With couriers becoming more acceptable within the U.S. Lottery Industry, a number of new companies have entered the market. Each has its own strategy and business philosophy. To keep a balanced article, I have invited four couriers to write a short write-up on their operations; their pieces are interlaced with this article and are highlighted in purple.
It has been five years since I wrote “Couriers and the Shifting Landscape of Online Lottery.” Since then, the appetite for convenience has only grown, spurred on by the pandemic. In 2022, U.S. consumers spent more than $1 trillion online. The U.S. lottery industry has largely been left out of this wave. Yet, while most state legislatures have either ignored or even fettered their lotteries from selling online, lottery couriers have filled the void. With potentially billions at stake, the market is attracting more companies than ever, but some of the new entrants’ actions are concerning.
The iLottery Struggle
It seemed like the pandemic would be the catalyst to iLottery, galvanizing state legislators to make lottery games accessible while so many people were quarantined. Four lotteries got permission to sell online since March 2020 and six since 2018. Since September 2011, only 11 U.S. lotteries can sell individual tickets online (16 if you include subscription sales.)
Compare that with the nascent sports betting industry in the U.S., which was legalized in 2018. In the same five-year period, 35 states have legalized sports betting, and 26 states offered mobile/internet sports betting, (up from 18 in 2022.) Sports betting isn’t even the only “sin industry” to see a drastic rise in state legislature approval. Thirteen states have legalized recreational marijuana.
But while state legislatures restricted lotteries from modernizing, entrepreneurs found loopholes to offer players online convenience for lottery products. At the time the 2018 La Fleur’s article about lottery couriers was written, Jackpocket and Lottery.com were in operation. They had support from Silicon Valley investors, but many state lotteries were still preventing these fledgling companies from entering their jurisdictions, with few exceptions. In 2017, New Jersey introduced regulations to officially accept them. To date, only New York has adopted a similar model, which was the first big hurdle for lottery couriers to become tacitly accepted in the market.
Since then, these two companies have had remarkably different fates. Jackpocket, which was the first courier New Jersey licensed, is now in 15 states as of January 2023. They’ve raised hundreds of millions of dollars, worked with lottery retailers like Circle K, and promoted NCPG’s Gift Responsibly Campaign.
Lottery.com is facing a federal class-action lawsuit from shareholders. In the summer of 2022, a third-party investigation uncovered noncompliance with state and federal laws concerning the state in which tickets were procured. On July 15th, the company admitted it had overstated its available unrestricted cash by $30 million. Its stock crashed, losing 64% of its value in a single day. Its website now acts as a tombstone.
Jackpocket: Why Integrity & Compliance Matter
By Peter Sullivan, Founder and CEO, Jackpocket
To responsibly grow and sustain the industry, the following compliance issues are key:
- Full transparency around ticket fulfillment. Jackpocket provides high resolution scans of the front and back of each lottery ticket, assuring consumers and lotteries that the ticket was purchased for the correct drawing and from a licensed retailer within the state. Requiring couriers to provide scans of the physical ticket guarantees that no counterfeit or simulated tickets are being produced utilizing the state lottery’s intellectual property. The industry should be wary of companies that don’t provide a scan of the official ticket. Without that, there’s no guarantee that proceeds are returning to beneficiaries.
- States must ensure that sales occur within the correct jurisdiction. At Jackpocket, our geofencing protections have been audited & verified by gaming compliance leader GLI and the NJ Division of Gaming Enforcement lab.
- Lotteries should work closely with payment providers to ensure that couriers provide full transparency around that process. Jackpocket utilizes a fully compliant player-funded wallet and never adds fees to the price of a ticket. Segregated FBO bank accounts protect consumers and ensure that their credits and winnings are safe and separate from the company’s operational cash. Jackpocket employs the added measure of separate state-level FBO accounts.
- Responsible gaming should be embedded in the product. Jackpocket was the first lottery courier to receive iCAP accreditation for best practices in player protection in online gambling, backed by the expertise of the National Council on Problem Gambling. Our strong responsible gaming controls include self-exclusion, spending and funding limits, and in-app access to support hotlines.
Since our founding in 2013, Jackpocket has modeled integrity through our commitment to the highest standard of compliance. Learn more at jackpocket.com.
