Digital Instants Overview - (Updated) November 5, 2019 - NC Policy Watch
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Digital Instants Overview
(Updated)
November 5, 2019
Current Online Play Platform
GAMES OFFERED DRAW OPTIONS
- Powerball (multi-state) 1 draw – 1 year’s worth (104 draws or 364 draws)
- Mega Millions (multi-state)
- Lucky for Life (multi-state)
- Cash 5
2
Five Online Gaming States Currently Offer
Digital Instants
Jurisdiction Game Category
Georgia Draw, Instant
Michigan Draw, Instant
Kentucky Draw, Instant
New Hampshire Draw, Instant
Pennsylvania Instant
North Carolina Draw
Illinois Draw
New York Draw Subscriptions
North Dakota Draw Subscriptions
Virginia Draw Subscriptions, Mobile Play
Ohio Contract Award Pending
iLottery Benchmarking Study | Prepared for NCEL 3
Digital Instants Typically Make Up the Majority of
Online Gaming Revenue
iLottery Benchmarking Study | Prepared for NCEL 4
Digital Instants Offer the Most Growth Potential
MONTHLY PER CAPITA DATA
• New draw games no longer offer the Product Sales GGR
potential for up to $0.93 monthly per
SCRATCH-OFF TOTAL $15.22 $4.41
cap of GGR.
Pick 3 $2.99 $1.50
• Based on projections a Digital Instant Pick 4 $1.44 $0.72
program would generate $0.35 monthly Cash 5 $0.62 $0.31
per cap GGR or $34.6 million net in the Powerball $0.76 $0.38
Mega Millions $0.54 $0.27
first full year.
Lucky for Life $0.16 $0.07
Keno $0.38 $0.13
• By the 5th year the program is projected DRAW GAME TOTAL $6.89 $3.38
to generate $81.6 million in net
proceeds.
iLottery Benchmarking Study | Prepared for NCEL 5
Retail Instant Sales Continue to Grow In Markets
that have Introduced Digital Instants
GEORGIA LOTTERY MICHIGAN LOTTERY
Retail Instant Sales Internet Sales Retail Instant Sales Internet Sales
$3,189.5
$3,157.9
$3,068.6
$1,546.9
$3,006.7
$2,801.4
$1,359.6
$1,160.7
$1,047.8
$947.4
$840.0
$681.4
$478.5
$191.3
$66.0
$41.0
$19.0
$29.2
$21.9
$-
2014 2015 2016 2017 2018 2014 2015 2016 2017 2018
6Retail Instant Sales Continue to Grow In Markets
that have Introduced Digital Instants
KENTUCKY LOTTERY PENNSYLVANIA LOTTERY
Retail Instant Sales Internet Sales Retail Instant Sales Internet Sales
$628.7
$614.1
$2,915.7
$584.4
$581.2
$2,790.7
$2,742.2
$2,670.1
$536.9
$2,525.2
$133.0
$20.0
$10.1
$2.3
$-
$-
$-
$-
$-
$-
2014 2015 2016 2017 2018 2014 2015 2016 2017 2018
7Retail Instant Sales Continue to Grow In Markets
that have Introduced Digital Instants
NEW HAMPSHIRE LOTTERY
Retail Instant Sales Internet Sales
$242.4
$230.7
$220.6
$210.9
$205.6
$9.1
$-
$-
$-
$-
2014 2015 2016 2017 2018
8Retail Same Store Instant Sales Continue to Grow
In Markets that have Introduced Digital Instants
Average Sales Per Retailer • All of the states that have
introduced Digital Instants have
not seen any growth of retail
networks - only exception is New
Hampshire
• Same store growth in all other
jurisdictions mirrors or is slightly
higher than the Retail Instant sales
growth
• NH introduced Keno at nearly the
same time as introducing Digital
Instants – led to a 6% growth of
retail network, negatively impacting
the same store growth metric
9Digital Instants Can Integrate with Retail With Online
Game Cards, Cross Promotions and Referral Programs
• Sold at retail, a $20 Online Game Card purchase provides players
with $25 in online credit.
• This cash-based method provides players with another funding mechanism
to add to their eWallets.
• Retailers receive standard commission for selling the Online Game Card.
• The product has evolved to a terminal-based printed ticket version with
variable funding amounts.
• This payment method is responsible for over 700,000 retail transactions and
represents 7% of online play deposits today.
