HOW MUCH IS ENOUGH?

I have written this text for www.LotteryDaily.com  and it is partly modified by Conor Porter.

The biggest competitive edge for lotteries in the gambling business has always been the ability to offer the highest jackpot in the market. This is still the case despite consolidation of the gambling business.

Former casino and sports betting operators have developed new products with high jackpots and have even entered the lottery business with the so-called “lottery betting” product.

Throughout history, lotteries have tried to increase the size of their lottery jackpots. As I have already mentioned in my previous columns, companies must know their customers and understand the motivations for gambling also among potential customers. The motivations for gambling and playing lottery games could vary a lot. It is partly up to customers’ socioeconomic background, but there are also many other reasons.

It is easy to notice from data that huge lottery jackpots increase sales a lot: the bigger jackpot, the bigger sales numbers, and profits for the lottery. Lotteries have done surveys among their customers and have found out the same result – the biggest motivation for buying a lottery ticket is to dream about something big. Although €1m would be enough for most customers, €100m would be even better for them.

We already have huge jackpots!

It is not clear what a big jackpot is. A million euros is a huge amount of money for someone, but someone else might think it should be 10 or even 100 times more. It is often irrational thinking. A person with thousands of euros may think that Lotto is not worth playing when the grand prize is only a few million euros, even if it could change his whole life.

European and US lotteries offer the biggest lottery jackpots. We have two separate coalitions in Europe, which are organizing the biggest lottery games; the EuroMillions and the Eurojackpot. Both of those groups have decided to limit the maximum size of lottery jackpots. The maximum jackpot in EuroMillions is €190m, and in Eurojackpot, it is €90m. Those amounts are also the top prizes ever paid out from those games, and they’ve been paid out quite often.

US lotteries have also established two separate groups which are organizing the high prize lottery game, Mega Millions and Powerball, which offer the highest jackpot in global gambling. US lotteries are using the so-called annuity amount in their marketing, which describes the jackpot’s potential size if the winner doesn’t take the prize immediately but rather for many years.

The highest US jackpot has been in Powerball, where three winners shared a $1586m jackpot. That’s bigger than the largest jackpot awarded in Mega Millions where one customer won $1537m, the highest amount of money a single customer has ever won anywhere.

All of those four games have increased the sale of lottery games, and it seems that huge jackpots have helped lotteries to do better business. However, those mega jackpots have also caused some problems.

When customers have noticed that it is possible to win €90m in the Eurojackpot, the jackpot size of the local Lotto game is not so attractive anymore, even though €10m would be a huge amount of money to win. This has caused quite a big cannibalization from local Lotto games to those multi-state jackpot lotteries.

The other challenge which especially US lotteries have noticed is the inflation of jackpot size. There have been about 50 times when someone has already won over $300m either in Mega Millions or Powerball games. According to the US lottery experts I have listened to in lottery seminars, the sale will increase remarkably only when the jackpot is over $250m. For example, a $200m jackpot doesn’t have any serious effect on lottery sales. That sounds crazy to me!

Is it still possible to have even higher jackpots?

None of the lotteries could, in practice, offer those huge jackpots alone. Collaboration is the tool for that. It would be possible to offer even higher jackpots in those European games, but they have decided by themselves that there are maximum top prizes in both EuroMillions and Eurojackpot. They could decide by themselves if they would like to change that and remove the maximum limit. Of course, regulators might have opinions about that.

Removement of the maximum prize limit could help a little bit in Europe, but it won’t raise those games to the next level. If European lotteries would like to do that, the best solution would be the collaboration between EuroMillions and Eurojackpot groups. Together, they could go to the next level, as it might be possible to offer lottery products where the jackpot could be €300m-€500m or even higher.

US lotteries have similar opportunities in their markets. The next step after the mergers of those European and US coalitions could be the collaboration between Europe and the US. That kind of partnership could raise the theoretical jackpots to billions of euros/dollars. The next step after that could be ‘World Lotto’…

I’m not sure if I would like to see that kind of development or not. I’m not sure what is enough for the customers and what that kind of development would be for lotteries in the long term. Lotteries shouldn’t voluntarily give their biggest competitive edge away. Lotteries have traditionally been able to offer much higher jackpots than other gambling companies.

However, the market has changed quite a lot in recent years as Lottoland and other similar companies have entered the market. Those Lotto betting operators can offer the same jackpots as the original lotteries. On top of all that, those companies can take advantage of the lotteries’ game brands and offer all different huge jackpot products in one place.

Lotteries still have pole position in that competition because customers are used to getting the highest potential main prizes from lottery games. Lotteries shouldn’t give that position away!