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STATE OF LOTTERY INDUSTRY Recession’s Impact on Sales and Profits

STATE OF LOTTERY INDUSTRY Recession’s Impact on Sales and Profits. Arch Gleason President and CEO, KY Lottery Corp. President, World Lottery Assn. Areas to be Covered. Global sales in the economic downturn North American historic sales performance Rockefeller Institute gaming study

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STATE OF LOTTERY INDUSTRY Recession’s Impact on Sales and Profits

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  1. STATE OF LOTTERY INDUSTRYRecession’s Impact on Sales and Profits Arch Gleason President and CEO, KY Lottery Corp. President, World Lottery Assn.

  2. Areas to be Covered • Global sales in the economic downturn • North American historic sales performance • Rockefeller Institute gaming study • Recent North American sales performance • Secrets of success • Sales challenges • Moving forward (Kessinger observations)

  3. “Face it, Dave – statistically speaking, you’re more likely to be killed by an alligator than you are to win the lottery.”

  4. When did this start? The National Bureau of Economic Research has determined the U.S. recession began in December 2007.

  5. Global Perspective

  6. TOTAL % CHANGE SALES UP NO CHANGE SALES DOWN Global Sales, CY06 vs CY07 by Geographic Regions 5 1 0 11%

  7. TOTAL % CHANGE SALES UP NO CHANGE SALES DOWN Global Sales, CY07 vs CY08 by Geographic Regions 2 4 0 1%

  8. Sales By World Region

  9. FY98-08 Sales in 43 US Jurisdictions

  10. US Online v. Instants Sales Growth (CY) • Instant Sales • 10 Yr CAGR (1999-2008) +8.02% • 5 Yr CAGR (2004-2008) +6.72% • Online Sales • 10 Yr CAGR (1999-2008) +1.08% • 5 Yr CAGR (2004-2008) +0.75%

  11. US Online Sales Trends (CY) 10 Yr CAGR (1999-2008) +0.80% 5 Yr CAGR (2004-2008) +1.06%

  12. US Multi-State, Lotto & Cash Games Sales Trends (CY) 10 Yr CAGR (1999-2008) +0.14% 5 Yr CAGR (2004-2008) +0.96%

  13. Rockefeller Study Observations Gambling revenue is seeing it’s first decline since 1970.

  14. Rockefeller Study ObservationsState Gaming Revenue Trends Millions

  15. Rockefeller Study Observations Lottery revenue is approximately 75% of state gaming revenue.

  16. Rockefeller Study Observations Since 1998, state revenues from gambling activities have increased 60% (from $15B - $24B in 2008) and ranged between 2.1-2.5% of total state generated general revenues.

  17. Rockefeller Study Observations States with Highest Shares (%) of General Revenues from Gambling, FY07:

  18. Rockefeller Study Observations More than half of states show less than 2% reliance on gambling revenues – 12 states show 1% or less.

  19. Gambling Revenues,FY08 vs. FY09

  20. CY08 vs CY07 US Scratch Sales • 1.2% total change • $364.6 million sales increase • $30.9B in overall sales

  21. CY08 vs CY07 US Online Sales • - 2.6% total change • $595.1 million sales decrease • $22.5B in overall sales

  22. CY08 vs CY07 US Total Sales • - .4% total change • $230.5 million sales decrease • $53.4B in overall sales

  23. States with Highest % Total Sales Increase from CY07 13.6% 4.3% 4.1% 4% 4%

  24. CY08 vs CY07 Canada Scratch Sales • 4.5% total change • $86.4 million sales increase • $2B in overall sales

  25. CY08 vs CY07 Canada Online Sales • -3% total change • $156 million sales decrease • $5B in overall sales

  26. CY08 vs CY07 Canada Total Sales • -1% total change • $71.6 million sales increase • $7.2B in overall sales

  27. US Scratch Sales Jan – Mar 09 • -1.5% total change • $121.3 million sales decrease • $8B in overall sales

  28. US Online Sales Jan – Mar 09 • - 2.7% total change • $156.9 million sales decrease • $5.8B in overall sales

  29. US Total Sales Jan – Mar 09 • - 2% total change • $278 million sales decrease • $13.8B in overall sales

  30. Jurisdictions w/Scratch Success(% increase 1Q CY09 vs. CY08) Jan – March Quarter

  31. Canada Scratch Sales Jan – Mar 09 • -2.2% total change • $10.4 million sales increase • $468 million in overall sales

  32. Canada Online Sales Jan – Mar 09 • 23.2% total change • $227.4 million sales increase • $1.2B in overall sales

  33. Canada Total Sales Jan – Mar 09 • 10.5% total change • $182.2 million sales increase • $1.9B in overall sales

  34. US Scratch Sales Apr -June 09 • -3% total change • $20.9 million sales decrease • $7.6B in overall sales Pulltabs and VLT’s excluded 2 states not reporting

  35. US Online Sales Apr -June 09 • 4.9% total change • $267 million sales increase • $5.7B in overall sales Pulltabs and VLT’s excluded 2 states not reporting

  36. US Total Sales Apr -June 09 • 1.8% total change • $239.4 million sales increase • $13.3B in overall sales Pulltabs and VLT’s excluded 2 states not reporting

  37. Preliminary Reporting from NASPL, FY09 • Total Sales - $44 Billion • Decrease from FY08 – • $92 Million (.2%) • NOTE – Based on reporting from 38 of 43 US Lotteries

  38. State with Greatest % Total Sales Change from FY08 Based on preliminary reporting – RI includes VLT’s

  39. Preliminary 3Q trends(CY09 vs. CY08) • Scratch games range down between .5% and 2% • Online games range up between 5% and 13% • Major sales driver are the multi-state large jackpot games, up more than 50% for the quarter due to large jackpots. Based on data from GTECH and Sci Games

  40. SECRETS OF SUCCESS Higher price-point games

  41. SECRETS OF SUCCESS Higher prize payments

  42. SECRETS OF SUCCESS More Games (instant and/or online)

  43. SECRETS OF SUCCESS ITVM upgrades

  44. SECRETS OF SUCCESS Increased / maintained ad expenditures

  45. SECRETS OF SUCCESS Licensed property and sports team games

  46. OTHER SECRETS OF SUCCESS • Powerball ad focus on jackpot of $150 million or more – West Virginia • Marketing efforts focused on $5 instant games - DC • Increased retailer base - Idaho • Converted instant-only retailers to full-service - Idaho • Social media interaction – Montana • Implemented 2nd chance drawings for last top prizes of $50K or more for all $10 & $20 scratch games - Kentucky

  47. Measuring Impact of Recession Much discussion revolves around what has been the actual impact of the recession.

  48. Measuring Impact of Recession Sales growth has been slowing for the past three years, making it difficult to isolate the economy as a significant factor.

  49. Measuring Impact of Recession Evidence suggests certain states are experiencing effects from the economy more than others.

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