• A new option now exists for players to also cash their Online Play
winnings at retail locations, driving additional in-store sales for
retailers.
• There is also the ability to drive Online Play players to purchase at
retail through cross promotions, such as coupons for discounts on
retail ticket purchases.
• Referral programs have also been developed to provide incentives
for retailers who refer retail players to online play.
10There Are A Variety Of Digital Instant Game Types
Digital Instant Game Types
• Single Ticket
• Multi Play Area / Multi Ticket
• Extended Play
• Draw Simulation
• Bonus Round / Mini Games
• Interactive Play
Game Demos
https://www.nhlottery.com/iLottery-Games
https://www.pailottery.com/games/all-games
iLottery Benchmarking Study | Prepared for NCEL
11Digital Instants Require Enhanced Prize Structures
Digital Instant Games Play Faster than Retail
Clicking is faster than scratching, cashing prizes happens instantaneously instead of in a waiting line, plus the computer
system eliminates all of the time spent interpreting the ticket for winnings (e.g., animations jump out at players when they
win).
Digital Instants Is Destination Gaming
Unlike retail, where lottery is often an ancillary activity, players are deliberately visiting a digital instants site to escape and
play. The entertainment time that they demand is far different than a store environment.
Higher Payouts Deliver More Value to Players
Because digital instants players are there to play for longer periods of time, a higher payout will allow players more play time
for the same dollar. An insufficient payout rate will make time more expensive for a player to purchase and can lead to
retention loss.
Payout Rate Doesn’t Determine Profit Rate
The prize structures, if designed correctly, will churn smaller prizes into profit while also delivering excitement and meaningful
prizes back to players. This will result in more satisfied players while also maintaining gaming margins.
12Importance of Payout on Play Duration and
Engagement
Impact of Payout on Play Duration
$100
• Payout is directly correlated to
$90
amount of time played $80
+ 40 minutes
$70
• Higher payouts lead to longer play $60
$50
times, more engaged players and
$40
eventually more frequent visits $30
$20
• Engaging game play alone will not $10
lead to long term success of a $0
Original 10 Minutes 20 Minutes 30 Minutes 40 Minutes 50 Minutes 60 Minutes 70 Minutes
digital instant game Deposit
68% Payout 87% Payout
iLottery Benchmarking Study | Prepared for NCELStates with Digital Instants at Optimal Payouts have
Experienced Strong Growth
*All figures include Instant Keno revenues but exclude draw-based Keno. Georgia Lottery per capita gaming revenues are projected based on publicly available statements after month 29. Pennsylvania Lottery per
capita gaming revenues are projected based on publicly available statements. All net gaming is based on theoretical payout rates versus actual payouts in order to eliminate spikes due to large prize wins in any given
month.
14Prize Structures and Payout Rates Impact Revenue
• The recommended payout for Digital Instants is [To Be Approved by the Commission].
• This recommendation is based on practices in place at the top performing Digital Instant programs in the US
(i.e. Michigan, Pennsylvania and New Hampshire).
• This payout is approximately 16 percentage points higher than our current NCEL aggregate payout for scratch-
off games (71%).
• The recommended payouts would be fixed across all price points for Digital Instant games,
which differs from the current strategy of gradual payout increases for Scratch-off games.
• This is based on the expectations of a Digital Instant player versus a scratch-off player.
• Entertainment value in the form of win frequency is higher priority amongst Digital Instant players, which
requires richer payouts.
Monthly GGR
State Payout %
Per Capita*
Michigan 87.5% $0.93
Pennsylvania 87% $0.45
New Hampshire 85% $0.53
68%
Kentucky $0.10
(at launch)
Georgia 68% $0.05
*All figures include Instant Keno revenues but exclude draw-based Keno. Georgia Lottery per capita gaming revenues are projected based on publicly available statements after month 29. All net gaming is based on
theoretical payout rates versus actual payouts in order to eliminate spikes due to large prize wins in any given month.
