19 PUBLIC GAMING INTERNATIONAL • JANUARY/FEBRUARY 2022 we have been able to utilize and leverage our retail partners’ ability to bring customers to the purchase location in a relatively inexpensive manner. But as we move further into the digitization of our products, there will be an adjustment to the cost of acquisition and retention. We must be ready for this eventuality.” Jay Gendron said the industry has to focus on future technology. “As an industry, I’d like to see us address the technological advancement of Cloud computing,” he said. “The federal government and many U.S. states are moving critical applications to the Cloud. Currently, the way that U.S. lotteries are set up under their facilities management contracts prevents them from utilizing this technological advancement. I think it would be in our collective best interests, as the industry presses forward to modernize, that we make sure lotteries can include these types of advancements in RFPs. IGT is prepared to help lottery customers take advantage of all the benefits of moving to the Cloud and pass these benefits on to players.” Doug Pollard brought our attention to one of the newer entries into the games-of-chance sector. Sports betting may not be a direct competitor to lottery, but it is definitely competing for the discretionary spend of the consumer on recreational gaming. “We’ve done a terrific job over the past few years of bringing players into our business and driving more proceeds for good causes,” he said. “But there has been an enormous spread of sports betting over the past few years and that has changed the gaming landscape. We still have lotteries that can’t accept debit cards, yet sports betting has entered our jurisdictions with enticing offers, a bombardment of television ads, and multiple payment options. I am concerned that lottery may get swept into the same bucket as other games-of-chance like sports betting. Sports betting provides far less revenue to good causes compared to lottery. And sports betting does not have the history of integrity and security that lottery has. We’ve got to be more proactive in communicating the difference because when there’s a backlash against gaming expansion, we don’t want lottery to get lumped in with other sectors like sports betting. That would negatively impact iLottery, lottery, and our retail partners as well.” On Doug’s point about sports betting entering more and more states, Rebecca said lotteries are feeling the impact of the influx of advertising that promotes the sports betting websites. “The cost for the lottery to advertise has gone up dramatically because there are only so many 30 second commercials,” she said, “and they’ve taken up so much of the available ad time that it has driven up the costs to advertise. So our advertising costs have gone up substantially because of the competition for ad time. Those states without sports betting (yet) need to keep that in mind going forward.” Changes Needed to the RFP Process? All five business partner representatives have much experience working with lotteries and most of that activity is achieved through the successful response to lottery Request For Proposals (RFPs). While this is the avenue that most government agencies use to secure vendors for larger projects, it can be a challenging process for those who operate in the lottery industry. With that in mind, Rebecca asked “If you had a magic wand and you could change one thing about how we all do RFPs, what would you change?” Up first was Scientific Games’ Pat McHugh. “I would recommend that RFP evaluations are profit-driven,” he said. “On the lottery side, you’re running a hugely successful consumer goods business. But how do you work with stakeholders and vendors to think of this business as an investment? The profits on the lottery side of the business are directly impacted by the investments made by vendors and lotteries. The ROI of those investments are very high, which means the resources invested by lotteries will lead to exponentially higher funds generated for the benefit of good causes. The same can’t be said for other government agencies which do not generate income or a financial return. So I suggest changing how lottery stakeholders view costs impacts to growth over time, and RFPs are perceived to be ROI-driven instead of cost-driven.” Doug Pollard focused on price. “I don’t think you should buy an important revenue generating product on price alone,” he said. “Decisions should not be just cost-based. You’re going to pay pennies for most of the services you sell and make quarters in terms of margin. There’s a lot more at stake. Lotteries need to look at the entire picture, assess a wide variety of value-adding capabilities, and determine what are the most important factors to choosing your vendors.” Given the fact that investing in lottery infrastructure also enables investment and innovation for players and retailers, Jay Gendron at IGT said, “All companies and lotteries want to innovate, and innovation costs money. We spend a lot of money in research and development each year. And there is nothing more disheartening than seeing an RFP released that covers 10 years with a technical-to-price ratio of 50/50 and which essentially places little emphasis on R&D and technology – the things that differentiate vendors and make their offers unique from one another. My one wish would be that more states follow the path of those jurisdictions that have made the technical-to-price ratio much closer to an 80/20 ratio. With that, you are incenting the vendors to invest in your infrastructure not only on Day One but for the entire length of the contract.” For Intralot, Byron Boothe said working with different parts of the RFP process is critical. “I think one of the main issues with procurement is policy,” he said. “And policy requires education, and education requires familiarity with the legislative and executive branches in the states. You need those allies because the lotteries that want to modernize the process will be changing 15-20 years or more of procurement rules and procurement cut-and-paste templates. So, going in a direction that changes technical versus price scoring methods requires engaging lottery partners throughout government. I think that’s how we can get the outcomes we’re looking for.” Richard Bateson at JUMBO said, “I firmly believe in aligned incentives that drive behavior. I think as an industry we are probably at risk of having long contracts that are 10, 15, 20 years in length and the vendors aren’t incentivized to invest in ongoing technologies. There are industries out there that are much more agile than ours because they are driven to constantly invent and innovate. Lotteries need to work with the vendors to Continued on page 35 JAY GENDRON DOUG POLLARD
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