How can lotteries succeed against digital gambling competition?

I have written this text for http://www.lotterydaily.com, and Charlie Horner has partly edited it.

The summer vacation season is coming to an end here in Northern Europe, so here comes my new column after a two-month break. As you have noticed from my previous writings, I consider it important that the offer of lottery companies is competitive compared to other gambling operators. That is especially critical in digital sales channels, where a massive number of other companies offering gambling products are available to customers.

Many lotteries have thought the competition does not concern them because the company has a monopoly on lottery games. That kind of thinking has not been very harmful in a situation where the sale of lottery games has taken place in the retail channel because the customers have faced only a few other gambling offerings. However, the digitalization of business and the change in customers’ consumption behavior have changed the situation dramatically. Fortunately, most lotteries have already understood this change, and a reaction to the matter has begun.

It is easy to see from the statistics of World Lottery Association and European Lotteries that there are considerable differences in the digital business shares of the world’s lottery companies. At its peak, the percentage of digital business is more than half of the entire company’s operations. However, dozens of lottery companies worldwide have not even started selling their games on digital channels. In all cases, the reason for this is not in the company itself but the legislation of the country in question, but it does not eliminate the existence of the problem.

Some lotteries have deliberately delayed the start of the gambling business in digital sales channels. The reasons for such a decision have been, e.g., fear of the reactions of the retail channel, considering digital sales as an irresponsible activity, the “competition doesn’t concern us” idea, etc. According to experiences from several countries, the agents’ reactions to starting digital sales have been very moderate in the end, and no significant problems have followed. Lottery digital sales have not increased gambling problems. In fact, running a responsible gaming operation in the digital channel is easier to implement than in the retail channel because, in the digital channel, all customers play with identification. The “competition does not concern us” thinking is ridiculous and dangerous. Lottery activity is not a separate “business bubble” but part of the customers’ regular choice.

What do lotteries have to do in order to stay involved in the development and remain attractive in the eyes of their customers? Short-term solutions depend on the company’s current starting point. Suppose a large part of the lottery’s business already comes from digital channels. In that case, the tools for operational development are entirely different from those of a company just starting the digital business. I will return to these concrete solutions a little later.

My university professor taught us that a company could improve its weaknesses by doing the same as others but doing so does not gain a competitive advantage. A successful company always needs at least one competitive edge over other companies participating in the competition. Lotteries have had at least two traditional competitive advantages. Lottery’s retail sales channel is the most expansive gambling sales network in several countries. Lotteries have also offered the highest jackpots in the gambling market, which have interested customers. In addition, the lottery profits to the beneficiaries and the responsible brand of the companies have brought a competitive advantage. Lottery’s strengths are still there, but they are not enough because there have become too many weaknesses in the operation.

People are used to doing their affairs more and more on digital channels. Entertainment and leisure consumption, in particular, has moved quickly to the digital age. Gambling products are a product group that is very easy to sell in digital channels because games are not about the physical product. Because of this, the supply of gambling games on the internet and mobile channels has exploded during the 21st century. Customers are offered an enormous number of games that are more entertaining to play than traditional lottery games. The availability of games is easy, so customers can decide where and when to play. If lotteries do not offer games on the same principle, they will develop a competitive disadvantage. By starting digital sales, lotteries, therefore, do not gain an advantage over other gambling operators, but in this way, they prevent the occurrence of a business disadvantage.

Lottery, which is planning to start selling its games on digital channels, has a lot of help available. Benchmarking and best practices information is available from other lotteries. The traditional technology suppliers of the lottery world also offer technology solutions for digital channels. In addition, several technology providers specializing in digital channels have entered the market. In addition to the technology solutions needed for sales and running games, there are also, e.g., technologies and services related to data and customer relationships. In the end, starting operations is quite simple, as long as the legal issues have been solved.

The most advanced lotteries in the digital gambling business are hardly satisfied just being in the business. Their aim is certainly to be better than other gambling operators in at least some aspects. Working with traditional technology suppliers of the lottery world has been a challenge. Because of this, many developed lotteries have ended up in a multi-supplier situation, where companies try to use the best providers on the market in different areas and no longer acquire all technology from one supplier. The best data and customer solutions are not necessarily found in the same place as the best game technology. The same situation applies to games and related services.

New game studios have entered the gambling business, developing entertaining games those interest customers. For one reason or another, there have been far fewer new game producers in the lottery game area than in other game verticals. I know that lottery games can be developed to interest customers significantly more than they do now, also in digital channels. So far, just a few companies have realized that. I follow with great interest what, for example, my former employer Veikkaus’ new subsidiary Fennica Gaming accomplishes in this area. I believe that by developing new responsible and entertaining lottery games, lottery companies can gain a competitive advantage and succeed in the digital gambling competition.

Keeping it in the family: Changing relationships in the lottery sector

I have written this text for www.ice365.com, and it is partly edited by Robin Harrison-Millan.

The lottery sector was once made up of state-owned monopolies, all with similar interests – and usually an aversion to the private sector. But as businesses evolve through spin-offs, acquisitions, and public listings, is there such thing as the ‘lottery family’ in 2021?

