The changing operating environment for lotteries

I’ve been lucky to have been working in the gambling industry for most of my business career. For most of that time, I have worked with lottery companies. 

The past 18 months, during which I have been consulting in the gambling industry, have opened my eyes to the enormous change our entire industry is currently undergoing. I’m a little worried about how well lotteries understand that need for change, and whether they will be able to react fast enough.

The lottery world has already changed a lot in recent years. In the past, lottery companies were largely state-run entities, but this is no longer true, at least not in Europe. States still own lotteries in many countries, but more and more companies are privatised. 

The operating model of an investor-owned listed company is very different from that of a state-owned company, and this has inevitably affected the operation of lotteries as well. 

I’m confident that lotteries, which operate similar to private businesses, will thrive in this evolving environment. The likes of Camelot, La Française des Jeux, Sazka Group and Sisal examples have shown this is possible, as have Nordic lotteries such as Danske Spil and Svenska Spel.

Not so different

The interesting question is how lotteries under the strict control of the state will cope with the challenges of the future, or even the hurdles they face today. Lotteries often see themselves as distinct from what is traditionally considered a gambling business. This is not the case. I would argue that when it comes to customers’ decision-making, they consider lotteries as part of the overall gambling industry, or even the entertainment and leisure market. 

Lotteries therefore need to understand that they are competing, despite their nominal monopoly position,  against other gambling offerings. If this is not acknowledged, the state-run businesses will have little chance of success in the years to come.

Accepting and adapting to a competitive situation does not mean that lotteries should change their entire operations. Having said that, it is important to understand the most critical choices for customers when considering where to spend their money. 

Lotteries need to know their customers better and understand the motives for gambling, or as many insist on calling it, gaming. In this way, lotteries can find the right strategic solutions that will help them continue to succeed in their markets. 

Changing channels

It is clear that lotteries need to invest heavily in digital channels. The traditional retail model is no longer enough. Of course, there are still significant regional differences here. In any case, products must be available where customers spend their time anyway. 

Another key area for change relates to the scope of the product range. Private gambling operators are one-stop-shops today, offering all gambling verticals under a single brand. For consumers, it is much easier to bet, play slots and have a game of bingo via one provider, than it is to jump between offerings. 

Therefore offering lotto games and scratchcards is no longer enough; customers expert more. Equally, it is essential to understand that digitising operations and expanding the product range should not mean abandoning responsibility requirements.

State of play

Perhaps the biggest challenge lies in the changing relationship between the lottery and the state. From my experience I know that the directors at several lotteries have spotted what is required to future proof their businesses – but the state has not given permission to make the necessary changes.

There’s two distinct roles that the state plays when it comes to lotteries. One is as the “parent company”, with the power to guide decision making, and the other is as a regulator of gambling activities. Through this second role, the state can play a decisive part in whether the lotteries under their control are able to remain relevant in a changing industry. 

Strict regulation, for example, can prevent the lottery from digitising its operations and expanding the product range as required. In many cases, a lottery’s apparent refusal to change with the times is seen laziness – or even stupidity – on its part. The real reason for these entities being slow moving is often down to the state. 

The changes set out above require a change in mindset among the key decision-makers in the lottery world. Lottery chief executives and their management teams must first understand the need for change. Then they must work with their boards to enable the necessary changes to the business, and set out what can be considered a success, in competing against the private sector. 

After that, they have to get support and acceptance from the state for their planned changes – they must “sell” the proposal at the highest level. This requires a significant shift in ways many think of lotteries, and their purpose. That new mindset must also be applied internally, so staff can change how they present and promote products to customers.

Fortunately, this is hardly rocket science. Even within the lottery world, several successful case studies are available in which a lottery has succeeded in modernising its business. Benchmarking and best practices are a reasonable basis for change, but there can always be an even better way to do things. When making decisions, efforts must be made to find the best possible solution to the current market situation.

All of the above will also help lotteries prepare for possible changes in the legislative environment. I do not think that the future lottery business will be based on a monopoly system. If a company is competitive, it will thrive regardless of the gambling system. In the following columns, I will elaborate on my views on the possibilities of modernising lottery activities.

Jari Vähänen has a long career in the gambling industry. He has mainly worked for the Finnish national lottery company, Veikkaus with responsibility, among other things, for horse and sports betting, digital, product and business development, company strategy, and international affairs. He resigned from the lottery in spring 2020, and established The Finnish Gambling Consultants Ltd, where he is now helping lotteries and other gambling operators and suppliers further develop their businesses.