“[$1 scratch games] have been dying.”
“They’re a necessary entry point for new players.”
The above quotes reflect one of the most hotly debated topics in the industry—what should be done with $1 scratch games? Interestingly, the same individual expressed the two conflicting viewpoints, underscoring the industry’s uncertainty about the issue. It has been content to let the price point remain on life support as its sales deteriorate. However, a U.S. Lottery has stopped printing new $1 games, while its Canadian counterpart has pulled the plug completely.
In 2012, $1 scratch games accounted for 8% of total instant sales in the United States, generating almost $3 billion. In 2023, these numbers have withered to 2% and $1.6 billion. The industry’s strategy with the category is partly responsible for the decline, including reducing facings and increasing higher-priced tickets. But it’s essential to also acknowledge the role macroeconomic effects have played.
In 1974, the Massachusetts Lottery sold the first secure, instant scratch ticket—a $1 game. Due to inflation, the game would cost over $6 today. Even 30 years ago, a $1 ticket held the equivalent worth of $2. As the Federal Reserve grapples with bringing inflation down to a healthy 2%, lottery games are stuck in limbo. While private companies can adjust prices, an integer-only pricing model constrains lotteries. As a result, instant tickets’ value decreases while their costs continue to rise. It shouldn’t be surprising that $5 games have overtaken $1 games as the top-selling category in unit sales.
Despite this, many lottery marketers are still adamant that the $1 price point retains its significance in the portfolio. According to research, it is a popular entry point for new players. A Scientific Games survey shows 25% of players’ first ticket was $1. The Georgia Lottery’s research also indicates 67% of $1 and $2 players transition to higher price points within their first year. Therefore, although $1 tickets may be a minor revenue driver, they are assumed to be a necessary gateway for new players.
This explains why the industry’s strategy has reduced the prominence of $1 game facings while guaranteeing widespread availability across retailers. This approach seemed the best way to attract new players and boost revenue for many years. However, the Georgia Lottery and Ontario Lottery and Gaming Corporation (OLG) have recently opted for a different strategy.
The Georgia Lottery has experienced a substantial decline in the sales of $1 scratchers. What was once a thriving price point—200 million units sold in 2014—has been halved over the past decade. This data point alone emphasizes the need for the Lottery to scrutinize the viability of this price point.
They contacted players and retailers, seeking their insights on the potential impact of removing $1 games from the market. When asked whether their spending habits would change, 71% of players indicated that it wouldn’t matter, or they would purchase more.
The retailers’ feedback, funneled through LSRs, has been consistent for the past two years. “‘Hard to sell $1 games, please stop launching them’; ‘Why does the Lottery continue to launch $1 games?’; ‘My retailers are asking for more higher price points in a launch,’” Katherine Cundiff, VP of Product Development, Georgia Lottery, said. “What we’re seeing and hearing in our market is reflective of the dip in sales we continue to experience.”
With ambivalence from players and pejoratives from retailers, Cundiff saw merit in a pilot program that removed $1 games from a population of retailers. Her team planned a three-month test, replacing them with $2 or $5 games at 44 RaceTrac locations. The results were definitive.
“It didn’t hurt any store, and for the stores that replaced those empty bins with the $5 game, they saw a 16% increase in their sales,” Cundiff reported. “What we saw in our market and what players are telling us in Georgia is that their buying habits and the dip in sales are matching up with the outcome of the study.”
Despite Georgia conducting the pilot during the holidays, typically the highest $1 instant sales period, players notably remained silent on the removal. “We purposely did this over the holiday season,” Cundiff said. “We thought if at any time we would hear noise from the market doing this, it would be around the holidays.”
Based on these observations, the Georgia Lottery has decided not to introduce any new $1 games this fiscal year. Instead, they will continue to offer two existing $1 games, giving retailers the choice to carry them or not based on demand and market trends. “We’re going into this with a hypothesis that we’re going to move players up, and if we see after a year that our hypothesis proves to be correct, we may not have $1 games in our portfolio in the future,” Cundiff remarked.
Georgia wasn’t the first North American Lottery to consider removing the price point. In 2021, OLG marked a 41% decrease in $1 ticket sales over the past decade. The price point represented only 1% of instant sales and .2% of overall lottery sales. This decline was accompanied by a corresponding drop in the average player spend, indicating that $1 games were no longer attractive to players.
OLG piloted the removal of the $1 instant ticket, replacing it with higher-priced games in “silent sellers.” However, unlike Georgia, OLG also wanted to add a new $1 terminal game at the same time called INSTANT TOP UP, an add-on for scratch tickets. Once purchased, an animation on the lottery terminal’s Customer Display Unit reveals if the player won.
