It could be U(S)
US lotteries are charting a course to being the primary operators of intrastate gaming. Which providers stand to win?
Potential B2B opportunities arising from the intrastate initiatives in California, Florida and New Jersey are understandably commanding the attention of the now predominantly Europe- based industry, effectively shut out of the single most valuable egaming market in the world.
However, a number of state lotteries are stealthily charting a course to becoming the primary operators of intrastate gaming in their respective states, with the major lottery providers in the US “ GTech, Scientific Games and Intralot “ standing by with the platforms and products via their interactive arms to help them achieve this.
While selling products, lottery or otherwise, via the internet still remains virgin territory for most US state lotteries, a number plan to offer lottery products and casual/skill games online by the end of 2010.
Lotteries such as New York and DC are among those looking to add cash-based wagering products such as poker and casino as soon as regulation allows.
As for taking the initial step, the US state lottery community is awaiting the US Department of Justice’s (DOJ) response to Illinois governor Pat Quinn’s 11 December 2009 letter requesting its opinion on the Illinois Proposed Internet Lottery Pilot Program, which would implement the sale of Illinois lottery tickets on the internet.
In the letter, Quinn cites the state’s fiscal crisis and the need to raise additional revenue to fund important state programmes as the state’s reason for doing so.
This despite the fact most legal authorities on US gaming law would agree with US interactive gaming law expert Martin Owens’ statement that, other than sports betting: “The DOJ, under the US constitutional system, has no authority to tell states what sort of gambling they can legalise within their borders.”
Thus while the big three lottery providers confirm they are talking to their clients about moving beyond pure lottery products towards offering a wider portfolio of games online like their counterparts in Europe and Canada, the president of lottery giant GTech’s egaming division, GTech G2, Atul Bali, emphasises that “state lotteries will not move into this space without clear legislation on the type of games that they can offer for cash”.
Recent incidents reflecting the lack of clarity around remote gaming payments in the Unlawful Internet Gambling Enforcement Act also serve to inject a cautionary note into lotteries’ plans for online.
Residents of New Hampshire going to buy state lotto tickets at lottery terminals with credit cards recently found these transactions blocked by their banks, the latter apparently unsure about what constituted an illegal payment under the Act.
Testing the water
But despite the lack of a green light from the DOJ to date and the perceived lack of clarity on behalf of state lotteries around remote payments for online gaming products even in the event of local laws being passed authorising this, the US’ largest state lottery, New York, has chosen to test the water by allowing residents to use credit cards to buy subscriptions via the internet to one of its lotto products on a pay-to-play basis.
And while a NY Lottery spokesperson told eGR its immediate priority “is to examine ways to sell our current NY Lottery games on the internet to state residents”, she also confirmed that: “The New York Lottery is looking at pursuing online gaming, and is having talks with various levels of government to do so. It is on the radar, and we are looking to move into that realm, but there’s nothing to report right now.”
The Illinois Lottery also confirmed it was “working on a suite of 20 or so non-gaming internet-based games” to be rolled out in a new lottery player loyalty section on its website by summer 2010, where eligible lottery players will be able to progress through three phases “ fun play, tournament play, and points for prizes. A spokes-person said: “This will allow players to interact with each other and the Lottery on a daily basis.” In other words, this will help Illinois Lottery to establish its online portal as a destination for interactive games.
Indeed, Bali at GTech G2 is firmly of the opinion that: “Legal internet based wagering in the US is likely to start in the form of lottery games. This may extend to skill games which could include poker.”
To these ends, GTech G2 is implementing a range of play-for-fun, P2P skill games for the California Lottery. Bali said: “We view our casual/skill gaming offering as being a key strategic play for US lotteries to gain valuable insight into the channel and begin to build a player database.”
Bali also confirms GTech G2’s GMS backend “ which would allow products such as poker and casino to be quickly integrated “as soon as regulation allows” “ is already being deployed in play-for-fun installations in other jurisdictions due to its player management and CRM benefits.
