Lottery Overview and Sales Report

1
Lottery Overview and Sales Report

• Presentation to California State Lottery
  CommissionDecember 3, 2008

2
Lottery Sales Over Time

• Over 23 years, there have been periods of sales
  growth and periods of decline in sales.
• First Year sales over 1.76 billion
• Lowest FY sales 1.358 billion in FY 1992
• Highest sales 3.58 billion in FY 2006

3
Fiscal Year Total Sales over 23 Year History
4
Key Reasons for Growth over Time

• The key strategies contributing to sales
• Product Improvements Higher Prize Payouts
• Scratchers sales more than doubled between FY
  1997 and FY 2000
• Sales were 525 million the fiscal year before
  this payout strategy started. And, by FY 2000,
  Scratchers sales were nearly 1.2 billion
• See the orange bars in the chart on the following
  page.
• Scratchers Sales Grew by 700 million morefrom
  FY 2003 to FY 2006 due to growth in the sale of
  3 and 5 games
• Growth in 3 games is due to Bingo and
  Crosswords. These extended play games were
  launched with Bingo after that theme restriction
  was removed from the Lottery Act by the
  Legislature in 2002.
• Strong and Continuous Marketing efforts
• Only conducted for Scratchers in the first few
  years of the Lottery and periodically for Lotto
  games.

5
Scratchers Sales History
1,930
6
The Most Successful Strategies Cant Be
Maximized Now

• The 34 mandated to education limits funding for
  the best revenue generating strategies
• Programs like Higher prize payouts and Marketing
  support
• Real business would invest in proven sales
  builders
• It would driven by growing dollar profits not
  maintaining a fixed percentage of profit
• Other Lotteries have seen their Sales and Profits
  grow dramatically in past several years w/
  Scratchers
• 5, 10, 20 games have fueled growth elsewhere
• Higher prize payouts are essential for having
  successful games at 5, 10 and 20 price points.

7
In FY 2007-2008, CA had the Largest Year over
Year Sales Decline

• Because California cannot fully adopt the
  successful strategies that have been done in
  other states, sales in California during FY
  2007-2008 declined by the largest amount compared
  to other U.S. lotteries.
• Chart on the following page
• Despite this large decline, California still had
  the 7th highest amount of ticket sales and
  produced the 3rd largest profit in terms of
  dollars among U.S. lotteries.
• NY was 1 at 2.579 billion in profits on sales
  of 6.67 billion
• FL was 2 at 1.288 billion in profits on sales
  of 4.17 billion
• North Carolina had the largest increase in sales
  a jump of 21 over the prior fiscal year.
  Their increase was primarily in Scratchers due to
  boosting their payout as a result of legislative
  change.

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In FY 2007-2008, CA had the Largest Year over
Year Sales Decline
9
Instant Ticket Sales Trends in a Sample of Large
States
Fiscal Year
10
Prize Payout Relief Crucial to Long-Term Success

• The California Lottery has known that sales and
  profits improve by increasing the prize money in
  Scratchers games but has been unable to gain the
  ability to make this change.
• As early as 2001, a bill has been in the
  legislature to allow the California Lottery to
  increase its prize payouts
• In 2001, SB 930 got to a floor vote in the State
  Senate but failed to get the two-thirds majority
  needed for passage
• Subsequent legislative sessions saw somewhat
  similar bills introduced.
• Because no change in the law occurred, schools
  have lost potential money.

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Impact of MEGA Millions Not as Great as Expected

• If more sales from a game like MEGA Millions
  (which works at a 50 prize payout) materialized,
  this could help fund more Scratchers prizes and
  add Marketing programs.
• Unfortunately, the impact of the MEGA Millions
  game was short-lived. Jackpot fatigue quickly set
  in as consumers saw enormous jackpots.
• A high percentage of the MEGA Millions sales were
  cannibalized from Super LOTTO Plus.
• There were not enough funds for a sustained
  marketing effort.
• As MEGA Millions sales fell below expectations,
  Scratchers sales had to be curtailed since there
  was less money available to fund the higher
  payouts.

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Sales for First 4 Months of FY 2008-2009

• Total Sales 985 million (7/1 thru 10/31)
• Last Fiscal Year 1,090 million same period or
  down 10
• Jackpot Games represent the greatest decline
  due to fewer big jackpots
• Super LOTTO Plus MEGA Millions Sales of 278
  million for the first 4 months of this year
• Compared to 378 million last year - down 26
• MEGA Millions had 4 draws with a jackpot of 100
  million or more this year but had 9 draws with
  jackpots of this size last year.
• The Largest this year was 132 million vs. 330
  million last yr
• Super LOTTO Plus had 1 draw with a jackpot above
  50 million between July and October this year
  compared to 9 such occurrences last year.
• The Largest this year was 53 million vs. 93
  million last yr

13
Sales for First 4 Months of FY 2008-2009

• Scratchers Sales from July 1 to October 31 were
  555 million this year
• Just 2 down from last year
• Daily Games Sales are up 3 over the comparable
  period last year. This is due to the addition of
  the Daily 4 game launched in May, 2008.
• While Daily 3 sales were down 14 relative to
  year ago figures, the total of Daily 3 plus Daily
  4 sales were nearly 60 million vs. sales of just
  Daily 3 last year of 51 million.
• Hot Spot Sales continue to decline
• This years sales of 40 million represent a 7
  decline compared to figures from last year at
  this same time.

14
Other Lotteries

• The most recent quarter July - September saw the
  vast majority of jurisdictions have year over
  year sales declines. Many more lotteries are
  experiencing a slow down in sales this current
  fiscal year compared to the earlier chart looking
  at last fiscal year.
• Of the 12 MEGA Millions states, 7 are showing a
  sales decline. There are 3 states with sales
  gains so far this year.
• Georgia The biggest gains were in Daily 4 and
  Keno during the quarter.  And, their strong
  selling Instant Tickets grew by 5. 
• New York The biggest increase for a single
  product line was Instant Tickets where sales grew
  by 8.   
• Mass Instant Tickets and the 4 digit numbers
  game grew by 3.

15
This Year, Only a Quarter of Lotteries Had Sales
Gains in First 3 Months
16
Other Gaming Also Down

• Gaming Revenue in greater Las Vegas is also down
  compared to year ago figures
• July 2008 819 million down 15.0 vs. July
  2007
• August 759 million down 9.4 vs. August 2007
• Sept. 853 million down 2.9 vs. Sept. 2007
• Visitor Volume to greater Las Vegas is also down
  during those months
• July down 4.6 vs. year ago figures
• August down 4.3 against last year
• Sept. down 10.1 vs. year ago numbers
• Source Las Vegas Convention and Visitors
  Authority (www.lvcva.com)

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Strategies and Tactics in January June 2009

• Premiere of new TV Show Make me a Millionaire
• Supports efforts to Improve Brand Image
• Continue developing no cost Cross Promotions
• Leverages other companys marketing efforts
• Associations w/ fun or other entertainment
  products
• Launch 2nd Chance Drawings for all Scratchers
• Supports positioning of more winning
• Pursue administrative efficiencies
• Elimination of manual processes w/ cost savings