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Million-dollar fever

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This month the Powerball jackpot exceeded $2bn, shortly after Mega Millions’ top prize of $1.34bn. How will these jackpots affect the sector, and what changes can be expected if more of them occur? DANIEL O’BOYLE

IIn late July, two people bought the winning lottery ticket at the Speedway near Chicago O’Hare Airport. It was the third largest draw in US history.

After eight weeks, the prize of $1.34 billion remained unclaimed. Many were wondering if the ticket holder was aware that he or she had won. The anonymous winners, however, had been consulting with financial and legal advisers prior to deciding on a $780.5m lump-sum payout.

Luis Rodriguez, from Illinois Lottery, said: “There was an excitement buzz in the room when we met the lawyers of the winners.” No wonder. Most people can see the impact of jackpots reaching major milestones.

Matt Whalen is the IGT Senior Vice President of Sales and Operations, North America Lottery. “A billion dollar number generates excitement among players and media buzz,” he says. It becomes part of a national conversation. People are discussing it around the dinner table, and this drives sales.

Three things are driving that sales growth. First, there are lapsed or former players who have not played for a while. There are also new players, of course. They get caught up with the excitement. And then there are regular players, who may play more in each draw.”

Free advertising is the most important factor that helps explain why major jackpots are so significant.

Whalen says that although lottery companies have advertising budgets they cease advertising as soon as their jackpot increases. The media coverage provides them with all of the marketing they require, which they then bank for later.

Why spend your money on advertising when national media will do it for you?

A REGULAR OCCURENCE?

This July’s jackpot was the fourth time in the past four years that the top US lottery prize has exceeded $1bn. Format changes made the previous year more likely for rollovers.

Once considered a novelty, customers are now beginning to accept ten-figure amounts almost every year.

The question is, will customers soon tire of the jackpots which are making headlines?

Leslie Badger, vice president for systems marketing at Scientific Games, says that “[Jackpot Fatigue] is a real thing.” We will have to wait a bit more for the sale of the jackpots.

Back in the old days, as soon as the lottery reached $100m, it would cause a little frenzy. It was then more $200m or $250m and it is now probably closer to half a million.

Badger doesn’t worry about the impact of the jackpot. There’s no slowdown of the effect when a jackpot reaches the “big” threshold.

She continues: “It’s true, it does take longer for casual players to join.” She continues, “But they also may be purchasing more as when we take a look at total sales the sales are still quite healthy. “It just takes longer for things to begin to change.”

Badger points out that while the sales of the Powerball jackpot in January 2016 have not yet been surpassed, the brand recognition and the fact that it was the first jackpot in a ten figure range played an important role. The sales of each of the three subsequent billion-dollar jackpots were similar.

It is difficult for IGT and Scientific Games to meet this sudden surge of customer demand.

Badger: “From our point of view, it’s a good thing that we’ve been working with a company for so long. I believe that Scientific Games has really refined our ability to prepare for bigger jackpots.

You know that Scientific Games can scale up when needed. “We don’t ever want to see our dealers down when a large jackpot is being played because that impacts their reputation and their players.”

Whalen claims that the situation is similar at IGT which handles the vast majority of US lottery transactions.

He says that IGT’s systems handle about 80% of all transactions for large jackpots. It takes a large team to make sure that these big events run smoothly.

We receive thousands of calls daily on our hotline. The calls range from new retailers who ask how to do things, to people helping with problems. The engineering and operations teams monitor the system 24 hours per day on conference calls. These systems are designed to be fault-tolerant.

This is not an accident.

Steve Beason of Scientific Games, the president of Digital and Sports Betting, says that businesses offering ilottery services must develop products capable to deal with events many times greater than those experienced during a typical draw day.

Beason explains that when Scientific Games receives government contracts to run large lotteries we design our systems for peak performance. Beason says that while we run at 10% capacity most of the time, when we have a big jackpot our system’s performance increases tenfold. “You have to be prepared to make it happen.”

Between the Jackpots

But what happens between these jackpots? It’s not possible to keep the effect forever but Whalen and Badger both mention a “halo effect.”

As ilottery grows in popularity, this effect could grow. The retail halo is short-lived and is driven by players purchasing tickets for multiple draws. However, online, it is more pronounced, since players can sign up to receive communications from the state lottery.

Beason says, “On the digital channels, this halo effects lasts a little bit longer. This is due to the fact that we can now do all the CRM, keep people engaged, offer bonus and other things.”

The importance of jackpot milestones is clear. Is there any way to continue hitting these milestones?

It’s not surprising that developing a lotto game requires more than just making it the easiest to rollover and enticing players with impossibly large jackpots. Players must actually believe they could win.

Badger describes how content creators of lottery games struck the right balance in 2015. This led to today’s ecosystem.

She says, “the odds are higher for the jackpot.” This is the reason why the jackpot can be higher. You want to keep the balance because you do not want it to be so long, that no one wins.

“Fortunately, Scientific Games is very experienced in sales analytics. We can see the effect through modelling.”

The large advertised jackpots may seem random, despite the rule changes. These draws may be more frequent due to broader economic conditions.

Whalen notes that lotteries will advertise how much money players can win by choosing an annuity payout option over several decades. The amount of money a player can win is determined by the interest rate.

Whalen explains that as interest rates increase, the money required to purchase annuities decreases. This allows for sales to rise faster because your advertised prize increases at a higher rate.

Major jackpots are unlikely to be more common in the near future.

Beason, who has seen how major jackpots impact a product’s success, says that Scientific Games will look for other ways to mimic the massive impact of Powerball or MegaMillions jackpots.

He says, “We are now looking into how we can drive jackpots in other products. Whether they’re hybrid instant tickets with progressive drawings or a sports multi-event game, where you bet on the outcomes of twelve games and have odds similar to lotteries,” he said. We’re now looking to introduce progressive jackpots in other lottery games.

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