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Trends in e-COMMERCE For State and Governmental Lotteries SMART-TECH 2010 March 24, 2010

Trends in e-COMMERCE For State and Governmental Lotteries SMART-TECH 2010 March 24, 2010. THE LOTTERY and the INTERNET. DESPITE FEDERAL ENFORCEMENT ACTIVITIES, OFFSHORE e- GAMING AND PRIVATE LOTTERY SERVICES HAS EXPANDED SIGNIFICANTLY 11% PER YEAR TO APPROX. $30 BILLION IN 2010

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Trends in e-COMMERCE For State and Governmental Lotteries SMART-TECH 2010 March 24, 2010

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  1. Trends in e-COMMERCE For State and Governmental Lotteries SMART-TECH 2010 March 24, 2010

  2. THE LOTTERY and the INTERNET • DESPITE FEDERAL ENFORCEMENT ACTIVITIES, OFFSHORE e- GAMING AND PRIVATE LOTTERY SERVICES HAS EXPANDED SIGNIFICANTLY 11% PER YEAR TO APPROX. $30 BILLION IN 2010 • US RESIDENTS ACCOUNT FOR OVER 40% OF e-GAMING REVENUES; THESE ARE SALES (>$12 BLN) COULD BE MONETIZED BY STATE LOTTERIES • UIGEA AND PROSPECTIVE FEDERAL LEGISLATION REGULATING e-GAMING CREATES A UNIQUE OPPORTUNITY FOR STATE LOTTERIES TO RE-PATRIATE THESE CUSTOMERS

  3. Getting to Know Online Gamblers

  4. State and Governmental e-Commerce Success Stories • Veikkaus (Finish National Lottery ) Approximately 22% of their sales comes from their e-commerce channel ‘OnNet’ (Lotto, Keno & Fixed Odds Betting); over 1 million registered customers • Camelot (U.K. National Lottery) >12% of their sales come from their e-commerce channel; low cost client acquisition rate & high retention rate; multi channel players are averaging > $ 600 per year • The New York Lottery Launched e-subscription on their website; full launch in 2011 for all ‘numbers’ products

  5. TECHNOLOGY AND POLITICS …TODAY • Unlawful Internet Gambling Enforcement Act of 2006 (‘UIGEA’) provides substantive guidance for state lotteries to operate on the internet • That being said, many would like to see some affirmative comment from the DOJ; there is a unique opportunity for several states to align their interests to clarify the DOJ position • To the extent that e-gaming is regulate in prospective legislation, we believe that a significant majority of state lotteries will have a unique supervisory position for intrastate e-gaming (similar to what we see for VLT’s)

  6. THE NEW PLAYER DEMOGRAPHIC (AGES 18-30) Top Social Gaming Sites • Zynga • Playdom • MySpace • Yahoo Games Top On-Line Skill Gaming Sites • King.com • WorldWinner • GameColony.com • Orange Shark N.B. there are 9 million skill games played worldwide daily

  7. e-Gaming Activity in the U.S.(Page Impressions or ‘HITS’) DOMAINMARKET SHARE 1. King.com 8.9 % 2. WorldWinner 6.5 % 5. FreeSlots 3.1 % 6. DC Lottery 2.7 % 7. Lottery Post 2.7 % 10. New York Lottery 2.1 % EGAMING REVIEW 1/2010

  8. e-COMMERCE SALES PROJECTIONS 2009 Sales e-Commerce Sales (000,000’s)in Year 5 California $ 2,994 $ 450 MLN Georgia $ 3,676 $ 275 MLN Illinois $ 2,161 $ 245 MLN New Jersey $ 2,575 $ 290 MLN New York $ 6.776 $ 760 MLN Pennsylvania $ 3,050 $ 345 MLN La Fleur’s and eLOTTERY internal estimates

  9. THE e-COMMERCE COMPETITION Traditional ‘On-line’ Vendors GTECH ---- G2 (formerly Boss Media and other rollups) SGMS ---- SciPlay(JV with Playtech) Intralot ---- CyberArts(35 % with control rights) New ‘Cutting Edge’ Betware eLOTTERY Harrah’s Interactive Manaccom New Media Lottery Walker Digital (Group Play )

  10. Management No access to source code Key roles password protected Database encrypted Email Subscription System No sensitive client processes ASP.NET Security Best Practices Third Party Transaction verification Players Developers Independent code reviews No access to production system No access to source code Key roles password protected Database encrypted DBA's System Operators Audited and Certified by Online Game Provider

  11. e-Commerce Summary • DEMAND FOR AN e-COMMERCE CHANNEL IS AT AN ALL TIME HIGH FROM YOUR EXISTING PLAYER BASE AND A NEW DEMOGRAPHIC (THE 18-30 AGE GROUPS) • OVER A 5 YEAR PERIOD, WE BELIEVE THAT AN e-COMMERCE CHANNEL CAN INCREASE LOTTERY SALES BY 15% AT NO COST TO YOU AND IN A WAY THAT IS COMPLEMENTARY TO YOUR TRADITIONAL SALES CHANNELS • STATE AND PROVINCIAL LOTTERIES SHOULD MAINTAIN BEST OPERATING STANDARDS AND INTERNAL CONTROLS BY SEPARATING THE WHOLESALER (i.e.‘ON-LINE PROVIDER) FROM THE e-RETAILER SALES FUNCTIONS THE ‘GO-FORWARD’ DECISION MUST BE MADE BY THE LOTTERY

  12. e-Commerce System is Covered by eLOTTERY’s Patents & Intellectual Property • Patent # 6,322,446 (filed in 1999 ) A system and method for operating on- line state lottery games over the internet • Patent # 6,383,078 A system and a method is provided for facilitating on-line lottery games over the Internet which receives caller ID information • Patent # 6,869,358 Broadens prior intellectual property to include instant games that are sold from the computer desktop and addssubscription services as an additional sales vehicle above and beyond a direct sale of services on the internet Received e-Commerce Patents in Canada, Australia and China and patents have been filed and are pending in India, Mexico & Europe

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