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Can Casinos Learn from the Lottery?

In a grab for the gambling dollar, scratch-ticket peddlers may have an edge on casinos

Can Casinos Learn from the Lottery?

Illustration depicting an illuminated neon sign with a lottery concept.

Each time the nationwide lottery jackpot starts to climb, Nevadans flock to the border states of Arizona and California for a chance to win big. For them, it’s worth the trip (and hours of standing in line); in February, the Golden State’s best-selling lottery retailer, Primm Valley Lotto on the Nevada-California border, sold a winning $191 million Mega Millions ticket.

Which begs the question: Why does Nevada, the gamblingest state in the union, continue to ban in-state lottery sales? In the past 30 years, lawmakers and lobbyists have tried dozens of times to amend the state constitution and establish a lottery. In 2016, when the latest bill failed, its sponsor, Assemblyman Harvey J. Munford, bemoaned the potential millions in revenues that could be “helping the education of our younger constituents… without increasing taxes.”

“In Nevada, it’s not a concern about gambling from a moral standpoint, which is why Mississippi and Alabama don’t have lotteries yet; it’s not opposition to gaming in general, which is which is why Hawaii and Alaska have neither lotteries nor casinos,” says Victor A. Matheson, gaming expert and economist at Holy Cross College in Worcester, Massachusetts.

“Obviously, Nevada’s casino owners don’t want the competition.”


Throwing a buck in the office lotto pool or buying a ticket at the 7-Eleven is far different from gambling at a casino, but the industries often act like squabbling siblings. And surprisingly, in important ways, lotteries may have a leg up on casinos.

The Halo Effect

First, there’s the convenience factor. Lottery tickets are sold at more than 200,000 retail locations nationwide, according to the National Association of State and Provincial Lotteries.

Second, there’s the potential windfall. The lottery offers a chance at a life-changing bonanza, like the $1.6 billion Powerball jackpot split by players in California, Tennessee and Florida in January 2016.

“Even the biggest casinos aren’t capitalized well enough to take a billion-dollar loss,” says Matheson. “The lottery does it by spreading it across hundreds of millions of ticket buyers.”

Then there’s the perception of the lottery as a benevolent organization, almost a charity. The Pennsylvania Lottery, for example, funds senior services. In Colorado, it’s the environment. In the

Hallmark verse of, the website of the Wyoming Lottery, the state’s cut is earmarked for “our cities, towns, and counties, to build a brighter future for the places we call home.” Minnesota spends it on school aid and crime control. Delaware, Iowa and other states toss their share in a general fund. While lottery critics complain that the money does not constitute a net gain—the amount is simply subtracted from what would have been allotted for education, for example—the image pushed by marketers is still beatific.

“The Brits call it ‘good works,’ so you as the gambler have some sense of where your money’s going if you lose,” says Matheson. “In a casino, all you know is it’s going into Sheldon Adelson’s or Steve Wynn’s pocket.”

Lotteries and casinos may be fighting over the same gambling dollar, but they share important challenges. The current generation of players is aging out, and new ones haven’t readily stepped up to replace them. All but a few states have resisted online sales, leaving out the digital natives who might grow into that next pool of customers.

Parallel Lines

“Both casinos and lotteries are trying to overcome player stereotypes in the design of our product and the delivery channels, especially for millennials who see these games as part of the parental generation,” says Rose Hudson, president and CEO of the Louisiana Lottery and also president of NASPL. “Casinos are trying to get folks into their bricks-and-mortar buildings. We’re challenged to get those same young players to spend their entertainment dollar on our product. We’re both trying to figure out a path forward.”

“We’re in the same situation as the casinos,” agrees Laura Solano, director of the Colorado Lottery. To win that emerging player, “we’ve taken things that are experiential, like virtual-reality scavenger hunts and digital games that are fun and free to play but not connected to a sale. We’ve developed Colorado-themed tickets with second-chance appeal. For instance, Colorado’s natural amphitheater at Red Rocks celebrated its 50th anniversary last year. We developed a partnership with them, a second-chance draw giving away multiple concert packages throughout the run of the ticket.”