I remember how surprised I was when I moved from a horse betting company to a lottery in the mid-1990s. I hadn’t expected the lottery not to maximize business results. This commercially-minded young man was somewhat shocked to have to press the brakes so that sales would not have grown too much after the economic depression.

Another equally significant surprise was the attitude prevailing in the lottery business. There was a perception among the company’s management and employees that “we are better than any other gambling company”. The lottery saw itself as on a different moral plane to horse betting and casino operators. Pretty quickly, that attitude fixed itself in my mind too.

When I was involved in international cooperation between lotteries, I noticed this attitude was global, and not just a Finnish specialty. The lotteries organized, and continue to hold, an annual congress that brought together several hundred lottery leaders.

In retrospect, those congresses were like a religious ceremony to emphasize the right and superiority of one’s own cause over other gambling operators. Lotteries think that, in particular, the casino business has been bad, almost sinful, but lottery games have been harmless and good for customers.

Until recently, ‘gambling’ was a ‘forbidden word’ at lottery events. So, according to lottery people, lottery games have not been gambling but gaming.

The development of technology and business has changed the way lotteries operate, and the situation in many countries is different from what it was just over 25 years ago. My own company, Veikkaus, was one of the first companies to jump into the digital business when we launched an internet gaming offering as early as the end of 1996. Before that, we have already added sports betting to our product range. All Nordic lotteries followed the same development path.

Business development and customer-oriented thinking spread to many other lottery companies. Many companies’ directors and experts understood that lottery games are part of a larger business entity. It is not just about gambling but also about spending on entertainment and leisure.

Although that was understood in many lotteries, the word ‘competition’ also found itself on the list of ‘forbidden words’ for a long time. Almost all lotteries have the exclusive right to operate lottery games in their own jurisdictions.

Therefore, the thinking was the lottery cannot compete with other companies because it is not possible for a monopoly company. Such thinking created a dilemma where lotteries sought to increase market share at the operational level, but at the same time talked like a monopoly.

Today, the operations of lotteries are more divergent. Unfortunately, some companies still cling to that 90s mindset. The business has been developed, but only in the field of lottery games.

I have often compared the activities of these companies to a state office, where the most important task of officials is to avoid mistakes. It has been impossible for such lotteries to succeed in an increasingly fierce competition. At the very other extreme are those lotteries that operate purely commercially.

These companies follow precisely the same business principles as any large private gambling operator. The state office-type lotteries and public-listed companies have little in common, although they still belong to the ‘lottery family’.

Almost all companies inside the lottery organizations, such as the European Lotteries, have exclusive rights to lottery games. In fact, these companies have nothing else in common anymore.

Lotteries are used to planning things together, although business cooperation is generally limited to a few joint lottery products. The best-known examples of collaboration in Europe are the EuroMillions and EuroJackpot lottery games.

Although there are hardly any other joint projects, lotteries have been willing to work together, despite differences in how businesses are run. The state office-type lottery, under strict state control, is ready to discuss cooperation with a listed lottery business. But at the same time, a private gambling operator with a background in sports betting will still be considered a ‘bad’ company.

We heard some exciting news just before Christmas. One of the gambling giants, Flutter Entertainment, announced that it would buy the Italian company Sisal. Flutter counts the likes of Paddy Power, Betfair, Sky Bet, PokerStars and FanDuel among its brands.

To lotteries these are all seen as dangerous ‘gambling’ – rather than ‘gaming’ – brands. On the other hand, Sisal is part of the ‘lottery family, although its activities and ownership have always deviated from the mainstream of lotteries.

Sisal participates in the EuroJackpot game together with the Nordic, German, and many other European lotteries. Now, suddenly, Flutter is involved in that collaboration. How well can such an operator mentality fit into this lottery group? Will Flutter become a member of the ‘lottery family’ after the Sisal acquisition, or will that group begin to disintegrate?

Another interesting example of a change in the Lottery family is the tender process for the next UK National Lottery license. Camelot, Sazka, and Sisal, the largest European lottery companies, competing for the contract.

In principle, the cooperating companies have become each other’s worst potential competitors, although they do not yet compete with each other in business terms. It hasn’t been long since the directors of these three companies sat on the board of the European Lottery Association, where they were planning measures against private operators.

There is stiff competition for billion-pound businesses against partners that sit in the same organization. All three of these lotteries are owned by private investors, further increasing the weight of the business in strategic choices. Can such companies again be satisfied members of the lottery family after the UK competition as before? I doubt it, but perhaps that’s not a bad thing.

The time for traditional ‘lottery family’ thinking is over. Instead, I think new, slightly smaller groups may form among the existing lotteries, which will still be able to work together among themselves.

Cooperation should be developed between companies in a similar fashion. There is a much better basis for cooperation if the companies’ goals and values are identical. Lotteries that are state-owned and only allowed to operate lottery games have very little in common with the private companies that offer all gambling verticals across all channels.

As I said earlier, the values of a state lottery and a public-listed company are not likely to be a “match made in heaven”.

I believe that the cooperation between the lotteries will continue, but the nature of that cooperation is likely to change. Not all lotteries can and do not even want to, enter into open competition in the gambling market. It is important that companies operate based on their values and strategies and find suitable partners for that.