Indeed, if the US does regulate along the lines Bali is predicting, GTech’s primary lottery contracts in 25 of the 41 US lottery states (including six of the eight potentially largest intrastate egaming markets in the US postregulation, according to H2) would position GTech G2 well to tender for future contracts to supply these lotteries with egaming solutions and therefore to take market share in a future regulated US market.
The Big Three
This possibility has not, of course, escaped the attention of GTech’s main competitors in this space, Scientific Games and Intralot, both of which recently clinched deals bolstering their capability to supply state lotteries with egaming products.
Scientific Games, which has relationships with most US state lotteries through its dominance of the instant-win ticket market, in January established the SciPlay joint venture with egaming software giant Playtech, aimed at delivering internet gaming solutions to government-backed lotteries.
Intralot’s interactive I² arm also clinched a deal last December for a stake in California-based software provider Cyber- Arts. SciPlay chief executive and managing director Rick Weil, who spent 10 years at Scientific Games prior to leaving in 2004 to establish casual skill/games and fantasy sports provider Fun Technologies, agrees with Bali that lotteries, rather than land-based casinos, will spearhead the next wave of regulated US egaming.
“Casinos are private enterprises, while lotteries are state managed. The state government view is that lotteries provide way more in aggregate than casinos to social programmes and education. And the lotteries’ perspective is that they will be the primary provider of intrastate online gaming in the US, when it happens,” said Weil.
Scientific Games is already providing interactive solutions to state lotteries, such as second chance draws and loyalty clubs. “This has brought traffic to websites for nothing, players register, interact; it’s a powerful tool,” said Weil.
From soft to hard gaming
John Pittman is VP of sales and marketing for Intralot US, which has 13 lottery contracts in 11 states, including as primary provider in the states of Ohio and Wasington DC, both potentially lucrative intrastate egaming markets.
“Lotteries and soft-play games will add significant value as the US market moves forward into internet and interstate gaming,” Pittman told eGR. “Lotteries are the perfect place to do this as opposed to casinos, as they have a trusted brand and a public commitment to social responsibility.This move will happen in the relatively near future. I see things happening in 2010.”
But while Pittman discloses Intralot is talking to several states about providing more than existing lottery products online, he is also aware that the extent to which this progresses in 2010 hinges on “what happens with the DOJ opinion to Illinois and also with regard to the Unlawful Internet Gambling Enforcement Act”.
Intralot I²’s buy of California-based software provider CyberArts, seen by many industry observers as also positioning Intralot for a tilt at the intrastate poker contract there, should this be put out to tender this year, also forms part of Intralot’s targeting of state lotteries as a potential route into a regulated US egaming market.
“The CyberArts acquisition is an excellent move for us, it has a world-leading poker platform, and also bingo, multiplayer games, blackjack, perfect for introducing and getting the public used to playing those types of interactive games,” said Pittman.
Weil at SciPlay confirmed to eGR it had involvement in Iowa lawmakers’ new proposal to offer intrastate online poker, which would skirt the lack of clarity around remote payments for egaming by requiring local residents to register and deposit for the service at the state’s 17 casinos.
Indeed, of the three providers, Weil at SciPlay is perhaps the most bullish regarding business opportunities with state lotteries in cash-hungry states looking to expand into egaming.
“Interactive is taking off right now. I’m a big fan of convergence, of lottery games and products, casual games, and poker and casino, and SciPlay is positioned in the middle to bring all these together.
Playtech is primarily hard gaming, but has the tools and marketing experience to apply to soft games too. We plan to develop this platform together to deliver responsible social-type gaming and grow that into a full gaming platform as regulation allows.”
Given their lottery parents’ existing relationships, GTech G2, SciPlay and Intralot I² would have advantageous positioning when tendering for future contracts to support any US state lotteries expanding into online gaming. But as recent deals in the business-to-monopoly (B2M) market demonstrate, such as GTech-supplied Danish state lottery Danske Spil recently selecting PartyGaming for poker and casino when the Danish market opens next year, existing relationships are no guarantee of winning future contracts.
The big three will be competing against more than each other if and when US state lotteries look for a provider to support their move into offering any form of egaming online.