Jim Kennedy, Group Chief Executive Lottery at Scientific Games, is also an accomplished musician who plays harmonica, sometimes joining a local band during his world travels. He understands that carefully orchestrating the music in lotteries’ intrinsic entertainment value is a great way to get and hold the attention of consumers.
“There is a lot of distracting noise that detracts consumers from the messages that lotteries can put out there,” reflected Kennedy. “Having a steady rhythm of innovative games that are exciting, easily promotable, and able to cut through the clutter, is absolutely critical to the success of the industry going forward. You clearly cannot depend on the roll of the balls to get you there. What we’ve seen in the last three to four years is that a lottery’s success with instant products comes from a very intentional rhythm of predictable game launch cycles. The Florida Lottery is a prime example.”
Kennedy believes that rhythm now extends to lotteries’ promotions for their new products being “heard” by players. For example, he cites the emergence of the major tent pole, promotable game. “Our WILLY WONKA GOLDEN TICKET™ game—with its opportunity to win up to a billion dollar prize—is a major tent pole, promotable game. You can control it; manage the timing of it; and create a rhythm in the marketplace,” said Kennedy.
Regularly launching tent pole games creates player anticipation and desire to know “what are these people going to do next? It’s very important,” he emphasized.
He also believes the key to Scientific Games’ future growth in the lottery industry is full service. As an example, he cited Scientific Games’ recent purchase of Lapis Software Associates and its suite of retail intelligence software. “This connects us to the player all the way from game design to the lottery retailer. It’s the combination of how to tie together content, get it into the supply chain, and execute it properly and continuously at retail. We’re still amazed at the opportunities to execute best practices for managing the supply chain. This is an area where we excel,” said Kennedy.
Scientific Games has worked closely with the Pennsylvania Lottery to roll out a cashless system solution. “In the initial rollout, we saw a 70% to 30% split between debit and credit for lottery products which matches all other retail purchase mix for card payment,” he said.
Recently with Pennsylvania Lottery’s direction, the pilot changed to a debit-only model and expanded the card payment pilot to 1,700 clerk and 300 self-vending lottery terminals. “Because these retailers are now able to accept cashless payments, we’re seeing an increase in purchases (more players) and a responsible increase in sales (larger baskets). We are the first in the industry to integrate this technology into the Lottery’s central system, and the first with a payment card industry (PCI)-compliant solution,” said Kennedy.
The investment in technology and providing retail solutions for expansion not only allowed the Pennsylvania Lottery to accept card payments, but through the APIs used it to pilot gift card sales and implement Play at the Pump. “These are passive tests,” explained Kennedy. “Essentially you can buy your POWERBALL® and Mega Millions tickets at 94 fuel stations and 750 pumps statewide. You can also buy Pennsylvania Lottery gift cards at 2,150 InComm gift card retailers, and use them at any lottery retailer or select self-vending machines to purchase lottery games.”
Kennedy is a big believer that lotteries must develop the key performance indicators (KPIs) to measure penetration. “The dominant measure is still sales, but we certainly find ourselves in situations where we might be recommending some games that could be better at driving playership,” he explained. “I qualify this because in our interactive business where we provide loyalty services, we have introduced KPIs that measure the retail value of online entries.”
Scientific Games measures monthly active users. Currently, the firm operates nine targeted and full-loyalty programs. Kennedy observed, “From June 2016 to June 2017, we saw an 8.7% increase in monthly active users, which means participation in these programs has improved. There are hundreds of thousands of players interacting with these loyalty programs every month, on average. At 160 million today, online ticket entries in these programs are up 13.6% compared to a year ago. And so far in 2017, we have seen 13.9% growth in the retail value of tickets players are entering online. These are meaningful numbers.”
Kennedy is bullish on instant products. In fact, Scientific Games’ Cooperative Service Program (CSP) represents a key focus for future growth. In first quarter 2017, instant games represented 74% of the company’s lottery group revenues.
“Scientific Games is entering the next chapter of our lives together with our lottery customers. We have fully integrated consumer experiences around the lottery,” he said.
Kennedy cited the potential for U.S. lotteries to further grow instant game sales in the next five years. “The number is jaw-dropping. If you were simply to take the average per capita sales of the top 10 state lotteries and apply it to the total U.S. lottery industry, there are billions upon billions of dollars in opportunity if all were to perform like the top 10. So if the U.S. lottery industry as a whole could achieve the average of the top 10, U.S. instant game sales could grow to a $70 billion business,” stated Kennedy.
So what are the key growth drivers? “Scientific Games operates most of the top-tier-per-capita in dollar-scale lotteries, not only in the U.S. but in the world. We either supply them or we have a CSP relationship with them. So our perspective is valuable,” he explained. “And when you look across those high-performing lotteries, and where these new lotteries can grow, I think it comes down to just four key drivers.”
