Lotteries don’t have to do everything by themselves

I have written this text for, and Nick Ware has partly edited it.

Almost all lottery companies have started their operations with a monopoly position. Because of this, the cost-effective operation has traditionally not been at the top of the companies’ priority list. Lotteries are usually owned by states, and the operating culture has been similar to state agencies. Instead of actively developing operations, the main focus has been securing operational operations continuity.

Over the years, the situation has changed for the better, but the background described above still affects the operation of lotteries. An inefficient corporate culture focused on protecting one’s position is not the best strategy to succeed in a competitive market, where you are faced with companies operating on purely commercial principles. I believe that lotteries have understood the need for change, but the risk is that they focus on fixing individual issues and not on changing the entire corporate culture and mindset.

It has been proven in economics that a monopoly always causes operational inefficiency. Unfortunately, lottery executives have typically refused to believe this. They have shown high productivity numbers to prove to stakeholders that lotteries are far more efficient than cash-minded private gambling companies. In this argumentation, it has been ‘forgotten’ to say that the numbers of a lotto operation with a 40-50% payout cannot be compared to the numbers of a casino operation with a 95% payout – at least not if it is a question of comparing the efficiency of the operation.

State ownership and state office-like operations have increased the bureaucracy of lotteries. This can be seen from the slowness of decision-making which, in turn, prevents timely and quick reactions to the changing situation. The slow rate of change in lotteries practically did not hinder productive operations as long as customers did not have other gambling options available. Today, customers are quick to vote with their feet if a company is unable to offer new products that other companies have. Lotteries’ luck is still the practical monopoly of lotto games, but on the other hand, this same reason slows down companies’ willingness to change – this can cause significant problems for lotteries in the long run.

Updating the strategy every five to ten years, and acting according to long-term plans, annual action plans, budgets, fixed organizations and job descriptions, etc., are no longer enough in today’s fast-paced business. Nevertheless, such an operating model is still prevalent in many lotteries. It may even sound funny when the explanation is that something cannot be done now because it is not in this year’s action plan, and no money has been allocated for it. However, the speed of reaction to changing situations should be completely different, but the bureaucratic operating model often prevents it.

On top of all that, due to their monopoly position, lotteries have had no reason to think about the impact of other companies’ activities on their own. Lotteries have not needed to try to stay at the forefront of development; often, such an operating model has even been perceived as irresponsible. So, the goal has not been to bring things to the market first, not to innovate new products and services, not to offer customers excellent service, or anything else to be at the forefront of development. Lotteries have mainly compared their operations to the operations and results of other lottery companies, although they have not represented the world’s most developed gambling companies.

Avoiding mistakes has been the general guideline for official behavior. Civil servants are rarely rewarded for successes, but instead, failures cause problems. This kind of corporate culture means it’s not worth investing in developing something new because you don’t get praise for it, only barking when you fail. Because of this, lotteries have often introduced new products and services only after they have been proven to work elsewhere. This operating model helps the companies to keep up with the development, but by no means to gain a competitive advantage compared to others.

Lotteries are used to doing everything themselves, and outsourcing operations have rarely been used, especially in Europe. In addition, lotteries are used to buy the technology they use for themselves. US lotteries have deviated from this significantly because almost all of them have outsourced their technology functions to large suppliers, and the contracts have been based on a revenue share model. In recent years, European lotteries have had to change their operating models because it has become more difficult to buy technology, as suppliers have no longer agreed to enter into agreements other than those based on revenue sharing.

As I have often stated before, lotteries today are a very heterogeneous group of companies whose operating methods and strategic choices differ from each other. Fortunately, an increasing number of lotteries have developed their operations, and the business operations of these companies already resemble real business enterprises. As operations develop, lotteries can succeed in competitive markets without the protection of a monopoly.

Modern companies know how to use external resources well, which helps avoid unnecessary increases in fixed costs. Such an operating model makes sense in sizeable one-off development projects. Typically, companies also use external help in big change situations, such as when legislation changes (transition from a monopoly to a license-based model) and business expansion (new product verticals alongside lottery games).

Based on my almost three years of consulting experience, it has been noticeable that lotteries use us, gambling industry consultants, much less than other gambling companies and technology suppliers. I think lotteries are not yet familiar enough with the services we can provide them. An exciting and valuable model for lotteries could be the consulting networks developed for the gambling industry, which can provide cost-effective and professional services for large development projects. An example of such a network is Way2Go, whose consultants focus on helping the lottery world. Using external help in significant change situations would undoubtedly improve the competitiveness of lotteries. Not all know-how should be acquired within the company.


I wrote this column for and they published it few days ago. This text is partly modified by Chris Murphy.

