Member of the Managing Board of the Deutsche Klassenlotterie Berlin
President, European Lotteries (EL)
Regarding the Covid-Pandemic, a German historian observed: “The experience that the unthinkable has become conceivable - this will change our lives.”
How will the world be different, when we come out of crisis? And how do we – as lotteries – have to react?
First: It is still difficult to predict the sustainable changes.
Whereas certain segments of the gambling industry are expected to be affected, the lottery market might not be hit that hard, as people tend to fall back to their former behavior.
Second: Nevertheless, we learned a lot and we as lotteries shouldn´t just fall back into former behavior.
Undoubtedly, the pandemic will keep us busy for some time to come, as Covid-19 is hitting the economies of almost every country in the world. Our way of personal interaction will change, and very probably the changes will extend even after the virus has been contained – fewer personal meetings, less business travel, no more handshakes. And I believe there will be fewer large gathering events such as spectator sports events and there will be strict conditions to minimize the risks of spreading germs. It is easy to predict that these circumstances will further drive the trend towards digitalisation and new formats that enable digitized “virtual” interaction. Players, that made good experiences with digital platforms in the phase of lockdown and social distancing might not come back to the shops again and we will meet higher expectations in the digital channel.
A more granular look at the precise effects that these changes will have on the way that society functions reveals that our lottery industry may not be impacted as directly or dramatically as I originally thought it would.
Lotteries are a service that is less dependent on physical value chains. And to play the lottery or, more precisely, to buy a lottery ticket, is in most cases a single transaction with a single player. Even in those jurisdictions where online-sales are still not allowed, this shouldn´t be a problem, as long as there is a strong subscription-business and the shops are allowed to stay open and to sell under conditions that guard against contagion.
Some lotteries have been severely impacted by closed shops or even closed operations, as in Italy or Spain. This is dramatic, but even then, it should be easier to reopen and re-start an existing infrastructure than to restart a physical production-inventory-delivery process. The same applies to sports betting and casino operations, both land-based and online. Operators which already had a robust business of connecting players via their shops or via digital channels are surviving the pandemic. I am optimistic that the lottery industry will overcome the direct impacts of the crisis with little disruption or damage.
As many states and jurisdictions start to reopen shops and facilities, it may feel like “the worst is over” and that we will slowly go back to normal. But many are predicting that the virus will stay for a long time or even return, which means the longer-term economic effects might be the next challenge.
Lotteries are played from a person´s “entertainment-budget” and this depends on the player having an actual income and being able to budget for the future. Now, with millions of unemployed, entire sectors of the economy shut down, flare-ups in countries that thought they had eradicated the virus like Singapore, Korea, and maybe China, and no timeline for vaccine and no clear vision for how to contain the virus – it is hard to know what the long-term economic effect will be. As the players face economic uncertainty, discretionary income for lottery will likely decline. And responsible operators will be expected to not push consumers to spend more of their limited budget on lottery.
My fear is that even re-opened economies will operate at a lower level of activity and a lower level of spending in the stores. At the same time, my hope is that we will pass through this stage of return to normalcy faster than expected because we all have short memories when it comes to reasons not to do the things we want to do – like socialize and play the lottery!
There is no vetted “best-practices” template yet and certainly no specific one-size-fits-all recipe. Each lottery and each jurisdiction has its own unique set of externalities that shape the most appropriate response and strategic planning. But some of the impacts and best-practice responses would seem to be universal. Investing in player loyalty while minimizing the spread of germs and thereby enable a continuation of social distancing in the land-based space should for sure be done by all of us. Likewise, we should all be investing more to strengthen the digital channels in parallel, not as substitution but as complementary way to strengthen the contact between operator, shop and player.
On the content-side, I see then two new opportunities to enable lottery operators to be successful in future. One is to position lotteries and our brand as the stable anchor in difficult times, the game of the people which is owned by the people’s government and serving the interests of society and good causes which need funding now more than ever. The other opportunity is to offer more entertainment-oriented products and to make the games and the overall playing experience more fun.
There are already lots of offers in the digital channels. Are there enough and are they good enough?
It is not a matter of quantity or quality of a single offer. Virtual offers are based more and more on “eco-systems”, in which a user or player becomes part of a company and community of consumers just by using the product. Being part of something bigger is bringing added value and higher loyalty. Examples outside our industry are APPLE and TESLA.
In contrast to this, online lottery games have tended to resemble the games that we have already been offering in retail stores. Services delivered through digital channels often have too little added value. I think we could re-imagine the whole way we think about the online playing experience.