Almost two years later, OLG has determined the $1 removal experiment a success, and a careful comparison of the data before and after implementation confirms this assessment. The combined sales of $1 and $2 games averaged C$6.3 million over six quarters (FY20 Q3 – FY21 Q4) before the introduction of TOP UP. The combined sales of $2 tickets and TOP UP averaged C$7.5 million in the subsequent six quarters.
OLG informed retailers about the pilot removal of the price point through standard communication channels, but never made a public announcement. No significant negative response was received from players or retailers.
Moving forward, OLG plans to introduce a $2 acquisition strategy in Q4 of this fiscal year. The goal is to launch $2 games more frequently that appeal to the under 35 demographics. “With $2 being the lowest price point, we’re looking to shorten the time they are in the market from 16 weeks to four-six weeks at a time, launching at the beginning of each month and tying them to cultural moments or seasonal themes,” Michelle Bui, Product Manager, Instant Games, OLG, said. “Whatever your lowest price point is, it’s naturally going to be the one people try for the first time. If it is $2, those tickets must serve that purpose.”
The vendor community still believes the best strategy for lotteries is to reduce rather than remove the $1 price point.
“The simple answer would appear to be just to remove $1 games. However, our research and analysis provide evidence that these games still play an important role for the consumer and, therefore, in lotteries’ portfolios,” Angela Saviano, Director, Marketing, Scientific Games, said.
Scientific Games advises against eliminating the $1 product category, citing potential negative impacts on sales, public image, and player acquisition and retention. Instead, they recommend reducing the number of $1 games and strategically positioning the remaining ones to free up space for higher-priced games.
“We’ve put a lot of effort into finding out what the importance of these games are for consumers, and we managed to distill that work into a few critical roles including: as an entry-level, as a good use of ‘spare change,’ as an impulse purchase, as part of a family of games, for gifting, and as part of the winter holiday line-up,” Saviano said.
The North Carolina Education Lottery’s (NCEL) instant game portfolio encapsulates this strategy. Over the past five years, its scratch-off plan shows its response to changes in players’ preferences. “We don’t have any immediate plans to phase out the $1 and $2 price points. We do still feel that they play a role in the overall portfolio, although they play a much less significant role than they did five years ago. While they account for a relatively low percentage of overall sales, our research indicates that a high percentage of our player base still plays these price points. Our goal is to find the right balance between new game introductions and the number of games merchandised at retail given the new role those price points play in the portfolio,” Randy Spielman, Deputy Executive Director, Product Development and Digital Gaming, NCEL, said.
For IGT, the importance of balance within the portfolio is also a primary consideration. “The problem is that inflation now means that the prizes you’re likely to win on a $1 ticket don’t seem meaningful anymore. Inflation has eroded the value proposition of that product,” said Nat Worley, IGT Vice President North American Sales Development. Patrick Bentley, IGT Senior Director of Marketing and Sales Development North America, agreed, adding, “If a player spent a dollar and got it back, they can’t buy anything else at the store. Even if they doubled their winnings, they might only be able to buy a pack of gum.” Factoring in the reality that the $1 category has less to offer players now—as players themselves have exhibited—lotteries can still retain the price point by offering fewer games and lengthening the print runs to ensure they’re available.
The higher price points replacing $1 games contribute more to funding good causes. For instance, the Massachusetts Lottery has the highest payouts in the country and also the highest profit per capita. “Despite having a larger margin, the thought that the $1, and even the $2, price point offset the lower margin of higher price points is a fallacy due to significantly higher sales at higher price points, even with a lower margin. The player-appeal of these higher price point games also produces high-volume revenue growth for beneficiaries,” Bentley said.
Retailers also benefit from the reduction of $1 games. Many retailers frequently request a higher commission percentage in return. “The more your consumers gravitate towards higher price points, the less work your staff has to do to earn a meaningful commission,” Worley said. “The great thing about this evolution is it has tangible benefits for three of the key stakeholder groups that lotteries are concerned with.”
New Jersey Lottery and Northstar New Jersey’s strategy with the price point aligns with this viewpoint. Since 2019, New Jersey has introduced 11 $1 games, the fewest in the United States.
“We view the $1 game as a way for players to round out their purchases at vending machines or over the counter. Additionally, we still launch a $1 holiday-game that is in demand during the gift-giving season. We remain committed to the $1 game offering and don’t plan to eliminate it anytime in the foreseeable future,” said Erin Leon, Product Manager, Northstar New Jersey.