The world is changing, and cycles of change are constantly accelerating in all areas of living. This is also the case in gambling business and the change will continue. The digitalization of gambling has been talked about to the point of fatigue, but despite this, for example, many lotteries do not seem to be able to move around in a large scale. Somehow it seems that traditional state-owned lottery companies prefer to focus on the fight against change rather than seeing it as an opportunity. But change can’t be stopped and coping with change requires the ability to adapt to it.

Instead of the relentless talk of digitalization, I would like to bring another topic to the debate where I’d expect a much more active approach from the lotteries. Fighting against change has meant that lotteries’ own game portfolios haven’t been developed as much as they should be. 

A typical portfolio has been just a few draw-based games and some scratch cards. Product renewal has meant a new lotto game or instant ticket. No more radical changes have traditionally been seen from the lotteries.

The gambling market has been constantly evolving and new business areas have followed each other. People use a wide range of gambling products and have started to become customers for several different gambling companies. 

A modern and agile gambling company focused on the digital business often builds its strategy for a goal that aims to get customers to use products from as many different product groups as possible. The idea is based on the fact that a customer playing several different products in the same company is more likely to remain the company’s customer than those who play only one or two products.

Gambling companies will get another benefit if they manage to expand customer product usage. Customers, who increase the number of games they play, will also increase their total consumption on average.  Of course, the growth is not as big as the money invested in a new game, because most of the money spent on the new game is out of some other games they used to play before.

However, the actual jackpot for the company is available. If the money that customer uses for playing your new game is at the expense of the games of another gambling company, then the entire profit of this new game is new money for your company. If lottery expands its offering to completely new game types, it is possible that its loyal customer will discover games which he used to play with another company. In this situation, there is a chance that the customer will transfer all his gambling to the lottery and even in the case where his total gambling does not increase, the lottery’s profits can and will increase.

How does the traditional lottery product development with a “new lottery game” fit into that pattern, which is hoped to produce customers who are going to use just lottery’s own products? Not so good. With a new lottery game or scratch card it is extremely difficult to get any customer to transfer his gambling from another company to your lottery. 

A successful launch of the lottery game can certainly bring new money from old customers, but the turnover that has been accumulated mainly for the new product is a shift from your other products. You won’t earn a lot when you just move money from your right pocket to the left one.

Of course, I’m aware that in many countries lottery owners have curbed product development and instead been satisfied with the profits from the traditional lottery business. The most important thing has been to secure the established monopoly position and try to prevent that from being jeopardized. Business growth may not even be a key consideration. But what will the future look like if the static offering starts to lose interest against other gambling offerings? Not good at all.

The monopoly status of the lotteries is beginning to be more and more nominal.  Lottery betting has come to rob the same market and other gambling verticals have otherwise stuck right next to customers on their skin. Modern gambling is often fast and entertaining compared to lottery products. 

Nowadays it is much more difficult to get younger customers to become regular customers for lottery products. Should lotteries expand their offering to other gambling verticals? They definitely should if it is legally possible. And if it is not, at least a reasonable effort should be made to change the legislation to a form in which other gambling verticals could also be offered to the lottery customers.

Why has this not been done to a significant extent? The owner’s will and legislation are, of course, valid reasons but they can be influenced if necessary. The big ideological problem seems to be that many lottery operators are cautious about using smaller prize games to compete internally against traditionally higher payout lottery products. 

If only the same bet moves to a lower payout product, the revenue will of course be lower. You shouldn’t worry about that at all. In modern gambling products, the rhythm of gaming and the circulation of money enable the same kind of profits thanks to increased turnover. 

The crucial factor for the overall development of revenue is whether the customer is ready to increase the total amount of money he used to play or not. It is difficult to see that adding a new product group to the company’s portfolio would reduce the total amount of money spent on gambling in any significant customer segments.

In today’s gambling world where responsibility is the key word, the offering of lottery has traditionally been the product vertical that causes the least gambling problems. Will lotteries risk their reputation if they start offering more harmful gambling products? 

This is a scenario that needs to be taken into account. An extremely aggressive offering of casino games could lead to such a thing. To offer much softer sports and horse betting is hardly not. And casino games can also be offered to customers in a responsible way. The market situation and the potential of the different new product verticals should determine which product groups give the best balance between possible risks and profits. But responsibility shouldn’t be a barrier to expanding the range of gambling verticals for lotteries.

As we go further in the 2020s, it is clear that the competition in gambling businesses will become even harder. Even in countries where traditional betting shops have managed to maintain a strong position in the face of internet competition, the situation is not everlasting. 

Even in those cases, lotteries can’t fail to try to maintain their position as the sole gambling operator of large customer groups in their own country. However, this won’t be possible in the future unless lotteries are starting to expand their offerings to other gambling verticals. In the future a modern, successful, and competitive gambling company will offer a wide range of different gambling products from different gambling verticals. I would like to see lotteries to be among those modern gambling companies!