092413 CJOS_Rymax_Conf. Room_300The inability of state lotteries to take greater advantage of online and mobile distribution channels stems from retailer concerns that sales of lottery products over the Internet will erode their brick-and-mortar ticket business, according to a panel of lottery and online gaming experts who spoke yesterday at the iGaming Conference, a one-day series of sessions that is part of the Global Gaming Expo (G2E), which is taking place this week in Las Vegas.

Indeed, since December 2011, when a Department of Justice ruling more or less cleared the way for state lotteries to expand into Internet gaming, only three states out of a possible 44—Illinois, Georgia and Delaware—have moved into the online realm, offering either traditional lottery products for sale online or actually instituting various forms of eGaming. Most gaming experts predicted a much faster online adoption rate among state lotteries.

“There are a number of reasons [for the slow rate of online acceptance among state lotteries], but chief among them has to be that the lottery industry has entirely failed to convince its largest stakeholders—the regional retailers that sell our products in brick-and-mortar stores—that online sales will not cannibalize their traditional lottery business,” said Stephen Martino, director of the Maryland State Lottery Agency. “This has not been the experience of lotteries in the UK, the Canadian provinces and Europe where online lottery sales have been introduced, but we are still facing enormous resistance from corporate chain retailers, and this is a politically well-heeled group.”

In addition to retailer intransigence, some observers believe the slow movement of state lotteries toward online and mobile channels stems from constituencies taking a cautious approach to any type of gaming expansion. “Any expansion of gaming within a state goes through a very methodical and deliberate process,” said Scott Gunn, senior vice president of government relations and U.S. business development for GTECH. “The issue of being able to game from home through the Internet and mobile devices is a more expansive form of gaming the generally exists in most states. It does not surprise me that this did not roll out quickly.”

Some experts believe this slow pace of acceptance will actually aid the lotteries in the long run.

“While my expectation is that it [online state lotteries] would have rolled out faster, I do not see the slow roll-out as a negative,” said Michael Pollock, managing director of Spectrum Gaming Group. “One of the core principals of any market is that you don’t legalize gaming in any form to satisfy this year’s fiscal problems. You need to think it through very carefully. There are ways to address every issue, including retailer resistance, so I don’t think going slow is necessarily a negative.”

David Briggs, the current chairman of GeoComply who once headed an effort to bring the Washington D.C. Lottery online, said the key to establishing an online presence is to take the time to create a well thought-out strategy that properly communicates with and manages all the shareholders involved in the process. “There are enormous amounts of logistical hurdles to jump,” Briggs said. “You need lots of time to build a team that knows what it is doing.”

Among the issues lotteries need to navigate before launching online are the establishment of federally acceptable transaction systems, geo-location and age verification technology, responsible gaming assurances and staff training to deal with lottery consumers in an Internet environment.