Matt Isaac, Senior Director of Lottery Marketing, Pollard Banknote, proposed that lotteries should continue introducing a $1 game four to six times yearly. Recent research conducted in Michigan revealed that 28% of players buy a $1 game once a week. “Lotteries could see some short-term gains out of reducing $1 games,” Isaac said. “But removing one of the easiest vehicles for new players to come into lottery, is going to hurt the industry tremendously in the long run. We don’t want to limit future growth on a current cost that can be absorbed.”
As lotteries have increased the price point of tickets, the decline of $1 games has become a self-fulfilling prophecy. While the industry considers it a success when players transition to higher-priced games, this inevitably leads to the natural consequence of a decrease in $1 ticket sales. However, this does not diminish their significance within the lottery portfolio.
Isaac suggests reducing the pack sizes of $1 games while ensuring they continue to be included in families of games to receive marketing support. Raising the payouts for $1 games could be the biggest boon for the price point’s success, low cost to enter and higher payout in addition to loading up the options and appeal. “If lotteries raised the payout a couple of percent, it would give players more winning experiences,” Isaac said. “Lotteries need new players! This is really hard already, so minimizing barriers for first time play and ensuring that experience is a winning and enjoyable one is critical.”
More $1 Games
A few lotteries in the industry have gone in the opposite direction. According to survey responses, five lotteries anticipate increasing $1 games in the upcoming year, and nine plan to increase low price points ($1 and $2) games.
The Virginia Lottery is one of two that plans to increase low price points, while decreasing the total number of instant games on the market. “We believe it is important to maintain strong $1 and $2 Scratcher categories,” Scott Kenyon, Strategic Games Manager, Virginia Lottery, said. He points to a FY23 tracking study in which a significant portion of respondents (56%) purchased $1 Scratchers and (58%) purchased $2 Scratchers. “Over one-third of all individual Scratcher tickets sold were either $1 or $2. There is still a strong player base for these games that we plan to continue supporting.”
The Lottery has altered their strategy in the past six months to put out new low price point Scratchers every month. Due to the increased frequency of the launches and to ensure quick churn at retail, the Lottery has significantly reduced the print quantities of these Scratchers.
Retailers with 28-bin setups are required to have at least two facings each for $1 and $2 games.
Their short-term plan is to continue frequently launching fun, unique $1 and $2 tickets to get more concepts in front of casual players. “We do not believe that leaving the same $1 and $2 games in market year-round create a sense of excitement and a ‘new’ factor for casual players,” Kenyon said.
Their long-term plan involves continually evaluating sales performance, monitoring player engagement, and maintaining agility to adapt their strategy as necessary. “While the $1 and $2 Scratchers are not significant revenue drivers, we believe they still hold an important part in maintaining our playership and growing sales in a sustainable and responsible way,” Kenyon said.
As the debate on the ailing price point continues, Cundiff is confident in her team’s decision. She points to another once-controversial change that required the public to settle.
“Look at what happened to Mega Millions and Powerball. They were offered at a $1 price point for many years. When we increased their price, we saw some dropouts the first year, but then look at how resilient they are. Those two games have bounced back. We feel what we saw with those two games will be mirrored for us.”
The concern over attracting new players is indeed valid. National research consistently highlights the $1 price point as the best entry point for players. But the Lottery’s own studies show different results. “They’re telling us that they’re coming in at higher price points, and we’re seeing it,” she said.
The $1 games no longer meet Georgia players’ expectations. “Our number one goal is to look for new ways to improve the player experience at all levels. We care that it’s fun and you have some winning experiences,” Cundiff said, lamenting that there were no ways to improve them that benefited all stakeholders. “We found little opportunity to invest in meaningful innovations that would help drive incremental revenues. We all have our beneficiaries that we need to give back to.”
The Lottery is also safeguarding its brand from any public blowback. The option to sell $1 games remains available to their retailers. If the outcome over the next year doesn’t align with Cundiff’s expectations, the Lottery can reintroduce them if necessary. At the same time, it is conducting critical research the rest of the industry will benefit from.
Multiple lotteries have already adjusted their upcoming instant ticket strategies, allowing them to pivot depending on what happens in Georgia. The potential impact of their findings could significantly change the trajectory of instant tickets in the next five years. If successful, the future may witness a phase-out of $1 games across the country.
In a risk-averse industry, Georgia Lottery’s decision is refreshing and laudable. There are risks involved, but the behavioral data collected will displace any self-reported research on the issue. It will settle the debate for the foreseeable future. In a period when dollar stores no longer sell things for just a dollar, is it really too risky to test if the price point’s life cycle has come to an end?