The lottery segment accounts for almost half of the gambling industry's revenues; for this reason, governments seek to control it, often through monopolies. Keep reading to learn about the past and present of lotteries and take a peek into their online future.
The gambling industry's holy grail, lottery gaming, is kept away from the reach of private investors through state monopolies that go back decades, when not centuries.
However, not all is lost: conflicting regulations appear to be threatening the status quo, while trailblazing game providers are rethinking the genre entirely, adapting it to modern players' sensibility.
In this article, we'll take an exhaustive look at the segment's size and trends, learn about the history of this type of game, their legal status, what has limited their online success so far, and what products are taking lottery gaming into a new era.
The lottery segment at a glance
Lotteries are an extremely lucrative segment of the gambling industry: raking in over €250 billion in 2018, they account for nearly half of the entire global gambling market value.
In the United States, with relatively little competition from other forms of gambling, the sector’s turnover amounted to $83 billion (€68.4 billion) in 2019. In Europe, the largest online gambling market on Earth, it reached a mind-boggling €92.3 billion a year before that.
The massive Western European markets make up the bulk of this number.
In 2019, the German lottery system (Deutsche Lotto- und Totoblock, DLTB) recorded €7.3 billion in revenues, whereas the UK National Lottery raked in £7.9 billion (€9 billion). France's La Française des Jeux (FDJ) reached €13.7 billion in stakes for lottery games, accounting for an astonishing 79% of the group's revenues. Most impressively, proceeds for the lottery segment hit the €20 billion mark in Italy.
The market trends differ from region to region, with some countries exhibiting record growth thanks to the introduction of new lottery products (as is the case for France, +6.5%, and the United Kingdom, +9.7% in 2019) and others suffering mild declines (for example Germany, -1.2% during the same year).
The impact of the global pandemic will have to be taken into consideration in future analyses, as the segment, being heavily skewed towards offline gaming, is likely to have shrunk due to the forced closure of brick-and-mortar points of sale.
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A little history
While these numbers are nothing short of impressive and would tempt any investor to enter the market, there's a catch.
While mentions of lottery-like games can be found throughout history all the way back to ancient China, the most played modern versions of the game can be said to have originated in two merchant centres: the Low Countries and the Republic of Genoa.
The earliest modern lotteries documented took place in the Late Middle Ages, more precisely in the 1440s, in the bustling cities of County of Flandres, today part of the Netherlands, Belgium, and northern France. These lotteries were organised specifically to finance public works, like the renovation of city walls or the construction of churches. It's not by chance that the longest-running lottery in existence today is the Staatsloterij, the Dutch State Lottery, active since 1726.
In the early 1600s Genoa, we can instead trace the origins of lotto, which started as a betting game between private citizens. The game's objective was to guess which candidates to public office would be extracted in the draw used to assign the positions. Soon after, the republican government took over the game's organisation, replacing candidates' names with numbers, increasing the frequency of extractions, and taxing participation.
On the other side of the Atlantic, lotteries are a staple of United States' history since their infancy: in fact, the sale of tickets funded part of the 1600s British colonisation, and the same can be said of the colonies' infrastructure and colleges, all the way to the War of Independence, when the Continental Congress even attempted to fund its war efforts by organising a lottery. Given the local population's aversion to taxation, lotteries made for an excellent way to finance public spending.
However, after the Civil War, lotteries fell out of fashion due to religious and social pressures. It took a century to see a turn of the tide, with New Hampshire's 1964 decision to legalise lotteries and organise one to rebalance the state budget and fund its education system. The rest of the country, and its neighbours to the north, quickly followed suit, with the vast majority of American states and every Canadian province running their own lotteries by the beginning of the 2000s.
This will remain a leitmotif throughout modern and contemporary history: lotteries were born as a way for institutions to finance public spending, and they continue to serve the same purpose today, thus the tight grip on them by state monopolies.
Gambling for good
Today, the proceeds of national lotteries and other games controlled by state monopolies may or may not formally be included in a country's balance sheets. If they aren't, they are generally destined for "good causes", with the effect of covering public expenditure for items like sports, culture, and education, de facto freeing up other public funds.
Due to this, lotteries tend to escape the stigma associated with gambling, to the point of being perceived by some as a form of charity.
A few examples. The European State Lotteries and Toto Association, better known as European Lotteries (EL), reported a total contribution to society of €20 billion in 2018, equal to 52% of the combined gross gaming revenue (GGR) of its 72 members across the continent.
In the United Kingdom, 40% of the lottery proceeds is collected by the government and destined to financing the Department for Digital, Culture, Media & Sport.
