Why do lotteries fail?

During a casual discussion with a friend of mine a few years ago, I mentioned about a lottery company that just went out of business.  This was a big surprise to him who is not from the industry, as his perception was that the lottery is a de-facto money making machine.  I was baffled by his surprise at then, but after spending a few more years in the industry I realized that this is a common perception that exists among the mass. 
Don’t be surprised if I tell you today that 8 out of 10 lotteries in the emerging markets fail in less than one year of starting.  I have no official analysis or statistics to prove this, and I doubt anybody has carried out a field research on this either.  But I am still confident about this bold statement, and I am not an analyst or a researcher.  I am telling you this from the hard-core fact of me being associated with the lottery industry in the emerging markets for past 8 years.  Having traveled to 30+ countries and interacted with 100+ lottery stakeholders, I very well understand the intricacies of lotteries in the emerging markets, especially Africa.  There are many individuals and companies wanting to venture into lotteries.  Majority of them do not have any experience about lottery, neither do they understand how a lottery functions.  They too think that lottery is the de-facto money making machine and if they invest $100 today, it will give them a return of $200 in a couple of months.

I have compiled few critical aspects on why these lotteries fail or what really goes wrong with them.  Many of our customers have gone through one or more of the issues highlighted below in their first failed attempt.  We then have helped these lotteries turn around with our highly experienced team and world-class technology. 

(1) Insufficient Money – Many of the new lotteries takeoff with a little or “not so sufficient” money.  They think that what it takes to start is a cheap technology vendor, a cheap Point-of-Sale (POS) terminal, 10-20 agents, 100 sq. feet of office space and 1 or 2 employees.  With an investment of around $100,000 they dream to become a millionaire overnight.  The lottery starts its operation with a lot of struggle and usually does not meet the ends throughout its brief tenure.  Eventually, winners and agents are not paid, founders go underground and the lottery venture meets an untimely death.

(2) Faulty Game Design – This is the prime reason for 50% of the lotteries that fail.  Lottery owners have no prior experience operating a lottery and hence, they rely on the technology vendor to suggest them a game.  Unfortunately, they have selected a newbie who has copied someone’s technology and is new to the business as well the geography. The vendor recommends a game that is readily available in their software, irrespective of the game being fit for the player psychology, existing lottery culture etc.  Some even go to an extent of hiring a game consultant from US or Europe who neither has any experience with the lottery in emerging markets nor has understood the player mindset.  Most of these consultants clone a successful US or European game which is no way closer to the local lottery culture.  Eventually, a huge investment does not lead any return.  By the time lottery realizes that the game is not interesting enough for the players, either the money is over or software vendor takes months to implement a new game.  Eventually, the market and a golden opportunity are lost.

(3) Lack of Marketing – Unfortunately, new lotteries think that they do not need to invest in marketing.  They are under the misconception that an unorthodox lottery player has been ruling the market for years and players are done with that.  So when they come out with a new lottery, all the players will move to them in no time.  This never happens.  In fact, a lottery player has a conservative mindset and he plays with a pre-conceived notion.  He is not a typical consumer of an FMCG product who always looks to try a new product.  Purchasing a lottery is an impulse decision and hence, Marketing is one of the most crucial aspects of the success of a new lottery.  Please note, you are up against established player(s) who are complacent that they are the ones who only can run the lottery.  A proper investment in pre-launch and post-launch aggressive marketing campaign really makes wonders and often gives new lottery an edge over a short period to compete with the established player.

(4) Wrong Strategy & Execution – Lottery is no different to any other business when it comes to business strategy and execution.  Unfortunately, majority of the new lotteries do not have a senior management staff that has a couple of decades of experience in lottery execution.  They start the lottery with a trial-and-run method, and with advice from people who do not understand ABC of the lottery.  This usually happens when the owners are not fully committed to the business and are just looking this as a financial gain.  They negotiate too much with all the vendors and then leave the operations in the hands of inexperienced staff.  They look for the cheapest way to operate a lottery.  They do not invest in the right thing at the right time and then ultimately blame others for the failure.

(5) Cheap Technology – Last but not the least, one of the major reasons lotteries fail.  It is a highly common practice for the lottery owners not to invest properly in the technology.  The reason is simple, they think that technology is nothing but a “computer” and why should I pay a little more when so many cheap ones are floating around in the market.  Unfortunately, the market is full of cheap technology vendors (and it is growing) who claim to be “lottery experts”.  Such vendors do not have a proper website or the website does not provide any logical information like who they are, what level of experience do they carry with them etc.  Their technology still runs on old-school POS terminals and amateur software designs.  The technology is not robust enough to match the pace of growth and on-going demand of the industry.  They take months to adapt to the local market and make small changes in their software, affecting business big time.  Technology vendor selection is the most important step in the entire process.  Lottery not only requires the best technology vendor but also requires vendor’s expertise and experience in different geographies as that brings a lot of value to the business.  Technology supplier is not just the vendor but also a true strategic partner in the business, who very well knows what “works” and what “does not work”

Success doesn’t come easy and overnight.  Patience, hard work, sound mind and proper execution of strategy always pay off.  It isn’t about striving in the market but it is all about thriving in the market. 
You only get one chance to implement and launch a lottery correctly.  It is hard and expensive to go back and fix it later.

This content was accomplished by Rahuldev Rajguru (CEO, LocusPlay) in his personal capacity. The opinions expressed in this article are the author's own and do not reflect the view of any specific organization or institute.