Kennedy believes that the first growth driver is content. “At the end of the day, people are playing games. They’re buying an experience. If you look at the continued progress that we’ve made over the years in designing great games, great families of games, great portfolio-managed games, the games that we have today in the market are not the same ones that we had five years ago” he shared. “The growth in instant game sales reflects this, because five years ago in the U.S. we were at $35 billion and now we’re at $45 billion.”
Then he zeroes in on a second key driver, advanced logistics, with an explanation of how Scientific Games works as a partner with its CSP customers. “Let me give you an example of our ongoing commitment. In the last seven years, the Florida Lottery has grown their instant sales $7.68 billion cumulatively,” said Kennedy. “Their draw business has grown $329.8 million, and much of that growth came in 2016 as a result of the huge POWERBALL jackpot.”
Kennedy believes that the Florida Lottery shows the potential for doing it right. Florida is just behind the Georgia Lottery in terms of performance, which is just behind the Massachusetts Lottery, No. 1 in the country. “I think it demonstrates that the CSP solution—full category management—works,” he stressed.
“The argument that we still run up against is why shouldn’t a lottery give one-third of their instant game business to Pollard, and one-third to IGT, and one-third to Scientific Games? Our answer is to thoughtfully choose one vendor partner, and not operate under the false premise that you are selling individual games. Instant product continuity is critical. It’s an epic TV series, not a single movie, or a one-hit wonder. Continuity in player engagement is important. And one of the things that CSP has proven is that most successful lotteries in the U.S., if not the world, have a primary supplier precisely because of that continuity. It speaks to the truth of the product, which is it’s a continuous product—not a loose collection of individual games,” he said.
Interactive Player Engagement
Kennedy explained the third factor is interactive player engagement —one where lotteries appear to be under-represented in their marketing mix. “What Scientific Games has seen from running targeted loyalty programs and interactive promotional services is that promotions create noise in the marketplace,” shared Kennedy. “Along with good product design, good packaging, and good delivery, promotions provide a context for consumers to visit lottery retailers, play games, collect points and reward themselves in a variety of ways.”
The fourth key driver—which is a key area of focus for Scientific Games—is retail services. The company’s retail R&D begins with SalesMaker™, a program focused on retail training and execution. This highly successful program is led by Jeff Sinacori, Vice President of Retail Development at Scientific Games and formerly the owner of the top-selling New York Lottery retail location. Evolving SalesMaker helped the company understand the real day-in, day-out challenges for lottery retailers—which resulted in significant engineering innovations in software and hardware to improve the retail experience.
“Bringing lotteries into the 21st century in terms of selling the product is a major focus for us, and one where we can satisfy a lot of chains and major retailers who complain about the labor,” said Kennedy. “I also believe that it gives us a way to establish new retail relationships, all the way from self-service to some products that we’ll be featuring at NASPL in Portland, which go to the heart of retail services. It’s a journey from content to retailer to consumer through mobile, linking it all with tightly coupled hardware and software services. I see very positive momentum in the instant business for years to come, especially when you’re dealing with billions and billions in domestic gap. And that doesn’t even begin to address the enormous gap in instant per capita sales internationally.”
He offered one more element for consideration. “The irony of unregulated global internet providers is that there is no differentiation now for draw-based products because you can play on your phone, whether it’s an unregulated internet provider or the New Jersey Lottery. As a consumer, I don’t know the difference. But it is the instant game–the physicality of opening that little package that is a retail product—that anchors the lottery as a retail, physical product. Why chase the next generation and the future-—which everybody believes is on mobile—when one of the greatest competitive advantages lotteries have is their instant games sold at retail. It forces a physical presence that unregulated internet providers can’t take away.”
Kennedy said that the biggest threat to lotteries, and their core mission of integrity and good causes, is new entrants to the marketplace. “This brings a competitive force to the industry that does not have the same orientation that every transaction is sacred. The lottery industry is a very special, philanthropic enterprise. It generates $82 billion for good causes. People can trust it. It makes a difference. This competition represents an existential threat to lotteries’ ability to fund their good causes. It’s also an opportunity because our industry has the ability to raise even more money in a responsible way by embracing new technologies and new kinds of retail economies in distribution channels.”
In the final analysis, he believes consumers want the excitement of lottery products. They just don’t want to fight at the counter to get it. “The opportunity is huge,” he stressed. “It all comes down to the regulated side of the house, to governments being willing to invest in best practices and fund one of the most important assets they own—their licenses for lottery—and not let them be eaten away by these kinds of attacks from third-party entrants and slow-moving advancements in technology. At the end of the day, lottery is an entertainment experience. The music has to move you.”
WILLY WONKA & THE CHOCOLATE FACTORY and all related characters and elements © and ™ Warner Bros. Entertainment Inc. (s17)