Business Plan

1
Business Plan BudgetFY 2006-2007

• Presentation to the California State Lottery
  Commission
• June 27, 2006

2
Plan Development Process

• Situation Analysis
• Review of Product Performance, Industry Trends,
  Retailing Trends, Consumer Preferences / Data
• Objectives that will allow us to reach Goals
• Sales Goals
• Strategies and Tactics to achieve Objectives

3
Another Record Year !

• 3.56 billion in sales estimated
• Up more than 200 million over last year
• Education to receive 1.26 billion
• Up about 85 million over last year
• A 7 increase in sales and dollars to schools

4
Sales in FY 2006 Will Again Set an All-time Record
5
Education Contributions Also Hit Record High
(In Millions)
6
A Record Year for Retailers too

• Lottery retailers earned a record 251 million
  for selling lottery products
• Over a majority of retailers are independently
  owned small businesses

7
Record Year in Retail Compensation
8
How were these records achieved?

• MEGA Millions SuperLOTTO Plus about 70 million
  higher than just SLP last year
• 9 jackpots of 200 million or more
• Scratchers up 170 million over FY 05-06
• Addl dollars to fund the higher payout games
• 5 Game Sales ability to have 4 introductions
• Continued strength of Extended Play category

9
FY 2006 Will be Biggest Year in Scratchers Sales
Ever
10
3 and 5 Scratchers Account for Over 55 of
Product Sales
First 10 mos
11
FY 2006-2007 Business Plan Objectives

• Maximize sales from games with greatest profit
  potential those w/ payouts of 50-55
• Increase availability visibility of Lottery
  products
• Build stronger connections with Californians
• Bolster the Lotterys infrastructure

12
Increasing Sales of Games w/ Greatest Profit
Potential

• Lotto Games 50 Payouts
• SuperLOTTO Plus and MEGA Millions
• 1 and 2 Scratchers Games
• 1 Games have Payout around 53
• 2 Games have Payout around 57
• Marketing Test for Daily Games
• Research other Draw Games for the future
• Marketing Plan outlines the details

13
Availability Visibility of Lottery

• Analyze results from saturation study and
  potentially expand network in rest of CA
• Look at alternative, non-traditional tradestyles
• Research into new product delivery systems and
  potential future tests of such methods
• Improve in-store merchandising with customized
  signage in chain stores

14
Building stronger connections to Californians

• Personalize contact
• Build involvement with the Brand
• Associate products with excitement, entertainment
  and the social aspects of fun
• Show the Lottery as doing its part to benefit
  public schools

15
Examples of Building Closer Bonds

• Expanding Event Marketing efforts
• Participating at some local community festivals
• Sponsoring other local events
• Additional Big Spin TV Show elements
• Jackpot Captains Program
• First step in a Lottery Players Club
• Group Play Kit to members
• A special website for them

16
Bolster Infrastructure

• Ability to deliver key services for future growth
• Additional Terminal Memory for new applications
• Better Service that is more efficient
• Retailer website enhancements
• Automated forms
• Staff Training and Workforce Planning

17
Product and Marketing Plan
18
Lotto Games 1,245 million

• Represents a 5 increase over current yr
• All the growth from the MEGA Millions game
• This game has yet to reach its full potential
• Typical for a new product
• Compounded by the fact that players think of
  Lottery on Wednesday Saturdays
• Planning additional marketing vehicles to boost
  awareness and playership

19
Lotto Took More Than 2 Years to Reach Full
Potential
20
Awareness and Playership of MEGA Millions Have
Grown
Playership data refers to of CA who have bought
a ticket in past month
Awareness data includes both aided and unaided
awareness
21
Knowledge of Draw Days Improving But Not
Widespread
22
Lotto Games Advertising

• TV Advertising to build the Brand
• Nearly all TV dollars devoted to MM
• SLP - supported by Radio and other media
• Lotto Games Media Plan20 weeks of TV and 12
  weeks of Radio

