaheen
  • Clint Harris
  • John Musgrave
  • Larry Jansen
  • Jay Young
  • Jeff Andersen
  • George Parisot
  • Jeff Hatch-Miller
  • Scott Bowen
  • Joan Borucki
  • Mark Cavanagh
  • Dale Penn
  • Kathryn Densborn
  • Rose Hudson
  • Leo DiBenigno