Technological Advancements in State Lottery Operations

June 6, 2014

Presented by:Chris Robertson

Director of Business Development

NCLGS

AGENDA

I. Three New Product Trends

II. No Cannibalization Study

PLAY AT THE PUMP & ATMs

eSCRATCH

ELECTRONIC PULL-TAB DISPENSERS

NO CANNIBALIZATION

Substitution Effect (Cannibalization)

OR

Supplementation Effect?

NO CANNIBALIZATION

• According to studies, no evidence to suggest that addition of new, lottery products, such as VLTs, in bars and clubs have a negative effect on Casino revenue.

• Research by Christian Marfels, professor of Economics at Dalhousie University in Nova Scotia, concludes “Simply stated the notion of substitution effect and gaming do not mix. There is simply no empirical evidence whatsoever to support such a claim. Rather, the introduction of VLT gaming to a jurisdiction with other forms of commercial gaming, including casino gaming, leads to more variety within the gaming industry.”

• An effect that Marfels called the “Supplementation Effect.”

NO CANNIBALIZATION

SUPPLEMENTATION EFFECT =

GROWING THE PIE

NO CANNIBALIZATION

South Dakota1990 – 1996; VLT revenue $46M/year to $175M/year Casino Revenue $14M/year to $45M/year

Manitoba1990 – 1996; VLT revenue $0M/year to $185M/yearCasino revenue $5M/year to $101M/year

Nova Scotia1992 – 1997; VLT revenue $17M/year to $106M/year Casino revenue $0M/year to $71M/year

1990 1991 1992 1993 1994 1995 19960

50

100

150

200

South Dakota ($ millions)

VLTs Casinos

1990 1991 1992 1993 1994 1995 19960

50

100

150

200

Manitoba ($ millions)

VLTs Casinos

1992 1993 1994 1995 1996 19970

20406080

100120

Nova Scotia ($ millions)

VLTs Casinos

NO CANNIBALIZATION

West Virginia2000 – 2007; VLT revenue $0M/year to $397M/year Casino revenue $283M/year to $955M/year

Iowa2000 – 2007; MVM revenue introduced, then removed growing from $0M/year to $121M/yearCasino revenue $899M/year to $1044M/yearNote: Casino revenue the year the MVMs were removed had smaller growth rate than during years MVMs were introduced

British Columbia2003 – 2011; VLT revenue $0M/year to $170M/yearCasino revenue $374M/year to $960M/year

2000 2001 2002 2003 2004 2005 2006 20070

200400600800

10001200

West Virginia ($ millions)

VLTs Casinos

2003 2004 2005 2006 20070

200400600800

10001200

Iowa ($ millions)

MVMs Casinos

2003 2004 2005 2006 2007 2008 2009 2010 20110

200400600800

10001200

British Columbia ($ millions)

Community Gaming Casinos

NO CANNIBALIZATION

“….the extension of the substitution effect of casino gaming to other forms of commercial gaming in general, and to VLT gaming in particular, in the sense of cannibalization of gaming revenues, is misguided. If anything, the one dollar spent on VLT gaming is simply one dollar more spent on gaming. Why? Because VLT and casino activities are two vastly different forms of commercial gaming.

As a consequence, the substitution effect can be laid to rest, and it can be safely replaced by the supplementation effect.”

Christian Marfels, PH.D, Casino Gaming and VLT Gaming: Substitution Effect or Supplementation Effect?, GAMING LAW REVIEW, Volume 1, Number 3, 1997

NO CANNIBALIZATION

More lottery products grow the pie!