In the United States, the percentage of profits withheld by local governments tends to be lower, with only two states hitting the 40% mark and a national average of 28%. The National Association of State and Provincial Lotteries (NASPL) publishes a detailed report of where the profits collected by its members across the USA and Canada go, with education and problem gambling services being the most common destinations.
The riddle of European lottery monopolies
The European market is arguably the most interesting when it comes to state lottery monopolies' legal implications.
In 1992, the European Council decided to exclude gambling from the process of unification of the block’s markets. The basis for this was “subsidiarity”, one of the core principles of European law. Subsidiarity allows member states to retain regulatory power in areas where they can exercise it more effectively than international institutions. Following this decision, national governments got to keep regulatory authority over their local gambling markets.
This decision, however, is at odds with the "country of origin" principle outlined in Article 56 of the Treaty on the Functioning of the European Union, according to which member states can’t impose restrictions on the access to services provided by vendors established in another member state.
The application of the country of origin principle often results in EU states engaging in “regulatory competition”. To discourage the relocation and retain the tax contributions of service providers that are free to operate from anywhere in the Union, member states are incentivised to relax their regulatory framework and align it to that of the most lenient jurisdiction.
Regulatory competition, particularly in the context of a sensitive industry like gambling, is seen as an issue by EU member states. To avoid it, proponents of gambling markets segregation began appealing to the principle of “proportionality”, according to which national regulations are legitimate if they and their enforcement are in line with their intended purpose.
This change in approach was cemented by a seminal judgement by the Court of Justice of the European Union (CJEU) in 2011, when a Maltese company unsuccessfully confronted the French government over the right to offer bets on horse racing.
In line with the principle of proportionality, the CJEU declared monopolistic gambling regimes lawful exceptions to the free market if and only if restrictions and regulations are applied to actively and effectively pursue the objectives for which the monopoly was imposed; responsibility to judge whether this is the case was given to national courts.
In other words: according to EU states, the objective of national monopolies and local regulations in the gambling market is to curb social issues and fraudulent activities (like tax evasion and money laundering) tied to the gambling industry due to its peculiar nature. This is seen by the CJEU as reasonable grounds for exception to communitarian rules.
Over the last few years, this line of thought has crystallised, with mixed results for state monopolies.
For example, in December 2018, the CJEU confirmed the Italian national court's decision to deny Stanley International Betting Ltd entry to the local lottery market, de facto solidifying the state monopoly.
On the other hand, a year before that, the Administrative Court of Munich ruled against the German monopolistic regime on the basis of the same principles. The court found that the aggressive advertising techniques (e.g., jackpot advertising) employed by federal state lotteries didn't meet the purpose of existing regulations. As they provided incentives to participation rather than just channeling gamblers into a regulated system, state lotteries were in breach of the principles outlined in the Interstate Treaty on Gaming (Glücksspielstaatsvertrag, or GlüStV).
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The interaction between national and supranational laws regarding gambling in the EU is as intricate as it is interesting, and questions remain as to what the future reserves.
National governments appear to be unwilling to relinquish control over the gambling market. Some monopolistic organisations like the Swedish Svenska Spel are even pushing for the ban of derivative gambling forms like lottery betting (in which players bet on the outcome of lotteries instead of acquiring tickets to participate in the draw), claiming that these reduce their own market share.
Meanwhile, European institutions seek to impose a degree of coherence in gambling law. States will have a hard time trying to justify why monopolies are widely imposed for lotteries, while more addictive forms of gaming like slot machines and betting have generally been liberalised.
The different types of lottery games
Now that we've covered lotteries' history and legal status, it's time to analyse it as a game typology. On top of traditional lotteries, we can recognise a few other variants: lotto, bingo, keno, and instant lotteries.
Traditional lotteries are very simple and the most well-known variant of the genre. Players buy a ticket to enter a draw; if the number on their ticket gets drawn, they win. There are usually both a main prize and a series of minor ones on the line. The jackpot can be either a fixed amount or dependent on the number of tickets sold.
Perhaps the most successful variant of lottery games today, lotto is the direct descendent of the previously mentioned game devised in Genoa in the Renaissance. Like traditional lotteries, lotto tends to be controlled by state monopolies. Players choose a series of numbers out of a given range and place a bet; if all the numbers are predicted correctly, they hit the jackpot. For those who get only a few numbers right, there are smaller wins with varying stake multipliers.
A peculiarity of lotto is that its jackpot is subject to rollover – that is to say, if it's not won in a draw, it gets added to the subsequent draw's pot. As the cost to participate in the game and the odds of winning are fixed, the expected return from the purchase of a ticket varies depending on the size of the jackpot, making lotto a unique game of chance.
