IN-DEPTH 28 March 2018
Panel talk: Lottery Betting speaks out
The lottery betting industry has courted controversy in the gaming world, with those opposed hurling some very public accusations. We spoke to senior figures from three well-known lottery betting firms to find out more about this nascent industry
By Gambling Insider
Dave Avila, CEO, Lottoz
Nigel Birrell, CEO, Lottoland
Matt Drage, Head of Corporate Communications, The ZEAL Group
How do online lottery betting sites differ from the traditional lottery experience?
DA: With lottery betting sites, the customer doesn't buy an actual, physical ticket. The process is similar in that they have to pick numbers and purchase lines, but no ticket is involved. They simply bet on the results of an upcoming lottery draw for a shot at a jackpot that is backed and insured through sophisticated backend technology, which is certified and vetted by the relevant local regulator.
NB: With our additional features our players can enjoy a much more attractive lotto experience than the state lotteries are able to offer. In short, we are innovating the game and shaking the market up!
MD: Our associated company, myLotto24, invented online lottery betting. It has paid out over €1bn in the last decade and holds the record for the sector’s largest single payout of nearly €48m. Choice is a big factor. Online lottery betting offers customers access to a wide range of international lottery products.
What are the most damaging misconceptions around online lottery betting?
DA: Common misconceptions are countered by the appearance of disruptive technology. To start with, we see millennials saying playing lottery is for ‘older people’, but surprised by the thrill and ease of use when they are using the service. Another misconception is that people are not sure if it is legal to play international lotteries. Others question the capability of companies to back such big jackpots. All of these are great opportunities for the industry to educate the customers and for the market to evolve and mature.
NB: Regarding misconceptions the most damaging, all of which are totally untrue, are that we are illegal/fake, that we don’t pay out prizes, that we do not pay tax and that we are having a huge impact on monopolies and their returns to good causes.
MD: One of the problems is the level of inaccurate information put out by groupswith vested interests, to protect their positions. It’s pretty astounding that, on average, just 5% of global billings in the lottery or lottery-associated sector come from online channels. When you compare that to other industries like travel or music, it looks pretty old school. And that’s because of the protected positions that, for instance, state lotteries occupy. Without competition, there’s no incentive to innovate. And that’s bad for consumers.
Do you feel this vertical is well-regulated? If not, what would you change?
DA: Obtaining a licence and becoming totally regulated by the UK Gambling Commission is not something we took lightly. The due diligence process was rigorous and long, but having the UKGC's stamp of approval means everything - to us and to our customers.
NB: It is a highly regulated vertical. Lottoland is officially licensed by the Government of Gibraltar (as is our insurance subsidiary); the UK Gambling Commission; the Republic of Ireland License Office (Revenue Commissioner); and Australia’s Northern Territory Government. We are fully compliant with EU regulations and the terms of all our licences.
MD: Fair, strong and flexible regulation is good for markets. Over-regulation is not. It stifles innovation and competition. That works for traditional, monopoly operators, but it’s bad for customers. Ultimately, they suffer – from lack of choice, opportunity, and access - and this results i exactly the opposite of what they want. Currently, the international regulatory approach is pretty varied.
How important is it that you can always make payouts on time, and how do you ensure this?
DA: If we're not keeping our word to our customers, we might as well close up shop. Making payouts on time is a huge part of building a brand that's worthy of its regulatory status. A big part of our technology lies with how we insure the prizes we offer, making it rigid and robust, to a level that meets our high standards and those of the regulator.
NB: We guarantee all payouts through a sophisticated tried-and-tested insurance structure. This structure is at the heart of our operation and, as pioneers in this area, we are extremely proud of it. We have had to prove our payout capabilities across all of our products as part of the stringent due diligence process in all the regulated markets we have entered into. To date Lottoland players have won over €843 million across its business portfolio.
MD: The ability to pay out in full, on time, every time, is vital to the ‘contract of trust’ – with consumers, partners and regulators. As a group, we have paid out more than €1.3bn over the last 18 years. We have a number of mechanisms that have enabled us to do that – from strong cash reserves, to insurance and sophisticated ILS products.
What do you look for in an insurance partner for a lottery betting company?
DA: Ultimately, solid risk protection and prize coverage. Fast reactivity is also important since this business is incredible dynamic. And range, not just of lotteries. An insurance partner should also offer a range of solutions to varying gaming products – especially if the lottery brand plans to venture into other types of games.
NB: We look for primarily sophisticated institutional investors who understand our business as well as the ILS and/or traditional insurance market. On the 25 September 2017, we announced that we had been granted an insurance licence by the Financial Services Commission (FSC) in Gibraltar in accordance with EU insurance legislation. This newly established insurance company Fortuna Insurance PCC Limited is a subsidiary of Lottoland Holdings Limited. Lottoland is the first and only company in the gaming sector to have established its own insurance company – holding itself up to the highest standard with regards to industry best practice and transparency.
