Public Gaming International May/June 2020

54 PUBLIC GAMING INTERNATIONAL • MAY/JUNE 2020 TECHNOLOGY PARTNERS COMMENTARIES Patrick McHugh, Chief Executive, Lottery Group, SCIENTIFIC GAMES Re-Imagining Our New World First, I really want to thank our global lottery customers, business partners and our Scienti c Games employees for everyone’s support as we navigate this crisis together. Maintaining the healthy safety of our employees is our top priority. Our customers were very supportive of the early steps we took to protect our employees while continuing to serve their business. I can’t thank everyone enough. It says a lot about the people and values of our industry. To answer your question, I believe life after the COVID-19 crisis will be quite di erent, both during protracted recovery phases and longer term after the underlying health issue is nally solved. e health issue aside, changes in consumer habits and retail operations we had already seen pre-COVID- 19 will accelerate, and the post-COVID economic conditions will create pressure on all parts of the lottery value chain. As a result, it will be di cult for stakeholders not to support investment in digital sales channels to modernize lotteries and sustain bene ciary funding. On the economic front, lottery bene ciaries will face a funding shortfall. Many lottery retailers will be nancially challenged— posing a threat to lotteries’ primary sales channel. e lottery supplier community may shrink. Lotteries will face natural government reaction to focus on cost control and may miss the greater opportunity for increased pro ts through investment. at said, lotteries’ broad distribution network, large consumer base, brand recognition and integrity make our products very resilient and uniquely positioned to continue to entertain consumers and deliver critical bene ciary funding. To protect our industry post-COVID, the lottery community will need to advocate for investment in the value chain to realize growth, as we have consistently done after previous economic downturns. is will include working to maintain advertising and marketing funds, prize payouts, and investment in products and sales channels that will return greater pro ts. I just saw a small, but great example with one of our Asian lottery customers…the Lottery temporarily increased retailer commissions post-COVID openings as a stimulus means to support their valued retailer partners and restart sales of lottery products. It was a smart investment for multiple reasons. With a view to the future, Scienti c Games has been bullish on parallel investments in expanding our capacity in both retail and digital products and services. Our programs have led the industry by creating the most pro table programs for each channel. We remain very bullish that post-COVID lotteries can recognize signi cant growth through complimentary retail and digital strategies. To help our lottery customers navigate the immediate impact, during the COVID pandemic, Scienti c Games has been monitoring consumer opinions with our own ONEVoice™ national consumer panel as well as research partner panels. is has given us a wealth of information to help our customers re-imagine their lottery business. Naturally, the general population is now going to be far more conscious of pandemic risks and will face a challenging economic impact for some time. Our consumer research indicates that gas station trips will be more focused on gas and less on going inside the store. While many old routines will be lost, new routines will be found. More people will continue to work from home, buy groceries and other products online, and save money by cooking and making their co ee at home—which means fewer visits to retail shops and convenience stores, therefore less impulse buying. Our research shows that many consumers plan to continue ordering items online even after stay-at-home restrictions are lifted, which will also impact store tra c. Grocery will be interesting to watch as to whether tra c increases with more people cooking from home verse the tra c reduction from home delivery services. I think we’ll see less tra c at customer service desks, making our product initiatives for secure expansion of instant games in-lane even more important. We need to focus on the consumer o ering, continue to invest in the core retail products, and accelerate complimentary digital strategies. We can’t stand still. Although no mainland U.S. lottery sales were suspended during the global COVID-19 crisis, 30% of the lottery retail network was closed. We saw MEGA MILLIONS and POWERBALL® do away with guaranteed starting jackpots and minimum jackpot increases. Lottery markets outside the U.S. were hit far more severely. Instant products have stood out during the crisis—both at retail and online. While the initial U.S. declines were alarming, there has been a bit of a comeback and instant game retail sales performance in late April and early May has been strong in many jurisdictions. Our iLottery customers saw huge increases in new players and sales helping to partially o set the brick-and-mortar loss. Not every lottery is fortunate to be growing their instant category. We must continue to e ectively manage and keep focus this important area as an industry—there are still substantial instant growth and improvements opportunities out there, particularly with logistics systems and enhanced category management—and of course with expanding to digital sales. Despite essential retailers remaining open, every state lottery reported a drop in total retail sales, and subsequently far less revenue for the vital state programs they fund. is crisis is a wake-up call for those lotteries that haven’t yet modernized their business model. Lotteries already selling online are seeing a huge lift in players and sales. Currently, only 12 of 46 U.S. lotteries allow lottery games to be purchased online, but only six of those including Pennsylvania o er eInstant games. e others are selling only draw games or draw game subscriptions online and missing the real sales impact of digital instant games. Also many states still allow only cash purchases—yet lottery is one of the largest consumer product categories on the planet in terms of retail sales. Almost every other consumer product can be purchased online and delivered directly to the home, or can be purchased in store through cashless transactions. e Pennsylvania Lottery, which already had the highest performing combined retail and digital program, continues to break records experiencing an 80% jump in iLottery revenues (current weeks vs. pre-COVID