15Digital Instants Projected Proceeds of $244 Million
Over the First 5 Years of Operation
Year 1
Year 2 Year 3 Year 4 Year 5
(Partial 4 months)
iLottery Benchmarking Study | Prepared for NCEL 16Digital Instants Payout Scenarios and Impact on
Estimated Return
Digital Instants Payout Scenarios - Thru Year 5
PAYOUT SCENARIO 87% 85%* 83% 80%
Sales $2,415,038,827 $1,674,426,920 $1,292,756,076 $941,865,140
Prizes $2,101,083,779 $1,423,262,882 $1,072,987,543 $753,492,112
GGR $313,955,047 $251,164,038 $219,768,533 $188,373,028
Vendor Fees $48,300,315 $38,735,456 $33,940,162 $29,128,380
Operating Expenses $21,120,241 $21,120,241 $21,120,241 $21,120,241
TOTAL $244,534,492 $191,308,341 $164,708,130 $138,124,407
70% (KY)
Sales $195,070,639
Prizes $136,549,447
GGR $58,521,192
Vendor Fees $8,983,654
Operating Expenses $9,193,682
TOTAL $40,343,856.29
* Projections based on the “Low” scenario presented as part of the performance audit by Delehanty Consulting
iLottery Benchmarking Study | Prepared for NCEL 17Deposit Limits regulate player spending
Player Selects and Player Wins
Player Funds Wallet Purchases Game
DEPOSIT
WAGER / PLAY
Player $’s +
Player $’s
Winnings
iLottery Benchmarking Study | Prepared for NCEL 18Play and Deposit Limits in Other Jurisdictions
NC
GA MI KY PA NH (Proposed)
Deposit Deposit Deposit Deposit/Play Deposit Deposit
[To be Approved
Daily Deposit Limits $250 $10,000 $500 Set by Player $500 by Commission]
[To be Approved
Weekly Deposit Limits $750 $35,000 $500 Set by Player $1,500 by Commission]
[To be Approved
Monthly Deposit Limits $2,500 $75,000 $2,000 Set by Player $3,000 by Commission]
Player Can Set Own Limits Y - Lower Y - Lower Y - Lower Y Y - Lower Y - Lower
• All jurisdictions offer some sort of Play or Deposit limits.
• Only PA offers both Play and Deposit Limits. Unlike all other jurisdictions players must
set their own limits. There is not a Lottery imposed limit on Plays or Deposits.
19Digital Instants Provide Additional Opportunities for
Responsible Gaming
• Membership Requirement: Players must be a member of the NCEL Player’s Club and upgrade their account with additional
information (last four of SSN) to purchase online.
• Age and Identity Verification: The NCEL uses the ID verification service IDology to validate the identity of online players and
understand potential risks.
• Player-Enabled Limits and Change Waiting Period: Players have the option of setting their own deposit limits. There is a 48-hour
waiting period before any increase in the deposit limit takes effect.
• Self-Exclusion: Online Play users can effectively lock their account for a specified period of time, chosen by the player.
Digital Instants RG Tools
• Loss Limits (Digital Instants): Players can set a maximum amount of money that they can lose in a certain period of time.
• Play Time Reminders (Digital Instants): Notification sent to players at a defined period to remind them how long that they have been
playing.
20NCEL Website is Well Protected
• SSL connections: SSL is industry standard encryption technology that prevents “man-in the-middle” attacks.
• Firewalled Load Balancer for Web Server: Our web server sits behind a firewalled load balancer and the only allowed access is
through the load balancer. This minimizes attack surface and prevents many types of exploits.
• Sever-side Logging, Health-Monitoring, and Geo-Restrictions: Minimize and rapidly respond to malicious activity.
• Utilize Usernames for Login Instead of Email: This provides several security benefits because many hacks occur due to
combination of infiltration of lesser secure sites, password re-use, and acquiring email and password from such sites. We also enforce
password complexity requirements and lock out accounts after too many failed password attempts to prevent random guessing.
• Hashed Passwords: Passwords are stored in unrecoverable hashed format. This is considered more secure then encryption.
• Strong Encryption for API and Data Transfers: We use industry best encryption technologies for API and data transfers between
our site and NPI. For server to server APIs, we add additional IP restrictions only granting access to trusted servers.
21NPI Platform is also Highly Secure
• Secure Player Information: Offers a secure gaming platform that is PCI-DSS compliant (Payment Card Industry Data Security
Standard).
• Strong Encryption: The player data is encrypted “at rest” and “in transit.”
• Firewalls: Strong firewalls for intrusion detection and prevention, DDOS (Distributed Denial of Service) protection and more.
• Compliant and Certified International Data Integrity and Information Security Standards:
• International/multi state regulations standards such as MUSL, GDPR (the EU General Data Protection Regulation), as well as others.
• Certified in more than 10 International/multi state regulatory frameworks, including the UK, Italy, Denmark and in a few weeks New-Jersey.
