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Strange bedfellows or a natural progression?

| By Stephen Carter | Reading Time: 7 minutes
There’s a shift taking place in the lottery world, with digital innovators increasingly looking to forge B2B partnerships with licensed lotteries. Joanne Christie explores whether competitors can become allies

There’s a shift taking place in the lottery world, with digital innovators increasingly looking to forge B2B partnerships with licensed lotteries. Joanne Christie explores whether competitors can become allies

To say there’s been bad blood between traditional monopoly lottery operators and the digital competitors that have sprung up in recent years is something of an understatement.

It’s the lottery betting companies that have attracted most of the ire, with lottery incumbents branding them parasites that profit from their intellectual property and take money from good causes.

To this charge, lottery betting companies have typically responded with something along the lines that state lotteries are stuck in the dark ages and have failed to innovate.

In recent times, however, there’s been something of a shift in thinking. The digital lottery challengers are increasingly looking to work with state lotteries, either instead of, or as well as, competing against them. 

On the face of it, it seems a bit like trying to have one’s cake and eat it too. There’s little doubt Lottoland has been one of the most aggressive competitors to state lotteries and its actions have rankled monopolies and governments across the world.

Yet it is now seeking to woo them via its B2B arm. To this end, it last year rebranded its B2B division from Lottoland Solutions to Alot Solutions.

While the B2B side of the company had successfully been offering its solutions to other lottery betting firms before branching out into online sportsbooks and casinos looking to add a new vertical, it’s now got its eye on licensed lottery operators.

Such is its confidence in its ability to attract the new client base that in late February it even launched a digital retail offering aimed at licensed lottery providers.

“Increasingly we are trying to work with the lottery sector, so charity lotteries, state lotteries, private lotteries. Our technology and our content is perfect for them and it gives us a whole new audience to play with,” says Mike Carruthers, CEO of Alot Solutions.

By any other name
But is simply giving the brand another name enough to convince licensed lotteries to work with the company?

Carruthers believes so. “Rebranding to Alot Solutions definitely helps reduce that friction: separate people, separate tech, separate offices and separate divisions, so it has really taken the best of what was underpinning Lottoland – the prize cover, the technology – and given that an absolutely different package.

“I think that definitely helps when it comes to people’s concerns, but you can’t change everyone’s minds and we will have to earn their respect.”

So far the company is yet to officially announce any contracts with national lottery operators, but Carruthers says the feedback has been positive.

“We have had a lot of one-to-one conversations with a lot of lottery operators and they are very keen to use some of our tech and some of our content so this is definitely being well received by that sector of the industry.”

“The products are perfectly designed for their business and quite frankly their objective to raise money for good causes. Our products can help them sell more tickets and more instant lottery experiences and the prize cover also works to their end goal.”

Playing both sides
However, for some lotteries it might be a tough call to work with a provider that they might see as giving to good causes on one hand but taking away from them on the other, even if Alot Solutions has now been separated from the Lottoland brand.

But Ed Mouton (below), CEO of Gameworx and chairman of the European Lottery Betting Association (ELBA), says he sees plenty of potential for collaboration between state lotteries and firms such as Alot.

“I think as a state lottery you would be foolish to ignore these solutions out of principle, especially if these solutions could drive your state lottery forwards.”

While he admits that it might take some convincing, he says ELBA itself is an example of how bridges can be built. “We started ELBA two years ago as a bunch of competitors that would never talk to each other and now we all look forward to sharing our challenges and trying to find solutions and then we compete on the execution.

“I think this lays a blueprint that can be replicated to begin the dialogue with public operators, to share ideas and collaborate, but it takes open-minded leadership to overcome the hurdles that are in place right now and it will take time.”

One of the key areas in which suppliers could prove attractive to lotteries is in the insurance element. It’s a well-known fact that jackpots are what really draw in the crowds, but jackpots only happen every so often with a pools-based product.

Mouton says the opportunity to offer more frequent jackpots could be attractive to both new and established lottery providers.

The big draws
“The jackpot is what sells the draw but if you don’t have the customers then it is very difficult to create the jackpot, so it is a little bit of a conundrum for national lotteries if they are just starting out or are trying to scale their operations.

The insurance aspect is a very enticing solution; it essentially allows lotteries to drive the popularity of their product on a cost-per-bet basis rather than having to try to raise a $1m jackpot themselves.

“There is no reason why a more established national lottery couldn’t run €10m or $10m hourly draws that they don’t have to cover themselves. They could use insurance to underwrite that capacity.

“The solutions and applications specifically for the insurance side of things across all national lotteries is just what they need at this point in time.”

