Public Gaming March/April 2023

20 PUBLIC GAMING INTERNATIONAL • MARCH/APRIL 2023 approximately $114 million in taxes to the state in the fiscal year ending June 30, 2022,14 while iLottery contributed $71 million in net gaming revenue (ticket sales net of prize payouts, promotions, bonuses and costs) to the Pennsylvania Lottery during that same time period.15 (Pennsylvania has a 36% tax rate – 34% to the state and 2% to local jurisdictions – on sports wagering revenues, which is particularly high.16) Later adopters of iLottery have been notably successful, perhaps being guided by lessons learned by early adopters, and likely also benefitting from increased consumer acceptance of digital commerce.17 Spectrum Gaming Group’s18 analysis of the iLottery implementations in Michigan, Pennsylvania, New Hampshire and Virginia, show that later adopters of iLottery have significantly greater first month iLottery revenue on a per capita basis. In Michigan, which implemented iLottery in 2014, first month per capita iLottery sales were only $0.24, while in Pennsylvania, New Hampshire and Virginia they were $1.69, $2.08 and $4.06, respectively.19 As stated by Spectrum Gaming Group: “Michigan started with a much more limited product selection compared to the other three states. However, the initial success of the three other states … indicates a changing consumer acceptance of digital commerce and a growing acceptance and knowledge of iLottery products, specifically digital instant tickets.”20 Finally, since its arguably modest start, in the five years since its 2014 launch of iLottery, the Michigan Lottery became North America’s first lottery to generate $1 billion in cumulative sales through online channels,21 and indeed, in its fiscal year 2021, sales were estimated to be $2 billion. 22 Thus, iLottery implementations have been successful and contribute significantly to state lottery revenues and those beneficiaries that benefit from them. In addition, based on a growing body of evidence gathered from U.S. states that have implemented iLottery, it appears that the sale of lottery games online does do not cannibalize traditional retail lottery sales. Among other examples, Spectrum Gaming Group cites the following: From FY 2017, the year before iLottery launched in Pennsylvania, to FY 2021, retail lottery sales grew by 33%. A similar experience is shared by the Michigan Lottery, which grew by 91% at retail from 2013, prior to iLottery’s launch, to FY 2021.23 Spectrum maintains that iLottery reaches a younger demographic not reached by traditional lottery retail channels, and that this is a reason that iLottery and traditional retail sales have increased simultaneously. They note: A survey conducted by the US Bureau of Labor Statistics noted that for the 12-month period ending June 2018, the average annual spend on lottery tickets was nearly $70, but adults under 25 spent less than $8, and for adults between 25-34, the average spend was slightly more than $40. The growth of iLottery has demonstrated an ability to reach younger generations. Data gleaned from the participating iLottery jurisdictions of Michigan, New Hampshire, North Carolina, Virginia, and the Canadian province of Alberta, show that, in Fiscal Year (“FY”) 2021: • 25% of those who played digital drawbased games were 35-44 years old, an increase of 3 percentage points over FY 2016. • 27% of those who played digital Instant games were 35-44 years old, an increase of 5 percentage points over FY 2016. The data also showed that the average age of adults who played iLottery on mobile devices was 47. That data point makes clear that the willingness of consumers to purchase lottery tickets via a mobile device cuts across all age groups. This creates an opportunity to capture a younger demographic, while also making inroads into older age groups. Finally, problem gaming in regard to iLottery can be addressed via methods not available in regard to traditional lottery. Traditional lottery games (physical draw and instant tickets) are sold anonymously. The consumer is not required to provide any identifying information, and thus historic game play volumes and trends are not ascertainable. Consumers cannot play iLottery games anonymously, however, and play history and trends are detectable. Opportunities therefore exist to identify and address problem gaming behavior, and regulations and/or consumers themselves may establish deposit and play limits, as well as self-exclude entirely. While the convenience afforded by iLottery - i.e., making lottery games more accessible – makes more urgent the need for effective responsible gaming policies and procedures, the available options, and the ability to implement such policies and procedures is greater with iLottery products. In short, iLottery can be a significant contributor to states fiscal health and to the good causes served by state lotteries. A growing body of evidence demonstrates that iLottery can co-exist with traditional retail sales channels without cannibalizing traditional retail sales, and effective responsible gaming policies and procedures can be implemented with respect to iLottery which cannot be implemented in regard to anonymous traditional lottery play. Consumers increasingly acquire their information, entertainment, goods and services, and do their banking and investing online. The success of state lotteries requires that they have a robust online presence, and a failure to offer lottery products online could result in lotteries not being relevant to the growing demographic that shops, learns and plays online. This does not mean offering lottery products exclusively online, as traditional sales channels continue to be the primary means of state lottery sales. However, there is an increasing body of evidence demonstrating that iLottery contributes significantly to state revenues. Accordingly, iLottery should be included in the discussion when state legislators consider the appropriate mix of gaming for their states. n 14See Gambling Industry News at https://gamblingindustrynews.com/news/usa/pennsylvaniagambling-revenue-fy-21-22/ (last accessed February 19, 2023). 15Pennsylvania Lottery Annual Report FY 21-22, p. 2, available at https://www.palottery.state. pa.us/PaLotteryWebSite/media/PA-Lottery-Reports/Annual/PAL_Annual-Report_FY21-22.pdf (last accessed February 19, 2023). 16See Gambling Industry New, cited in footnote 14 above. 17Spectrum Gaming Lottery Group, Future of iLottery: Analyzing, Developing Multi-Channel Strategy, Prepared for NeoPollard Interactive, March 15, 2022 (the “Spectrum Paper”), p. viii - x. The Spectrum Paper is available at https://www.spectrumgamingcapital.com/wp-content/ uploads/2022/05/spectrum-report-on-future-of-ilottery-3-15-22.pdf (last accessed February 19, 2023). 18Spectrum Gaming Group “is a non-partisan consultancy that specializes in the economics, regulation and policy of legalized gambling worldwide.” https://spectrumgaming.com/ (last accessed February 19, 2023). 19 Id., citing NeoGames, S.A. Form F-1: Preliminary Prospectus, November 16, 2020. 20Id., p. ix. 21Testimony Scott Bowen, Senior Vice President of NeoPollard Interactive before the Senate Government Oversight & Reform Committee, of file:///C:/Users/hicharm/Downloads/SB269_ Proponent_Bowen.pdf. 22Spectrum Paper, p. 33. 23Understanding iLottery: Growth Through Expansion, not Cannibalization, by Michael Pollock, Managing Director, Spectrum Gaming Group, in NASPL Insights, May/June 2022, available at https://www.spectrumgaming.com/wp-content/uploads/2022/06/naspl-insights-magazine-mayjune-understanding-ilottery-pollock.pdf (last accessed February 19, 2023).

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