• Multiple “best in industry” security standards, including ISO 27001, PCI-DSS and others .
• Ongoing Audits and Recertification: The NPI system undergoes continuous and on-going audits and periodical recertification by all
aforementioned entities (regulators, certification labs, etc.). On average NPI is audited at least once per month.
• Mature System: Operational for over 14 years, selling over a billion e-Instants and DBG tickets yearly, with no past occurrence of any
security incident involving hacking of data or disclosure of sensitive information.
• Specific Security Measures for Digital Instants:
• Random Generator (RNG) is certified by a 3rd party lab, and undergoes periodic recertification
• Players have no control over the game outputs, since the results are determined by the RNG on the server side.
• Game series creation as well as ticket consumption is audited close-to-real time, by a 3rd party internal control system (ICS). So, similar to the way NPI employs an
ICS system to constantly audit the purchase of draw based tickets (such as Powerball and mega millions) as required by MUSL, they also employ the same solution to
constantly audit the creation and usage of digital instants, ensuring the system is running as expected (including overall game payouts, prize distribution, etc.)
22Digital Instants Requires Dedicated Staff
The lottery is it’s own store front and must work to drive traffic, conversion, and transactions on a
daily basis. This also includes increased back-office functions like finance, administration,
security and quality assurance.
DIVISION POSITION PLANNED SALARY BENEFITS TOTAL
Director – Digital Marketing $125,000 $40,417 $165,417
Digital Analytics & Research Manager $90,000 $30,809 $120,809
Brand Management Digital Project Coordinator $68,000 $24,770 $92,770
Digital Graphic Designer $65,000 $23,947 $88,947
Digital QA Analyst $65,000 $23,947 $88,947
Product Development Digital Games Manager $97,084 $32,754 $129,838
Gaming Systems SQA Analyst $65,000 $23,947 $88,947
FAS - Finance Digital Retail Accountant $53,895 $20,898 $74,793
FAS – Prize Validation Senior Prize Analyst $50,000 $19,829 $69,829
Investigator $50,815 $20,053 $70,868
Security Operations Specialist $45,173 $18,504 $63,677
FAS - Security
Security Operations Specialist $45,173 $18,504 $63,677
Information Assurance / Security Specialist $64,302 $23,755 $88,057
Position Count: 13 $884,442 $322,131 $1,206,573
23Digital Instants Timeline
Digital Instant Digital Instants
Commission Approval UAT Testing Starts Advertising Begins
December 5, 2019 January March 2020
NPI and NCEL Software Digital Instants
Development
Launch
December - January
February 2020
24Recommendation Summary
1 Payout
[To Be Approved by Commission]
Ticket Cost Parameters
2 [To Be Approved by Commission]
Limits
Deposit Limits:
Daily: [To Be Approved by Commission] / Weekly: [To Be Approved
3 by Commission] / Monthly: [To Be Approved by Commission]
25Glossary
1. Cooling Off Period – Period of time that a player must wait to increase their deposit or play limit after having reduced the amount.
Typically 24 to 48 hours. Players cannot increase their limit beyond the lottery defined threshold.
2. Deposit Limit – Limit typically set by the lottery for the amount a player can deposit into his/her wallet. This can typically vary by day,
week or month based on the lottery’s preference. Players have the ability to reduce their deposit limit at any time.
3. Digital Instants – Interactive internet games with an instant reveal of a game’s outcome
4. Gross Gaming Revenue (GGR) – Calculation of game sales minus prizes. This provides a clearer measure of performance as it
removes the impact of player churn.
5. iLottery – All-encompassing term referring to the sale or distribution of any lottery games via the internet. This includes draw and digital
instant games.
6. Play/Wager Limit – Limit typically set by the lottery for how much a player can spend on a ticket purchase or instant game wager. This
can typically vary by day, week or month based on the lottery’s preference.
7. Play Timer – Reminder to player of the duration of time that a player has been playing online. This is set by the lottery and is typically at
the one hour mark.
8. Quick Draw Games – Draw games that draw in a short period of time (typically around four to five minutes) or on demand.
9. Self-Exclusion – The ability for a player to suspend their iLottery and rewards account for a designated period of time. There is no
ability for the player to login or reinstate their account until that period is over. Players can choose from one month, six months, one year,
five years or forever.
10. Subscriptions – The purchase of lottery draw games for an extended period of time that can typically vary from two weeks to one year’s
worth of drawings.
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