The Damage to Brand efore exploring the ways and means The key part of the sentence is “where the 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 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 : 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 . Article Action 35A of the Council of Europe Convention on the Manipulation of Sports Competitions The business model of these “secondary establishes that any 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 , Euromillions, applies to lottery and other games-of-chance. , , 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 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 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 . 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 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 , 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 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.

The U.S. has been successful at implement- ing enforcement mechanisms against illegal i-Poker operators. This is so important because it demonstrates that there are effec- tive tools to prevent illegality in all gaming markets. Illegals, including secondary lotter- ies, can be stopped. But only when there is Lotto is one in 140 million. So, Lottoland So what can we do? First, understand the political will to make it happen. Even in leveraged the initial abuse of intellectual the nature of this threat. Second, we the U.S., the measures that were deployed to property and brands of licensed lotteries to must clarify not only why secondary lotter- great effect against illegal i-Poker operators establish this beach-head for developing its ies are harmful to government lotteries. have not been deployed against illegal sports- own portfolio of branded products. And We must clarify why they are harmful to betting operators. How can U.S. lotteries be they are applying to get licensed in markets society. Commercializing the marketing confident that the illegal operators will not and promotion of gambling and lottery as find a way to penetrate the U.S. market like though it is no different than Consumer they have everywhere else? Or that U.S. law “The regulated gaming Packaged Goods poses many problems for enforcement mechanisms will be applied to sector needs to act society, which makes it terribly irrespon- stop them when they do? What will happen sible public policy. Besides leaving the when the secondary lottery operator sells a in concert to help our customer with little or no protection again winning Powerball jackpot ticket and fails to excessive gambling behaviors, it channels honor it? Or that with success after success political constituents economic benefit away from good causes at circumventing the laws all around the and regulators that Lottery supports over to private share- world, illegals like Lottoland isn’t right now holders. Secondary lotteries operate with no thinking about the ways to enter the U.S., HWWYLJPH[L[OL\YNLUJ` transparency, and no accountability for the the biggest market in the world? All of these VM[OL[OYLH[WVZLKI` security and integrity of their products in the things will happen eventually if we do not jurisdictions where they are sold. They offer take action now to stop the global prolifera- ZLJVUKHY`SV[[LYPLZ¹ little protection for at-risk groups including tion of illegal lotteries. minors and those with addiction problems. They pay little or no tax in the jurisdictions where they operate. Further, by legitimizing Lottoland’s most recent initiative is to like Germany. They may not succeed in the the actions of secondary lotteries to violate launch its own global lottery game called short-term. But we have already seen how the intellectual property rights of regulated WorldMillions. The game metrics they use these situations evolve. They will capture lotteries opens the door to the destruction are derived from games the players are famil- more and more market-share so the juris- of patent and copyright laws that protect iar with, like the German game, the dictional authorities are pressured to collect all other businesses and owners of brands. ToiToiToi of the Austrian Lotteries. The taxes on this revenue. The only way to do What would prevent a start-up consumer jackpot on offer is 150 million every that is to license and tax them. The morph- electronics company from branding itself as week which is significantly higher than the ing of illegal secondary lotteries into licensed Apple and selling knock-off i-phones? traditional German Lotto. And the odds are operators is potentially catastrophic for state- better: the advertised chance of winning the owned operators. WorldMillions jackpot is one in 100 million Australia and others offer examples of effec- whereas the chance of winning the German tive action to at least defend trademarks.

7<)30*.(405.05;,95(;065(34(@1<5, Lottoland was successfully sued to prevent it from using the Tatts’ Quick Pick trade- mark as a result. Similarly, the EuroMillions and EuroJackpot communities have initiated Lottoland Launches Worldmillions, The proceedings to protect their intellectual property rights. We all need to take more World’s First Global Lottery aggressive legal and political action. PGRI Note: Lottoland is a private betting company which sells bets on the outcome of branded lottery products. Check out its website at lot- The regulated gaming sector needs to act toland.com. in concert to help our political constitu- ents and regulators appreciate the urgency of the threat posed by secondary lotteries. Th e world’s fi rst global lottery has been launched by rogue “secondary” Th e capability and technologies do exist to lottery operator LottoLand. Lottoland claims that “WorldMillions” will prohibit illegal online operators from enter- off er the largest guaranteed prize in the world, and frequently will represent ing a market. Th e laws do exist that make it the largest jackpot in the world on a week to week basis. Th e new product illegal to operate the w ay secondary lotter- will be available exclusively through Lottoland and will take place every ies operate. Th ey just need to be enforced. Th ursday and Sunday. Th e Sunday draw will off er a guaranteed prize of At the same time, we should also explore £100m; the Th ursday jackpot will be fi xed at £50m. market-driven responses, how to eff ectively compete with better products, promotions, Lottoland also claims that the odds of winning the jackpot are more retailer relations, and all the tools we have favorable than other major lotteries, such as EuroMillions, MegaMillions, available to us. Th is is something that should or PowerBall. To play, customers will choose an eight-digit number between be discussed in meetings such as PGRI, 00,000,000 and 99,999,999. Each number will be sold just once, so the winner will always receive the full jackpot. As an added feature, customers European Lotteries, NASPL, World Lottery can reserve their favorite numbers. Tickets are available for £10 on Sunday Association, and other association and indus- (and £5 on Th ursday). Players also may purchase 1/10 shares from just 50 try events. pence. By purchasing a 1/10 share of numerous lines, players can increase their chances of winning. his is a fi ght that we can win. Governments T Lottoland claims that WorldMillions and its other games are backed around the world depend on their lotter- by insurance which protects the business against large pay-outs. To date, ies to generate funds to support good causes. Lottoland claims to have paid out more than £400m, with the largest indi- Th ey depend on lotteries to establish the vidual lottery prize of £19 million paid last year. highest standards of transparency, security, integrity, responsible gaming, and protection Regarding the launch of WorldMillions, Lottoland CEO, Nigel Birrell, of the consumer. Th e brand value that took said, “We’re delighted to be able to announce the launch of our fi rst bespoke decades to build is owned by the government and exclusive product, World Millions at the time the of the people and they want to protect that is calling for innovation within the industry. value for future generations. Th ere is no lack of incentive and compelling reasons for our “Innovation is what drives everything we do at Lottoland. We are not political constituents to protect the value of afraid of experimenting, however we never lose sight of what our customers their lottery. We just need to fi nd a way to want. WorldMillions will be the fi rst of several major innovations that will mobilize the political will for the defenders be introduced in 2017 and that will see us further establish our business as of the people to enforce existing laws and a truly world leading operator in the lottery sector.” regulatory policy. Th at is no small task. It will take the work of of the professional Lottoland has recently called upon the UK government to open a far- associations of NASPL, European Lotteries, reaching review into allowing consumers to bet on non-UK EuroMillions World Lottery Association, Cibelae, APLA, draws after claiming that a recent consultation found no evidence that its and Africa Lotteries to defend the rights product has impacted ticket sales in the UK. Based on that, the operator is of lottery stakeholders. It will ultimately calling for a review period lasting for a minimum of two years before any depend on the full engagement of all of us fi nal regulatory or legislative changes to lottery betting are made. who are dedicated to the preservation of the lottery model and the stakeholders it serves. It’s up to us. n

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