23
New Media Vehicles

• Changes in TV viewership
• Fragmentation of the audience
• A major challenge to reach the masses
• Need to develop new ways.
• To break through the clutter of advertising
• To reach people in other places / times of day

24
Examples of New Media

• Taxi Toppers
• Website Banner Ads on Draw Days

25
Other Tactics

• Jackpot Programs to boost awareness play
• Consumer Promo to increase transaction size
• Buy 7, Get a Free SLP Play
• Recommended Start in mid-October
• Sampling Program to generate trial
• Coupons given at events thru radio stations
• Redemption at Lottery Terminals by end of 2005

26
Scratchers 1,880 million

• Based on proven success, continuehigher prize
  payout strategy
• Budget constraint for prize money means sales
  goal lower than actual sales this year
• Available dollars for just one 5 game
• Compared to four games in FY 05-06
• Total of 40 new games to be launched
• If funds available, launch another 5 game
  towards the end of FY 06-07

27
Multiple 5 Games at Retail Boosted Sales During
Jan Feb
28
1 2 Games 15 increase

• More 1 and 2 Games to be Launched
• 15 at each price point
• Compared to 12 - 1 and 11 - 2 in FY 05-06
• Develop extended play games at 1 and 2 and
  incorporate popular features themes
• Create retailer promotion for stocking and
  merchandising the 1 game category
• Kick off the push with The Big Spin game

29
Extended Play Games Top 3 Sellers
In Millions
Based on First 16 weeks of sales as measured by
pack settlements
30
Big Spin is only Scratchers Game with Unaided
Name Awareness
31
Big Spin Among Top 1 Sellers
In Millions
Based on First 16 weeks of sales as measured by
pack settlements Except Big Spin, which is
the annual weekly average for 16 weeks
32
Other Scratchers Tactics

• Holiday Gift Giving marketing program
• In-store POS and some advertising efforts
• Entertainment based Game in Spring
• Strong Movie launches for the Summer
• Numerous licensed properties being researched

33
Hot Spot 160 million

• 1 Million Prize Promo planned for the year

34
Daily Games 315 million

• General upward trend in Daily 3 sales
• Conduct test in a smaller market
• Marketing / advertising program against a Daily
  Game product and measure its ROI
• Potentially launch statewide effort in late
  spring

35
Product Development Research

• Testing potential new games for consumer appeal
  and sales estimation
• Bingo-based Draw Game (revised concept)
• Raffle-style games done in other states
• 4-digit based game
• Reviewing other concepts / ideas

36
FY 2006-2007 Product Plan

• Sept Oct 1 Scratchers Games Big Spin
• Oct Nov Lotto Games Promotion (3 weeks)
• Nov Dec Promoting Scratchers as Gifts
• Jan Feb Marketing Emphasis on MM / SLP
• Mar-Apr Special April Scratchers Game
• June-July TBD

37
Recap of Sales by Product
38
Budget for FY 06-07

• .

39
Budget - Sales Prizes(in Millions)
40
Budget Administrative Expenses

• Administrative Expenses total 435 million
• Largest expense Retailer Compensation
• 255 million representing about 7 of sales
• Calculated on the 3.6 billion sales goal
• Based on Commission approved regulations
• 6 commission
• Cashing Bonuses
• ½ Jackpot Selling Bonus

41
Game Operations Budget

• 60 million in expenditures
• Based on sales goal of 3.6 billion
• Many costs driven by sales figures
• Includes reduction in ticket printing costs
• Includes additional dollars for
• Maintenance of newly installed ITVMs
• Addl software programming and terminal upgrade

42
Communications Budget

• 36 million budget
• Base Budget for Advertising, POS, Broadcast,
  Consumer Promotions, Product Publicity Retailer
  Promotions
• Incremental Funding of 1.6 million for
  additional retail merchandising
• Additional playcenters
• Customized signage

43
General Administration Budget

• 76 million budget
• Includes personnel costs, other contractual
  services, operating expenses and facility costs

44
Budget Administrative Expenses (in Millions)
45
FY 06/07 Budget - Education (in Millions)