Lottery Revenue From Big Games Slumps, So It Takes Them Online

With a sales drop from Powerball and Mega Millions putting the PA Lottery behind last year's revenue, lottery officials take them online.
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The Pennsylvania Lottery, whose sales and profits are lagging behind the record year it enjoyed in 2018-19, is focusing on revisions to the culprit.

Powerball and Mega Millions sales in July-November were off a combined $156.7 mm from the same period a year ago, and last week lottery officials announced the interstate game tickets would start being sold online through the iLottery platform. Players 18 and older using computers or smartphones within the state can deposit money in accounts and choose numbers or receive ones randomly chosen, just as with retail vendors.

“Selling lottery online is a big part of our effort to appeal to new customers and meet our players where they already are — which is online,” Lottery Executive Director Drew Svitko said in a press release. “This is an important step that will help us continue generating funds to benefit older Pennsylvanians.”

Lack of big jackpots is key factor

The press release did not reveal any other details explaining the decision, but a financial statement obtained from the Lottery Bureau by Penn Bets shed further light. Overall lottery revenue from July-November 2019 was down nearly 14% from the prior year.

Traditional game sales in the first five months of the fiscal year dropped by more than $100 mm, from $1.84 billion to $1.74 billion, and that was all attributable to the two popular interstate drawings.

Powerball sales were down from $108.3 to $42.2 mm, and the Mega Millions game plunged even more, from $145.3 mm to $42.2 mm.

While both games always have twice-weekly drawings, their sales jump when there are no big winners for many weeks. The publicity generated as jackpots reach many hundreds of millions of dollars adds to still more sales.

The lack of such jackpots for the lottery this fiscal year has been “a significant issue,” PA Lottery spokeswoman Ewa Dworakowski said in an email.

In July-November of 2018, there were separate national jackpots of $1.5 billion and $543 mm for Mega Millions and $687.8 mm for Powerball. Pennsylvania’s share of earnings from those, along with the addition of new iLottery  games and bar games such as Keno, led the lottery to records for both sales ($4.5 billion) and profits ($1.14 billion) in 2018-19. The proceeds primarily go toward wide-ranging benefits for seniors, such as help with prescription drugs, transportation, and rent.

In the first five months of the new fiscal year, the top prize in each game was won on a more regular basis. A $372 mm Mega Millions jackpot that came along on Dec. 17 easily topped anything in prior months.

Strategy changed as numbers dipped

When the lottery began offering its PA Lottery games in 2018, Svitko said there was no intent to include traditional games like Powerball, Mega Millions, and the Daily Number. The aim was to attract new and younger players with games similar to those they already enjoyed playing as pastimes, although the casino industry has complained the games too closely resemble their own slot machines.

Asked about the reversal now to put interstate games online, Dworakowski responded, “While specifically adding Powerball and Mega Millions to our online lineup of games may not have been planned at that specific time, we are constantly considering new strategies” to appeal to customers.

“It should also be noted that a number of other state lotteries across the country are successfully selling draw games online,” Dworakowski wrote.

She said financial projections on how all of 2019-20 will compare to last year’s record-setter are still being finalized, and “we expect that data will be released in the near future.”

The financial report for the first five months showed net operating revenue of $437.8 mm, off 13.9% from last year’s $508.3 mm. The return of big jackpots to the multi-state games, particularly now that they are being sold online, could help make up that shortfall over the remainder of the year.

The lottery has also tweaked its games available on monitors in bars, replacing an unpopular version of football with a horse racing game called Derby Cash, in hopes of increasing that form of revenue.

PA skill games competition remains a concern

Dworakowski also highlighted the bureau’s continued concern about how its revenue is affected by Pennsylvania Skill Games competition at bars, convenience stores, and other locations — many of which also serve as retail lottery vendors.

The bureau maintains that the presence of thousands of those games, which resemble slot machines and operate in a gray area of the law yet to be settled, are costing it $209 mm in sales annually.

State courts or the Legislature will eventually have to determine the future of the skill games, though one blow was struck against them Tuesday by a Commonwealth Court judge.

Judge Ellen Ceisler lifted a temporary ban she had imposed on the ability of state police to confiscate Pace-O-Matic machines, which are one version of the skill games. The ban would interfere with law enforcement’s ability to investigate illegal gaming activity in general, the judge said, though the issue still remains to be settled of whether the skill games themselves are illegal.

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