Shaking Things Up
With investors always in search of the next “unicorn” (a term used in the venture capital industry to describe a startup company with a value of over $1 billion), it is no surprise more couriers are trying to sell in states across the country. Companies like Lotto.com, Mido Lotto, TheLotter, and Jackpot.com (not to be confused with Jackpocket) each has a different approach to the market and lotteries.
For instance, Lotto.com is the only other courier to be licensed by both the New Jersey Lottery and the New York Lottery. Mido Lotto, on the other hand, has aggressively entered different jurisdictions, causing some lotteries to release statements warning their players of third-party apps.
There are two theLotter companies. theLotter US, which only sells to players in the U.S. and was founded in 2019. The other was founded in 2002 and sells tickets globally, offering international customers the chance to play PowerBall, MegaMillions, and other lotto games.
Some strategies are very convoluted. Jackpot.com launched in the U.S. in Texas in mid-January. Its CEO, Akshay Khanna, is also a director for 99 Dynamics, a holding company owning Take That Limited. Take That Limited and The Lottery Company operate Powerball.net, which is not related to MUSL. The Lottery Company also operates at least 20 various apps that use various lottery brands, like Colorado Lottery Numbers, Ohio Lottery Numbers, California Lottery, LottoMax, EuroJackpot and more.
Jackpot.com could use its sister companies to help promote its courier services. Powerball.net even has a button to “Play Online.” If this is the case, the use of Lottery brand names could be problematic for lotteries in the future, creating confusion for players. During the $2 billion jackpot, Powerball.net posted a social media message stating the jackpot had rolled to $2.4 billion, which was picked up by various media outlets like NBC News.
theLotter: Online Lottery Play Booming
By Jessica Griggs, U.S. Marketing Manager, theLotter
theLotter is an industry leading lottery courier giving players access to official state draw games from their web browsers and mobile devices.
These efforts have paid off, as a record number of players turned to us during the billion-dollar Powerball and Mega Millions jackpots of 2022, resulting in unprecedented sales. According to Daniel, “Our brand is now firmly established. Customers recognize us for being a reliable provider and that’s why they place their trust in us time and time again.”
More players have meant more winners, and we’ve already paid prizes to over 350,000 winning tickets, among them a $25,000 Texas Cash Five jackpot prize to a player from Seguin and a $50,000 Powerball prize to a player from Houston.
“Without careful regulation, a courier service could create significant reputational risk to a lottery. For example, customers might hold a lottery, rather than the courier service, responsible for the courier service’s failure to execute a customer’s order,” Ed Burns, General Counsel, New York State Gaming Commission, said. “There is a risk that a prohibited person, such as a minor, might use a customer’s courier service account illegally to purchase a lottery ticket… Because United States law requires a lottery ticket purchase to occur only within the jurisdiction offering the game, geolocation capability requirements are essential.”
These concerns are why the New York Lottery chose to regulate. Kristi Weeks, Director of Legal Services, Washington’s Lottery, reiterated Burn’s concerns about the activities of unregulated couriers. She also added that they take revenue away from lawfully licensed retailers.
Washington’s Lottery has opted not to allow couriers to sell in their state. Weeks believes the Lottery’s regulations, while not expressly prohibited, do not allow for it. Despite that, some couriers have sold tickets in the state. Washington’s Lottery is currently engaged in litigation with a courier that entered their market, issuing a cease-and-desist Order. The courier service has asked the court for a declaratory judgment regarding whether their activities are lawful.
“We are not philosophically opposed to couriers. However, we believe that any entity that sells our products, interacts with our players, and represents our brand must act in a lawful manner and be thoroughly vetted, licensed and regulated,” Weeks said. “We very much appreciate those that listen to our position and choose to take their business elsewhere, even if they think our interpretation of the law is wrong. One such company is Jackpocket. I think it’s important to acknowledge them as a ‘good player.’”
Lotto.com: New Players + Innovation
By Tom Metzger, CEO, Lotto.com
At Lotto.com, we understand those challenges. Lotto.com allows customers to order official state lottery tickets online with a couple taps from their phone or laptop, allowing lottery play almost anywhere within the state. We built our unique draw and scratch solutions on a foundation of lottery knowledge, utilizing key employees with prior experience working for industry leading companies (including IGT, Scientific Games, and Camelot) and regulators (including the Iowa and Colorado lotteries).
