Why Pennsylvania iLottery Could Give Online Casinos A Run For Their Money

PA online casinos vs PA ilotteryPA online casinos vs PA ilottery

The Pennsylvania Lottery launched instant win online tickets a little more than a month ago, and so far the games are performing well.

According to the PA Lottery, 45,000 players registered online accounts during its first month. Those players collectively wagered $21.6 million, with the internet lottery games generating $2.9 million in earnings.

Those numbers are impressive considering the PA online lottery is still in what can best be described as a soft-launch phase.

Pennsylvania online lottery is ahead of schedule

The PA iLottery generated $21.6 million in earnings despite offering just a dozen or so instant-win games. For contrast, the Michigan online lottery, the current gold standard by which all other US online lotteries are quantified, provides 58 instant win games, in addition to online draw games, pull tabs and Keno.

But Michigan didn’t come out guns blazing.

It took the MI iLottery from its launch in August 2014 before January 2015 to enroll 87,000 accounts and generate $3.7 million in earnings.  As one of the first states to launch an internet lottery, Michigan held off on marketing until November, a decision which helps explain the slow start and subsequent expansion.

Michigan’s product has grown by leaps and bounds in each of its first three years:

FY 2014-2015: $18.5 million in net online profit off of $146,189,761 in sales.FY 2015-2016: $48 million in net online profit off of $384,992,537 in sales.FY 2016-2017: $77.9 million in net online profit off of $613,382,462 in earnings.

If Pennsylvania can replicate Michigan’s unfettered growth, the state might have online lottery earnings of $100 million each month.

Nine-figure weeks for PA iLottery?

Pennsylvania has several factors working in its favor that should get it to $100-million weeks:

PA will eventually match Michigan’s robust online lottery offerings.PA is a larger state with a population of about 13 million, compared to Michigan’s population of ten million.Michigan and another online lottery countries provide a model.The lottery has already partnered with Income Access to run its own affiliate program and promote the PA iLottery.Several major population centers in neighboring states sit over the PA boundaries.

That said, Pennsylvania’s online lottery will need to deal with something not found in Michigan: Competition.

In addition to its online lottery, Pennsylvania is also planning to roll out online casino games. Those games will be conducted by the state’s land-based casinos.

Casinos are unhappy with the PA online lottery

Not surprisingly, the chance of the PA online lottery doing $1.2 billion per year in online sales is not sitting well with the state’s casinos. In late June, the 12 of them banded together and sent a letter to Gov. Tom Wolf, asking him to close down the state’s nascent online lottery.

The casinos claim online instant win tickets are online slot machines by another title.

“In almost every way possible, Lottery’s iLottery program mimics a casino operation offering simulated casino-style games in direct contravention of (the law’s) express prohibition on Lottery offering’interactive lottery games that simulate casino-style games.'”

Per the law that legalized online lottery products, the definition of Internet lottery games:

“[Can ] not include games which represent physical, Internet-based or monitor-based interactive lottery games that simulate casino-style lottery games, especially including poker, Roulette, slot machines and Blackjack.”

Based on the language of the gambling reform law, and the lottery’s own use of the phrase slots in its marketing, the casinos have a legitimate gripe.

Unfortunately, the result of the letter wasn’t a rollback of online lottery games, rather the lottery has just agreed to stop using the phrase”slots” in its advertising.

What makes the similarity harder for the casinos is the age requirement to play online lottery games is 18 years old. Conversely, players will need to be 21 to play at online casinos.

It all circles back into the absurd PA tax rate

This likely wouldn’t be such a hot topic issue if it weren’t for the onerous 54 percent tax Pennsylvania slapped on online slots.

The hefty tax rate will guarantee online slots have a return to player (RTP) in exactly the same area as the online lottery’s instant win games. Pennsylvania’s online lottery instant win tickets had an RTP of almost 87 percent in June.

Despite the fact that the 87 percent RTP is reduced by casino slot criteria (especially online slots), it is extremely high for a lottery product.  By comparison, slots at Pennsylvania’s casinos have an average RTP in the 88-90 percent range. Online slots tend to get an RTP of 95 percent-plus, but because of the tax burden, that may not be the case in PA..

Casinos are already concerned they can not profitably run an internet casino, regardless of the RTP they offer, because of the rate.

To conquer the lottery’s built-in benefits, casinos will need to beat the lottery’s RTP by more than a few percentage points. The tax rate makes that highly unlikely.

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