MD: One that shares our belief in ensuring winning customers are paid in full, on time, every time.
How do you answer critics who say you take money away from good causes?
DA: We reassure and educate them. Online lotteries operating under a UKGC license pay dedicated 15% gaming tax, which in turn is used by the government for causes they see fit.
NB: There is no evidence to support the claim that we are having a significant impact on sales, therefore impacting good causes in either Europe or Australia. For example, in Australia, Lottoland accounts for less than 1% of Tatts’ overall revenue. Tatts’ own Chairman Mr Boon has said on the record that online lottery gambling firms such as Lottoland, as well as CrownBet's Crown Lotto, had yet to take any market share from Tatts' lottery business. In the United Kingdom, both the Government (DCMS) and the Gambling Commission have both publically stated that there is no evidence to suggest that Lottoland is having an impact on the National Lottery or good causes – our sales account for less than 0.1% of Camelot’s revenues.
MD: At ZEAL Group, supporting good causes – in a variety of ways – is core to what we do. Through our Lottovate unit for instance, we’ve partnered with UNICEF to launch a new online, national lottery in Norway which will help them raise a lot of money to support their amazing work.
Have online lottery betting companies affected retail shop incomes or lottery sales?
DA: A decline in sales is a result of many factors. Over the past year ticket sales in the UK fell by 8.8%, mostly due to changes which made odds of winning the jackpot slimmer. The online trend can be viewed as a form or rebellion against the traditional lottery. Online lottery offers not only an alternative, but also a range of games and jackpots.
NB: Through customer research we’ve found that often people who bet on Lottoland will remain buying lottery tickets from their national lotteries. That’s because when coming to Lottoland customers are looking for something very different to the turgid and stale traditional lottery buying experience.
MD: Actually, customers tend to bet on lotteries in addition to playing traditionally. That’s counter to the arguments we regularly hear from state-backed monopoly lottery operators and other interest groups. They’re still attached to their national lottery product but also want to benefit from the additional choices on offer. Should lottery betting companies donate to good causes like their state-run counterparts, perhaps even just as a PR exercise?
DA: Online lotteries don’t get to have the immunity state lotteries receive in the form of a monopoly over an entire market. So as long as the playing field is not evened, it is not a business-centric consideration, but we view good cause donation as natural to any business and we are working to fulfill this.
NB: We applaud the good work that national lotteries across the world are doing in regards to good causes, we are not here to take money away from them and we do support local charities in the countries that we operate in. For instance, in Germany, we support a variety of different projects and institutions in the fields of sports and support for disabled people with the Lottoland Foundation (Lottoland Stiftung). In Australia, Lottoland is a major sponsor of the Manly Warringah rugby league club and have recently announced that it will be backing the Mitchell Street Mile race –the charity partner for the race is the Royal Flying Doctors service that will receive AUS $25k from Lottoland Australia plus AUS $25 for every entrant into the race.
Why is there so much confusion surrounding the legality of online lotteries and what can your company do to combat it?
DA: The only way to combat the confusion and suspicion is transparency. Money, data – these are things you have to protect with the finest technological solutions. That's how you build trust and remove confusion. Technology start-ups are a hub for disruption, and usually evolve at a much faster rate than regulators, but the online lottery industry has been in good shape from day one. We have a strong legal framework to work within, and plan to contribute to its evolution.
NB: The confusion in the market comes from untruths and misconceptions that are being spread by lottery monopolies. We are working tirelessly to correct these and will continue to do so. We are clear and transparent with our customers and they are not confused – our site is very clear.
MD: We think the lottery sector overall is ripe for change and as a group, we’re focused on being that positive change-maker; on creating that
better world of lottery.
Do you think your customers are as aware as they should be as to how lottery betting works?
DA: It is a work in progress. It's important for us that customers understand exactly what they are doing when they bet with Lottoz. We produce content that makes it easier for them to grasp the process and differentiate it from traditional lottery playing. It's all about education, and we’re thorough when it comes to breaking down this new experience into its building blocks and truly engaging customers.
NB: We are clear and transparent with our customers throughout the entire purchasing journey that they are placing a bet on a lottery.
MD: We, and our associated companies, work hard to make sure customers know that they are placing a bet on the outcome of a lottery, rather than entering it directly, and exactly what that means for them.
Which geographic markets are seeing the fastest growth in lottery betting?
DA: The natural markets are Germany, United Kingdom and Australia. However, there are some very interesting developments in the Nordic, Latin American and Asian markets that we are also exploring.
NB: Europe and Australasia. We currently operate in over ten different markets across four continents. Our aim is to bring choice to consumers worldwide. We are always looking for new opportunities and, in particular, new markets where we can offer our products.
MD: We think there is more opportunity than ever before – and we’ve got our eighteenth birthday in November! As a group, we’re looking at lots of places at the moment – not just for lottery betting opportunities.