Lotto.com opened its Jersey City headquarters in 2020, with four employees, building the new company amid a global pandemic. Today, Lotto.com is proud to have over 120 employees nationwide. We are one of only two companies licensed as a lottery courier in New York and New Jersey, the only states that offer a license. Lotto.com has also launched online operations in Arkansas, Colorado, Minnesota and Texas, all while maintaining successful affiliated licensed lottery retailers in seven different jurisdictions.
Lotto.com facilitates the digital delivery of traditional lottery draw and scratch products to non-traditional players, allowing a new demographic of lottery players to be reached where they are. In doing so, we remain committed to the principles of responsible play. Lotto.com is proud to be a member of the National Council on Problem Gambling, and our operations have obtained iCAP certification.
Even in times of historic jackpots, the proprietary Lotto.com ordering system for draw games has proven to be reliable. We utilize paperless technology instead of playslips, improving security while simultaneously reducing our carbon footprint.
The Dilemma
Investors and entrepreneurs seem to believe couriers are a lucrative opportunity. Certainly, three billion-dollar jackpots in a six-month span would draw the attention of most markets. Jackpocket stated they were responsible for 2% of Powerball ticket sales during the $2.04 billion jackpot run, while only servicing 14 jurisdictions at the time and competing against rival couriers. If most or all U.S. lotteries allowed couriers into their market, that number would be much higher.
The “Good Players” have slowly entered various jurisdictions, working with lotteries over time to do so. New companies entering the market will be at a significant disadvantage compared to their already established competitors. To catch up, they may employ business practices some lotteries are uncomfortable with.
Washington’s Lottery is a perfect example of the perplexing problem couriers are creating for lotteries. In any state with established couriers, new entrants will be at a disadvantage. But states without couriers provide a tantalizing opportunity, as they can still capture a First Mover Advantage.
Some lotteries, like the Texas Lottery, do not see it as an issue for the lottery as it’s not within their purview to regulate. Others, like the Massachusetts Lottery, are circumnavigating the problem by following in the New Jersey and New York Lottery’s footsteps. “The Massachusetts State Lottery Commission has directed the Lottery to draft formal rules to address the regulation of courier services and upon finalization of language and authorization from the Commission, the Lottery plans to proceed with the promulgation process,” Greg Polin, Assistant Executive Director and General Counsel, Massachusetts State Lottery Commission, said.
If regulating couriers requires legislative approval, however, then lotteries will be, again, mired in the politics of their legislatures. While a courier model is more tenable for state legislatures opposed to iLottery, it is still not a desirable process to go through, especially when many lotteries would prefer to use their political capital to legalize iLottery and sell directly to customers.
In the wake of Jackpocket and Lottery.com’s diverging fortunes lies a spectrum of possibilities. On one side is a leader in the marketplace. On the other, a failed company with multiple executives in legal trouble. Between those extremes, how will the U.S. online lottery landscape develop? The actions of the next cohort of couriers will tell.
Mido Lotto: Our Philosophy
By Rich Wheeler, President, Lottery Now, Inc.
We are seeing that iLottery is still taking far too long to manifest in many states than we all anticipated starting back in 2011/2012 with the Wire Act interpretation. I moved to Lottery Now / Mido Lotto in 2018 as I saw that the courier model really had potential and filled a gap in the industry. I can see the good we have been able to do since that time in making Lottery less regressive and help contribute to player convenience, safety, and trust.
Our approach is focused on helping Lotteries to be more progressive and engage a younger more affluent demographic – the 60% of the population who currently only play once or twice a year rather than the small proportion of the population who are already heavy spenders. The main reason the majority of people don’t play more regularly is lack of convenience and relevance. Lottery was always intended to be a convenience category, not hard gaming. In a digital age where I can order virtually any consumer product on my phone, it’s absurd that we are still forcing consumers to go to the store, with cash, to get a $2 Powerball ticket. Our customer demographics support this approach; our customers are younger and more affluent than the typical demographic.
From a regulatory perspective, and regardless of claims you might hear from other sources, all domestic couriers operate on the same business model. We are all trying to push at the boundaries of established regulations to try and get states and Lotteries to adopt a more progressive stance that hugely benefits their players and their beneficiaries.