Dr. Heinz-Georg Sundermann

Managing Director, Lotto Hessen GmbH

How will the world have changed for the lottery industry after the Corona crisis?

In order to answer this question, it is first necessary to take a look at how the lottery business has been impacted by the crisis. I think it is important to note that in the pre-Corona period, we often talked about the gambling industry only as a whole. During the Corona crisis, we have now become aware that the gambling industry cannot be seen with this closed view any longer. Sports betting providers, amusement arcades and casinos have a completely different business model in comparison to that of us lottery providers. Their business model of entertainment providers has been particularly hard hit during this time when unnecessary physical contact has been banned almost all over the world. The situation is different for us lottery providers, who generally do not make independent offers to our customers in our own shops, but instead combine our offer with that of food retailers or the sale of magazines, for example. This model has proven crisis-proof. For example, 2050 of the 2100 shops in Hesse are still open, and the situation is not much different in the rest of Germany. At the same time, our products offer a piece of normality, which people need more in some times, especially in times of crisis. In this respect, after more than 2 months of corona crisis in Germany and large parts of Europe, it can be stated that our business model is essentially stable, while at least the traditional retail  business of our gaming competitors in the sports betting sector, amusement arcades and casinos has come to a standstill.

We can even go so far as to state that our retailers in our different locations are very grateful that they can rely on our technical service and support even in times of crisis. And the reactions of our customers also show that we are not only, but especially in these times, regarded as a reliable, stable partner and provider.

Can expectations for the coming period after the Corona crisis already be inferred from this?

It is certainly not easy to say in the middle of the crisis how the time after the crisis will develop. But one thing should be clear. Traditional lottery providers, especially in markets like Germany, will emerge from this crisis stronger than before. This will be so first, because they will have proven  that their products are in demand even in times of crisis. Second, they will have proven to be stable and reliable partners for the retailers with whom they work, partners who are there when they are needed. This applies not only to the gambling offers, but to almost all German lotteries, including LOTTO Hessen, who have also contributed to making life in the retail outlets safer for both staff and customers. If at all, there are probably only a few other consumer goods providers who have made the same commitment as the lottery companies to overcome this crisis together. I am convinced that this behaviour will yield not only recognition but also stability in the cooperation with our partners after the crisis.

The situation is different for gambling providers in the area of sports betting, amusement arcades and casinos sectors, at least as to their face to face offers in their shops. Whether indebted or not, they have not made any stationary offer to their customers throughout the crisis. At the same time, the costs have continued to run for them or their franchisees. Market leaders such as Tipico have suffered particularly badly from this situation. Their balance sheet therefore appears to be pretty sobering during the time of this crisis, especially since, in the absence of an adequate sports betting offer, not even the sports betting providers are able to make up for part of the losses via the Internet. If they survive financially at all, they will encounter customers who, at least in the initial post-crisis period, will be very reluctant to accept their offers.

In summary, it can be said that in all those countries in which lottery providers have been able to continue to offer their products on a broad and stable basis to their customers and have provided a stable and reliable service to their sales outlets, they will emerge from the Corona crisis stronger than before. Exactly the opposite is the case for gambling providers on the ground who offer sports betting, or operate amusement arcades or casinos, as they are currently suffering great economic damage and have unsettled their customers at the same time. For the state-owned providers, life after the crisis will initially continue normally, while the other providers will have to work their way back into the market with difficulty.

Is the assessment the same for the Internet sector?

For years now, the state providers have been trying, with varying degrees of success, to make their Internet offering attractive enough for younger customers in particular to access it. If I look at the development of Internet sales and customer numbers during the Corona crisis for LOTTO Hessen, I can see that both figures have developed very positively, just like with most other state providers. Home office for many people as well as the restrictions in face-to-face shopping have led to a boom in the Internet sector. In addition to the positive effects in the retail store sector, the Internet sector is a business area for state providers that has developed positively during this time of crisis. The more the individual state provider can claim that it has already made customer-oriented investments in its Internet system in the pre-crisis period, the more the increasing number of customers during the crisis will prove stable in the post-crisis period as well. For LOTTO Hessen, I can therefore say that I expect the Internet to account for a growing share of total sales in the coming years. If we are currently at around a good 10 %, a revenue share of up to 20 % in a 5-year period appears realistic.

The situation is the same for gambling providers in the sports betting sector, for both traditional retail and on the Internet. In the absence of sports events, no satisfactory offer can be made and thus there are no customers to whom one can make an attractive offer.

As a result, the same applies to casinos and online games. Here not because it is not possible to make an offer, but because both offers are still prohibited on the Internet, at least in Germany. In this respect, classic casino operators cannot profit from the Internet in these times and the same applies to the large arcade operators. Of course, there is also a considerable black market in this area in Germany, which certainly could also report increases in turnover in these times of crisis. However, these are essentially dubious operators, and it remains to be seen whether they will be able to defend the positions they are possibly trying to establish illegally once the State Treaty on Gambling comes into force in 2021.

If we look 2 years ahead, what changes can we expect then?

All market participants will of course make the observation that the state providers will come out of the Corona crisis quite well with their offer, whereas other gambling providers will have to deal with the financial impact to some extent, and will draw the appropriate conclusions from this. And for the providers from the non-lottery sector, these will above all attempt to get into this obviously more stable business model of state lotteries.

In principle, the 2021 State Treaty on Gaming provides a solid basis for the lottery monopoly in Germany, as it has always existed in Germany. But for me there is no doubt that private providers from other gaming sectors will try more aggressively than before to enter this area in addition to expanding their existing offerings. After all, this area obviously represents a safe anchor in stormy seas. The state providers must prepare for this at an early stage. And I am convinced that they  can do it, too. They have the aforementioned results on their side. They are emerging from the crisis stronger - as reliable and reputable partners to their retail partners and have been able to give their customers the feeling that they stand for normality and a positive life dream even in uncertain times. At the same time, it is probably not only in Germany that most lottery companies are currently making efforts to support their long-standing partners in sports and the common good in order to survive the current challenges. While other sponsors are falling away, many of us are there. It is also through this commitment that many, from politicians to ordinary customers, once again understand how important an orderly state-regulated lottery system is for the common good. Assuming that we, the state-regulated lottery providers, continue to follow the path described above in the further course of this pandemic, which has not yet ended in any way, we will also earn the return on our conduct in 2 or 3 years' time, when private providers will certainly attempt to penetrate our market. Despite all our efforts, this positive outlook should give us the strength to continue to present ourselves as a reliable and serious partner for our customers, for the retail trade, for the clubs and events we sponsor, for our regulators and for politicians. If we then continue to develop in the direction of customer orientation, we can also look to the future with optimism over a medium-term period.