Similarly, when Denver International Airport marked its 25th anniversary, “we sent that younger millennial generation of frequent flyers a chance to purchase a ticket and then enter into a second-chance draw,” says Solano. “We have so many fun special events—arts festivals, baseball games, state fairs—where the second-chance giveaway is a park pass for the next full year. Those initiatives really reach out to that generation as we attempt to make new friends and develop new lottery players.”

By the way, Solano adds, “We have a very good working relationship with our casinos in Colorado. A handful are actually lottery retailers, where we’ve placed scratch-ticket vending machines. We don’t have an adversarial relationship.”

That’s the Ticket

Even some on the lottery side aren’t eager to see more games migrate online, fearing it would take a chunk out of retail sales. It’s a hot topic among NASPL members, says Hudson, and plans there are afloat that could help the channels work together: offering online coupons that can only be redeemed in stores, for instance, and making sure retailers continue to cash out winning tickets.

“There are ways you can highlight these stores via geomapping for your customer and still give your online customers what they want,” says Hudson. “That’s the discussion, but we haven’t been able to bridge the gap because some members are so strongly opposed”—not to mention most of the states.

It seems inevitable that lottery games will one day be played online, but it may be a long time before state governments drop their resistance. They’re concerned the state-blessed, often state-run games may “cause more problems in society than they’re worth in terms of revenue,” says Matheson—aka problem gambling, increased gambling among the poor, etc.

Meanwhile, in many ways, the lottery and casino industries have merged. Major casino gaming manufacturers including IGT and Scientific Games are also the leading suppliers of lottery games, and in some cases, subsidiaries of such companies are actually running the lotteries, as in the case of Northstar, a third-party provider that fell short of revenue projections in Illinois and was ultimately “fired” from its 10-year contract.

“There is a lot of overlap between the lottery and casino segments,” says Matteo Monteverdi, IGT’s senior vice president of global product marketing, interactive. “In mature jurisdictions like Canada or many European states and countries, the lottery operators are running the lottery and casino businesses. That, I think, is a natural evolution, a convergence of the two sides coming together.”

He notes that the Georgia Lottery offers many iconic titles that are familiar to slot players, including “Ghostbusters” and “Cleopatra.” “They are the same games you will find on the casino floor. So there are a lot of best practices you can take from one industry to another. They are very much interchangeable, and we see a tremendous opportunity to work together to generate incremental value for our customers.”

Sporting Chance

That goes for sports betting, too. In Italy, Monteverdi points out, Lottomatica is “one of the largest sports betting operators, competing against Bet 365, Paddy Power and all the traditional betting operators. The two worlds are competing one with each other but at the same time working together to regulate the industry and eventually grow the market.”

The market is a big one. In terms of revenues, U.S. casinos and state lotteries are neck-and-neck. In 2016, lotteries brought in $80.5 billion across 44 states and the District of Columbia, and U.S. casinos hauled in about $80 billion (counting commercial and tribal gaming halls).

If legal sports betting becomes widespread in the United States, will it split the gaming pie even more? Hudson contends lottery operators should get a piece of that action.

“It is just more of what we do, and lottery could be positioned” to perform as an operator in that case, she says. “There are states that are moving into the legalization of sports bets to bring that significant money into the sunlight. For us, it would be another piece of a gaming portfolio.”

Monteverdi agrees. “Sooner rather than later, everybody is anxious to see it regulated, not only because it will provide a lot of jobs and generate a lot of revenue for the states but also because it will protect players who are completely unprotected now. If casinos and lotteries come together and push in that direction, obviously they can only benefit.”

As for the future online, Hudson says, “The business model is ready. The blueprint is ready. It’s ripe for us to do that. But our state is not prepared to swiftly move in that direction, so we’re kind of sitting on our hands, and other states can be in the same situation.”

“From an industry perspective in Colorado, we’re taking baby steps, expanding into a digital environment but not necessarily selling online,” adds Solano. “We have to understand the changing demographic and make sure we make new friends. We need new core players, but we also need to keep our current core players. I’m an old Girl Scout. It’s the Girl Scout adage of, ‘Make new friends and keep the old.’”