Another area where he sees potential is distribution. Though the majority of lottery sales still take place via retail outlets, Mouton says this will have to change as people increasingly shop online.

While some have suggested lottery tickets could be sold through e-commerce giants such as Amazon, this throws up challenges that are difficult for most platforms to overcome.

“The irony in this process is that it is unbelievably simple to integrate an API to sell lottery tickets through any e-commerce platform.

“The only challenge here would be the responsibility that e-commerce platform has to take on board when dealing with consumers around responsible gambling and anti-money laundering.

“This is why lottery betting operators would be the perfect distribution portal for these solutions. They are all aligned with exactly the same requirements on a day-to-day basis.”

Right now, it might seem unlikely that lottery betting operators could convince state lotteries to agree a distribution deal with them, but perhaps courier or messenger services may have more luck.

This is certainly what Jackpocket is banking on in the US.

Having recently become the first licensed courier operator in the US via its New Jersey licence, the company also has the backing of state lotteries in several other states where licensing regimes are not yet in place.

As well as New Jersey, it also operates in Minnesota, Texas, New Hampshire, Washington DC and Colorado.

It has also applied for a licence in New York – the only other state so far to announce a courier licensing framework – and Pete Sullivan, Jackpocket’s CEO, is confident that by the end of this year it could be selling digital tickets directly for one of the states that currently has an ilottery.

Starting from scratch
Though in terms of tech, innovation and target market, Jackpocket’s offering may be quite similar to some of the European digital lottery innovators, Sullivan (right) says its strategy has been deliberately very different.

He says it has begun from a position of wanting to work with state lotteries, rather than in competition with them.

“There are a ton of business models and strategies that are what I like to call ‘shiny objects’.

“The short-term value can get you off focus on what the long-term goal is. And rather than chasing the short-term like Lottoland and derivative lotteries – yes, it’s a high monetisation strategy but it has long-lasting detrimental effects to the lotteries themselves – what we learned was there are no short cuts.

“Building relationships and building integrity with each of these lotteries is very important.”

Sullivan is dismissive of the argument that lottery betting is incremental to lottery sales as firms are attracting much-needed younger audiences into the vertical and selling bets on overseas lotteries they couldn’t otherwise buy tickets for.

“I would say that is a bad argument. People have a limited amount of capital to spend so I would say if they are able to get these younger players playing, why aren’t they allowing them to play the official lottery?

“And why are they not making sure the official lotteries are getting some kind of benefit for it?

“I think now they are learning that they need to work with the state lotteries but there is a bad taste in the mouth.”

Of course, it’s easy for US players – and Jackpocket isn’t the only one, rival Lottery.com has also been vocal about working with official lotteries rather than in competition with them – to take such a view.

They’ve had the benefit of many years of watching how things have played out in other areas of the world to go on.

With the benefit of hindsight, perhaps some of the European digital innovators would have taken a different path, especially given the number of countries in which regulators have taken a stance against lottery betting.

However, it’s clear from Zeal Network’s pivot towards brokerage that a company can make the move from state lottery competitor to state lottery partner.

What’s less clear, however, is whether or not a company can straddle both. Although at the time of announcing the takeover of Lotto24, Zeal said its lottery betting business MyLotto24 would continue in other markets, it has now shut the business down.

Asked about the change in strategy, investor relations manager Frank Hoffmann says: “As part of the initiative to internationalise our secondary lottery business in myLotto24, we had been focusing on assessing the profitability of the UK business before pursuing further international markets where national licences are available.

“During the third quarter of 2019, we determined that secondary lottery in the UK would not be able to meet its profitability targets and was therefore stopped.”

While Hoffman says he still sees the lottery betting model as feasible in some markets, he says this is not the case in Germany, the market on which Zeal is now focused.

“After intensive analyses of the regulatory environment in Germany, we have come to the conclusion that the secondary lottery business in Germany has no future.

“We have therefore decided to take the step towards the sustainable, continuously growing and socially valuable brokerage model in Germany.”

While he says the company is not currently planning to launch a brokerage business in any other country, he adds: “Wherever we see opportunities to expand into other markets, we will have a close look at it.”

If the company does have designs on expansion down the track, it is likely to be easier without the burden of a contentious lottery betting business in the background.

However, Mouton, whose firm provides solutions on both a B2B and B2G basis, says it’s not impossible to play both sides of the fence.

“When working with operators, I find as long as the focus is on serving the end user, rather than who else you provide a service to, then there is rarely a problem.

“Judge us on our solutions rather than our associations.”

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