The lottery industry in the United States has been buzzing this year – first there was a $336 million Powerball prize in February, then the nearly unthinkable happened. Mega Millions soared to a record $656 million at the end of March – the first time any American lottery prize has exceeded $400 million.
Big jackpots like these generate new business for lotteries as they typically bring in occasional players or even new players – anyone with a dream. They increase sales, and ultimately profits for beneficiaries, in a way no other games or promotions can. But it doesn’t come without a price. There are two potential impacts of the big jackpots, especially the Mega Millions prize. First, that $656 million sets a new bar for “jackpot fatigue” – as future jackpots grow, the public may not respond unless the jackpots approach that new level. “Oh, it’s only $400 million? I’ll wait until it gets bigger.” I’ve never quite understood that logic – I’d be thrilled with just $100 million.
The second impact could occur next year. With fiscal 2012 sales and profits likely to hit new records for many lotteries, it will be a challenge to live up to those amounts in fiscal 2013, which is historically likely to be a more “normal” year. Unless jackpots reach significant heights again (which could happen, but it’s impossible to predict), or something else comes along to keep the ball rolling, so to speak, sales and profits may very well decline off record levels. There’s nothing wrong with that, but you can be sure critics will quickly point out any decline as a sign that the sky is falling.
That said, lotteries DO need to stay innovative and creative to keep producing much-needed revenues for beneficiaries such as education, senior programs, environmental concerns or simply general funds. The luck of the draw plays a major role in their success, but it’s also about good game design that appeals to the public.
To that end, Powerball underwent a significant change in January – the ticket price went from $1 to $2 with several goals in mind, including bigger jackpots and more overall prizes. It also was a move to differentiate the game from Mega Millions, which remains at $1. Higher-priced draw games have done very well in many jurisdictions so it was a natural evolution. Both games are offered by nearly all lotteries and are essentially national games; California remains the holdout on Powerball, while Florida has yet to adopt Mega Millions.
Industry leaders are currently studying options for a new “national” game at an even higher price point in order to further expand the portfolio of available games and generate enough excitement to keep the industry fresh.
But in the meantime, there’s always the Internet. Last month the Illinois Lottery became the first in the U.S. to offer regular ticket sales through the Internet (others already offer subscription purchases). The timing was perhaps fortunate – Web-based sales began the week of the final two draws for the record Mega Millions jackpot, and that happened to be one of two games Illinois was selling online. It surely tested the system, and there were glitches. But it also brought in $1.1 million in sales over a six-day period, although that amount is just the tip of the iceberg if you ask Lottery Superintendent Michael Jones. You can read about the initial experience in my article in the April issue of Lottery Insights.
Illinois was the first to sell games on the Internet, but it won’t be the last. Still, don’t expect Web-based sales to dominate – at best, sales of traditional games should only contribute a small portion of a lottery’s total sales given results in other countries. Retail-based sales will remain the primary sales channel, so any fears retailers have that their business will erode are unfounded.