Why do lotteries run into losses?

I wrote about reasons for lottery failures in one of my previous articles. I am glad it was well received and we had a record number of readers.  Since then, I have been thinking of writing my findings on struggling or loss-making lotteries. However, my hectic travel schedule and buzzing business pushed this article a bit out of the schedule. But here I am, writing this piece straight from an airport lounge at Bangkok airport while in transit and waiting for the next flight.
Lottery looks very simple when you play and pick your numbers, but it is a complex organization internally.  Unfortunately, most of the investors take a plunge into this business with a different perception and are usually sold with an unrealistic business plan with RoI (Return on Investment) in less than 6 months. It is a good “fairytale business model” which rarely exists in reality.

Over the past year, I have met quite a few such investors in the emerging countries, as usual, my favorite regions - Africa, Latin America and South-East Asia. I discovered many interesting facts during my lengthy discussions with them. It gave me an opportunity to understand the process through which the lotteries struggle and run like loss-making machines. I have tried my best to summarize them here.

1. Gloomy picture – The investors are usually sold with an idea that the lottery market is worth a few hundred million to a couple of billion dollars. Even if we acquire 5% of the market share, in the beginning, it will return the investment in 4-6 months. After almost a decade in this industry, I have still not found a single lottery that fits into this business model, maybe I have a weak eyesight.

2. Culture misfit – Lottery is a high-risk and high-return business. So, investors usually have a big appetite for risk-taking. International investors investing in a lottery in an unknown territory is not uncommon and there have been success stories. But at the same time, it is imperative that you do not take a plunge with a team that has never understood the culture of country/territory thoroughly. The common trend I have observed is that investors bring their own team and hire local people who have to blindly follow the instructions given by the management. The opportunists see this as a low-hanging fruit to make one’s personal fortunes, which puts organization goals on the back seat. The lottery is highly cultural and this factor has been grossly missed out. If you cannot blend your strategy and game design with the local culture and rely blindly on a foreign team of so-called “experts” then Congratulations!!! You have started digging the first hole. 
It is evident that the lottery has failed to understand what customers want and instead delivers a product they either do not understand or is beyond their intellectual level.

3. Pursuing a non-solvable problem – Eventually, the lottery is launched with the help of so-called “experts” who have never operated a lottery before. First month’s sale is flat and you see people on the ground gradually losing motivation. Again the board-level strategies are worked upon while ignoring the ground-level facts.  More money is pumped-in, the pressure is transferred to the next level and the same corporate theory is making rounds.  A few more months and the situation is even worse, lottery loses half of the sales staff, blame-game has just started, small stakeholders have already started branching out… More money is pumped in, more “experts” are called for… digging the hole deeper.

4. Art of making it more complex – When it is not going our way, usually we try many out-of-the-box solutions rather than attacking the actual problem.  Lotteries do the same by adding more games, more channel partners, hire unnecessary people etc. This makes the situation more chaotic and in the end, the result is the same and the sale is still flat. More money is pumped in… 
I wish money could solve all the problems.

5. A ray of hope may be too late – Eventually, the lottery discovers something that they have been thriving for.  Someone who shows them the mirror and walks them through each and every step that went wrong. There is a hope for a turnaround, but it requires more money. Sometimes they are available, sometimes they are not...
The investors invest without a realistic market study, solely focusing on the RoI in anticipation of an unrealistic business model that churns money.

There are subtle ways to penetrate the market and systematically grow the investment. The success of a lottery depends heavily on how well you have understood the local culture, demography, level of education, the source of income, etc. All these are factored into designing a game and creating a distribution network that blends well with the expectations of players. Majority of the time a successful lottery model from the US, UK or Europe is replicated in the emerging markets and it fails miserably. Each startup lottery requires proper planning and presentation of a realistic business model. Professionals, who have spent a sizeable amount of their career in this industry and with emerging markets, are capable of deriving such business blueprints. I would recommend having such professionals by your side to give your lottery venture a fair chance to succeed.

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.

About LocusPlay

LocusPlay is a global lottery technology provider that has helped transform struggling lotteries in the emerging markets. 50% of our customers are those who have switched from their existing technology providers to LocusPlay.  It is evident with the amount of trust these lotteries have put in us that LocusPlay delivers a combination of right technology and perfect execution.

LocusPlay deals with all aspects of lottery technology like the business plan, game design, marketing etc.  Please feel free to write us at LocusPlay.com.  We are always eager to help you.