Bingo comes in different local versions, but it's fundamentally a game in which players buy a ticket with a series of numbers arranged on a grid, and a host draws numbers at random. If a player has a winning combination of numbers called out, they are awarded a prize.
Commercial bingo is traditionally played in dedicated halls, but games are also organised for various charitable causes, particularly in the United States. Some jurisdictions maintain a monopoly on bingo, whereas in others the game is relatively liberalised; it is also available in electronic variants in online casinos.
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Keno is a traditional Chinese game, similar in concept to bingo. Players have a ticket with 20 numbers, and a host draws 20 numbers from 1 to 80. Wins depend on the number of matching numbers and the paytable used in the specific establishment. Interestingly, the probabilities of hitting all 20 out 20 numbers are virtually negligible, but scores above 15 typically pay just as much as a perfect ticket.
Keno was introduced to the United States in the 1800s by Chinese immigrants and has become a staple of modern casinos in the Americas and East Asia. Online versions of the game also exist and are commonly offered by iGaming websites.
Instant lotteries, or scratch-off games, substitute the lure of traditional lotteries' enormous jackpots for the pleasure of instant gratification. Offered both in physical and electronic form, scratch-offs are the most popular type of lotteries in the United States. Players buy a ticket, scratch off its top with a coin or their nails, and immediately discover whether they won or not, without the need for an actual draw.
Lotteries and iGaming: a love that never was
While state monopolies keep control of lotteries (both traditional and instant) and lotto, keno and bingo can generally be offered by private service providers even in regulated markets, at least online.
They, however, fail to generate the same volume of revenues as their cousins and never really got traction with the iGaming public.
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A possible explanation of why the masses prefer lottery and lotto is that their tickets are much more accessible than bingo, keno, or any other form of gambling. This makes them convenient for casual players who would not proactively visit a gambling venue or dedicated website and contributes to project a clean image for the games.
State monopolies also have another advantage: lotteries are, in a sense, "natural monopolies". The way these games function, having all revenues contributing to a single massive jackpot seems preferable to having various options with smaller pots.
An obvious reason monopolised lottery games' success is that they can offer unmatched potential winnings, which lure hordes of casual players. If the jackpot were to be split between multiple lotteries, it would likely further shrink due to the lowered appeal to casuals and the subsequent fall in sales.
When it comes to the dedicated gamblers that populate iGaming websites, it gets even trickier. Three significant problems can be identified: low return to player (RTP), lack of strategy, and slow gameplay.
Generally speaking, we can divide iGaming players into two categories: those who like games of pure chance (like slots) and those who prefer games that require a degree of strategy to maximise their chance to win (as is the case for betting and many card games). Each for their reasons, neither group is genuinely attracted to lottery-type games.
Slot players' major reservations are about the RTP of lotteries: whereas slot machines offer a return ranging between 88% and 98%, lottery games generally draw the line at the 50% or 60% mark, which makes them an inefficient choice.
Card players and betting fans, on the other hand, find the passive, sheer-luck nature of these games somewhat unsatisfying.
Adding to this, the slow pace of lotteries, particularly when compared to the exciting products offered by modern casinos and sportsbooks, represents a further limitation of the format.
Rethinking online lottery games
Some of our partner providers are trying to breathe new life into the lottery format, tackle the issues identified above, and create new, exciting products.
Using streaming technologies, both Evolution and Betgames.TV have come up with live dealer lotteries that will pique iGaming players' interest by adding functionalities specifically designed to engage them.
Evolution's attempt at reviving the genre is Mega Ball. Released in April 2020, it transforms bingo into a game show, adding pace and the excitement of slot-style multipliers to the traditional formula, of which it retains simplicity and accessibility.
The RTP? A very reasonable 95.5%, sure to catch the eye of slot enthusiasts.
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Betgames.TV took a completely different approach, creating a series of lottery betting games: Lucky 5, Lucky 6, and Lucky 7.
In these titles, players can bet on the outcome of live draws held every few minutes, adding their selections to a sportsbook-style bet slip. Each selection has different odds in line with its statistical probabilities, making the games interesting for strategy-minded players.
While these games can't match the monopolies' offers in terms of revenue volume or attractiveness to casual players, they are by far the best that the private side of the gaming industry currently has to offer for lottery gaming.
If you are interested in adding them to your online casino, get in touch with our sales team. We will be happy to answer any questions you might have about game integration and our partner providers' selection of live dealer lottery games in particular.