Think about the evolution of the electric car. Why did Tesla produce a break-through product? They built not just a car with a new engine, they built up an eco-system with a brand-new car (from scratch), online-updates for the car-electronics, a supercharger-infrastructure and new ways for maintenance being organized automatically through digital interaction between car and manufacturer. Tesla used the benefit of starting from scratch as opposed to figuring out how to electrify existing models.
I think, the adaptation to the new situation because of the Corona-shutdown gives us a chance to erase our preconceived notions about lottery gaming as that is mostly based on the land-based player experience; and start with a totally fresh approach that re-invents lottery gaming for both, the traditional shop based and the online world.
Does this mean: No traditional lottery values anymore?
Oh no! Responsibility, sustainability and funding for good causes will continue to be the core pillars of the lotteries. Public awareness of the value of lotteries seems to be lower when times are good: Lottery’s contribution to funding of good causes is just taken for granted and does not get as much attention. I think that will change now that tax revenues are declining, and the government will be dealing with an increase in public debt. Right now there are no sports contests, and so obviously no sponsoring or advertising of sporting events, and less sports betting. And when these events return, will social distancing requirements even allow spectators to assemble in a stadium? And will sponsors and advertisers have any money left to sponsor and advertise? What will the effects of a diminished level of economic activity have on tax revenues? Lottery may have its own challenges, but it will likely continue to be a healthy revenue generating agent of the state. And more vital now and into the foreseeable future than ever. An eco-system for lotteries will for sure be based also on these pillars.
In the past years, we’ve seen exciting innovations in the Lottery Industry. Still, we have recognized the need to inject a higher level of entertainment into lottery games, especially to appeal to young adults. Now, though, the need for alternatives to traditional sources of entertainment that involve gathering together in groups at concerts, theatre, bars, and other recreational venues is more acute than ever. This represents an opportunity for Lottery to fulfill a void in the marketplace, a human need for diversion and recreation. We need to respond to consumer interests through offering more variety and more enjoyment, by enhancing the player experience at retail, maybe with things like animated scratchers and games that promote social group plays. There is lots of potential for connecting shop oriented players in the online world, for promoting social interaction in the virtual world and for making online games more fun.
How might we reinforce the symbiotic relationship that Lottery has always had with its retail partners?
This is a very important question! All operators with a land-based business model depend on the shops to stay open and have an active customer base. Lotteries can use their online connection to drive traffic to their retail partners. We have always done that but I think we need to do it more going forward.
We have observed in our local markets that even in a crisis like this, or especially in a crisis like this, the relationship between players and their favourite store is stronger than ever. Our players in Berlin, for example, are choosing to go to their store over the online channel in spite of the focus on social distancing. This was amazing to see. Maybe the lack of other outlets for social interaction causes people to appreciate more the simple things in life – like going to a counter and buying a lottery ticket from a retail shop assistant.
I personally believe that our obligation to support our retailers is not fulfilled just by paying the commission and having sales reps call on them twice a month. We want to work more intimately with them to help them achieve their goal of bringing more customers into the store, increase the dwell-time in the store, and increase the basket size at check-out. Of course, those goals are somewhat aligned with lottery’s own goals anyway so the ROI on increased effort to support our retailers is very positive. I think there is lots of potential for the lottery product, the lottery playing experience to enhance the overall in-store shopping experience for the benefit of the retailer.
We are fortunate that the value chain of our product, lottery, is much less physical than others. What we are really selling is the idea – the hope and dream for a life-changing event – and a service. That gives us a lot more flexibility in how we adjust to the highly disruptive impacts of something like a pandemic. We are able to adjust our costs accordingly and still deliver our product. Much of the sales-support, for instance, can be accomplished quite handily without physically visiting our retailers as frequently as we used to. Our retailers are fine with coming to our logistic centres to pick up the new advertising materials. And why do we even need paper tickets or receipts? Instant scratchers in paper form still are valued by the players. But don’t you think we could make the transition to fully digital play even in the store? The nature of our product, even the product that is sold in stores, is virtual and can lend itself to a wider variety of creative solutions to preserve its value.
Private operators like sports betting companies and casinos are impacted much more than lottery by the lock-down. They will push very hard for regulatory measures and changes that will help them recover economically. They may ask for direct government aid, fewer and less strict regulations, and lower taxes. On the other hand, the pandemic brings to light the threats that private gambling operator offers represent. Countries like Spain, which closed even the lottery shops, have found a marked increase in problem gambling online. They are starting to apply stricter constraints on the amounts and kinds of advertising of online gambling.
I do not know how or whether governments will increase support for lottery. But I have cautious hope that they will recognize the importance of lottery funding for good causes and that this recognition will cause them to increase their support for their own government lotteries.