The Damage to Brand efore exploring the ways and means The key part of the sentence is “where the Lottery Bto displace illegal operators from the consumer is located” as opposed to where marketplace, we should begin by clari- the operator is located. The members of the Caused fying what it means to be an illegal illegal gaming community are continually operator, define the difference between legal exploiting new developments in technol- and illegal lottery. That definition varies ogy and legal loopholes to claim that a legal by Lottoland depending on the continent, the country, or license in one jurisdiction entitles them to even within the jurisdiction you are taking as operate in all without regard to the legal- and Illegal a reference. Let’s refer to the definition artic- ity in the jurisdiction where the consumer ulated by the Council of Europe Convention resides. This posture enables them to essen- “Secondary” on the Manipulation of Sports Competitions. tially hijack the revenues of legally licensed It addresses the issue of match-fixing in operators all around the world, depriving the Lotteries: sports, but it is a definition that can apply good causes supported by licensed operators to all forms of games-of-chance. It is the and channeling those profits over to private first time that an international institution shareholders. The evidence of this is already A Call to has endeavored to clarify the boundaries that having a big impact in Europe and Australia. separate legal from illegal gambling. Article Action 35A of the Council of Europe Convention on the Manipulation of Sports Competitions The business model of these “secondary establishes that any sports betting activ- lotteries” works like this: First, they tech- ity whose type or operator is not allowed nically are not operating a lottery. Instead, under the applicable law of the jurisdiction they are operating a betting shop which takes where the consumer is located is illegal. By bets on the outcomes of legitimately licensed perfectly logical extension, this definition lotteries like Powerball, Euromillions, applies to lottery and other games-of-chance. EuroJackpot, Mega Millions, and many Just substitute the word “lottery” for “sports other games. But, take a look at their website betting”. This is a sound, reasonable defini- (for example, lottoland.com). The headline tion that respects the laws and authorities is “Play Lottery, Games and Scratchcards vested to each individual member state of Online at Lottoland.com”. The brand logos the EU. In the U.S., that definition applies are not exact replicas of the actual brands, to Lottery but not to sports betting (which but they are very close and would appear is prohibited by U.S. federal law in all but to the consumer to be the same. In other four states). words, the consumer is led to believe they are buying the branded lottery product from 7<)30*.(405.05;,95(;065(34(@1<5, a legal and licensed operator. In actuality, do not pay anything to support societal EuroMillions, Mega Millions, or Powerball”. the consumer is placing a bet with an opera- good causes in the jurisdiction where the tor legally licensed in Gibraltar or Malta or consumer resides, they are generating huge some other haven of low taxes and minimal profits. They pay taxes to their host juris- And what happens if or when the second- regulations and blatant disregard for the laws diction, but that is typically less than 2% of ary lottery fails to pay the winner of a big of other countries, but illegal and unlicensed net income, nowhere near the 20% to 25% jackpot? Clearly, that will blow a big hole in in many of the jurisdictions where they oper- of gross revenues contributed by authorized the brand value of legitimate lotteries. Think ate. That is why they are called “secondary” state lotteries. about it. The consumer wins a big jackpot lotteries. It is like selling a derivative of the and perceives the secondary lottery as being lottery product. legitimate. The licensed operator advises How do they honor prize-payout to the player that the ticket they hold is not winners? The secondary operator takes legitimate, that the licensed operator is not There are reasons why it is very difficult out insurance. International insurance obligated to honor their winning bet because to enforce national laws to prevent this companies and others sell insurance that it is not actually a lottery ticket. Telling the kind of illegality. The European Union covers that liability up to a certain amount. player to sue the operator in the host country efforts to harmonize and liberalize trade When the jackpot size exceeds the cost of the will not likely settle the matter! It is our among its member states serves to make all ticket, the secondary operator may choose product, our brand, the value of our licensed economic activities operate competitively, to outsource the risk back to the lottery by lottery business that will be damaged. The on an equal footing and even playing field. simply buying the tickets from the lottery. PR backlash and potential legal issues are This is a commendable objective in the How do they make money if sell the ticket frightening. We should be planning for the provision of most goods and services and is day when a player wins a $100 million or a founding principle upon which the EU is ¸>LT\Z[JSHYPM`UV[ 100 EURO jackpot that is not honored by based. Gambling, though, was recognized the betting shop misrepresenting itself as a even in the original treaties as having social VUS`^O`ZLJVUKHY` legally licensed lottery. costs and being of service for governments to channel economic benefit back to the lotteries are harmful to service of society. It was excepted from the government lotteries. Lottoland is not the only secondary lottery, EU rules that require free and open cross- but they are the biggest and the one who border competition. The market-driven >LT\Z[JSHYPM`^O` has most flagrantly and effectively exploited mechanisms that drive down costs and [OL`HYLOHYTM\S[V the loopholes that enable unlicensed opera- drive up consumption maximizes efficiency tors to sell lottery products online across and works well for almost all economic ZVJPL[`¹ jurisdictional boundaries. Their marketing sectors. It does not work well for gambling is creative, aggressive, and effective. Legally because the goal in this sector has never licensed in Gibraltar, Lottoland began oper- been to maximize consumption or to maxi- ations in 2013 and exploded on the scene mize wealth for private shareholders. The at the same price as they pay for the ticket? over the last three years. Now, they are European Union Commission hopefully They don’t. But they make so much money also legally licensed by the UK Gambling recognizes these facts. Unfortunately, they in the run-up to that threshold that it does Commission, the Republic of Ireland are not taking action to provide the legal not matter. In fact, the secondary lotteries National Excise License Office, and the tools to eliminate illegality in the marketing typically offer bonus plays and incentives to Northern Territories Racing Commission and distribution of lottery games. This lack register that authorized lotteries are not even in Australia, and operate legally in Sweden, of decisive action creates legal ambiguities allowed to offer. They sell online so their Hungary, and Poland. But, but they also and loopholes through which these illegal costs are minimal. They do not incur the offer their products anywhere else with- operators are driving a well-funded attack product development and marketing costs out license or authorization. Through its on the businesses of legally licensed lottery to build the game brand because those costs websites, Lottoland offers fixed odds betting operators, not just in Europe but all around have already been borne by the authorized on Powerball, Mega Millions, Euromillions, the world. lotteries. As can be seen on their websites, El Gordo in Spain, Euro Jackpot in Europe they misrepresent themselves to make it and more than twenty-five other games. appear to the consumer that these are their And they are aggressively moving into other The business model of the parasitic products which in effect means they are products like online Instant as well. secondary lottery is simple. The private stealing intellectual property and expro- operator receives a remote gambling license priating the advertising, brand-building, from a low tax domicile such as Gibraltar and good-will that authorized lotteries have In Australia, Lottoland received its license or Malta in Europe. The operator offers invested in and created over many decades. from the Northern Territory government in fixed-odds betting on the outcomes of the Their hook (as advertised on Lottoland.com) December 2015. They began operation just state authorized lotteries. They sell online is “The odds of winning the jackpot are more in time for the record-breaking $1.56 billion across jurisdictional boundaries. Since they favorable than other major lotteries, such as Powerball last year in January. Within one 4(@1<5,7<)30*.(405.05;,95(;065(3 week of commencing operations in Australia it had attracted 250,000 clients drawn by the possibility of playing Powerball and winning the huge jackpot from Australia. By the end of 2016, Lottoland had a customer base of 400,000 and accounted for 8% of the online spend in the Australian market, or 1% of the overall market of 2 billion Australian dollars. Worldwide, Lottoland now has a customer base of 5 million people. They now have the marketing experience, the established customer and revenue base, and the legal and political know-how to continue this drive of exponential growth.