The million-dollar question remains: Are casinos and lotteries natural rivals?

Hudson doesn’t think so, and if they are, they shouldn’t be. “We have these businesses that rely on integrity and public trust, so I would look for opportunities for us to share or collaborate on technology, fraud protection and prevention, and how to be good corporate citizens around the whole issue of responsible gaming. We should be learning from each other.”

‘The Same DNA’: Lotteries, Casinos and the Future of Gaming
Matteo Monteverdi, Senior Vice President, Global Product Marketing, Interactive, IGT

GGB: How similar are online lottery games to online casino games? How do they differ?

Monteverdi: Online lottery games and online casino games share much of the same DNA. In many cases, the visual output and delivery mechanism may differ between the two, but both products share the same key objective—entertain the player.

Online lottery ticket sales legally spurred online gaming. Who is best positioned to run wagering online, the casinos or the lottery organizations?

IGT’s position is that as long as jurisdictions retain their rights to legally regulate gaming within their borders, all qualified operators (either lotteries or casinos) should have an equal opportunity to run interactive wagering.

Will lotteries and casinos unite when it comes to expanded betting in the future, like legal sports betting?

I think we will see similarities between lotteries and casinos in terms of the offerings they present to players, especially as betting markets mature. In Italy and Denmark, for example, lotteries compete head-to-head with commercial players in the sports betting market.

Lotteries have worked hard to establish their brand values and are identified with solidity and integrity. This can be a real asset in areas such as sports betting, where trust is a key attribute and one that casinos may need to build further. In the land-based or retail space, there are fewer similarities: lotteries sell tickets at retail stores and become part of a player’s weekly grocery shopping. But casinos are a dedicated leisure destination. Where stand-alone betting shops exist, they sit between these two; they are located on a main or “high” street, and are easily accessible, but are more of a conscious destination than the lottery seller, who becomes embedded in a player’s weekly routine.

These differences naturally lead to different products. The lottery model of buying a ticket, going away, and returning at some future time to collect winnings could be suited to longer-term pre-match betting—for example, a complex system to bet on this weekend’s football games—whereas the continuous player presence in a casino or betting shop would lend itself to live, quick-win styles of betting.

The online space is where the boundaries start to blur, increasingly on mobile. Every gaming experience is competing for the player’s attention, but on a level playing field, an online casino app may not have the stickiness of a physical casino, whereas a lottery app would not have the overheads of physical space that prevent it having an extensive range of content.

Ultimately, regulations will drive what lotteries and casinos do.

What can casinos learn from the lotteries, and vice versa?

There are two areas where casinos and online casino operators have learned from lotteries’ experience. One is the appeal of a progressive jackpot, and the second is the benefit of providing more immersive digital games.

For many years now, the casino industry has offered players life-changing progressive jackpots, similar in scale to lottery jackpots. Players can win multimillion-dollar payouts with a small wager on a slot machine. And to make the progressive jackpots larger, casinos share the link across the floor and across properties, similar to lotteries where multiple retailers in multiple jurisdictions sell tickets for the same progressive, increasing the size of the jackpots.

IGT recently introduced MegaJackpots online, and it is doing very well. Like casinos, the online progressive promises life-changing jackpots and the players have four different titles that they can play to win. Progressive jackpots are becoming more and more common online.

Secondly, lotteries created a new format of games when they made the common scratch ticket digital. The resulting games were more immersive bonus-like games that gave players a more entertaining experience. These games have quickly grown in popularity. The games are like slot bonuses from a casino floor, and use the same math as a lottery scratch ticket. The result is a new format and experience and new price points that work for an online lottery, and have captured the attention of online casinos as they look to expand their virtual game mix.

In terms of what lotteries could glean from casinos, casinos arguably have had more sophisticated player loyalty/reward solutions, and lotteries can perhaps benefit from those features/experiences as they relate to lottery player engagement.