Public Gaming Research Institute / Public Gaming Magazine

Public GamingPublic Gaming:Congratulations toyou and all of the USLottery directors for getting the cross-selling of thebig multi-state jackpot games off to a fabulousstart. When do you actually sell your first MegaMillionsticket?Tom Shaheen: Our target date is January31st. However, this isn’t like implementingyour own in-state game. The implementationof any multi-state game requires aconsensus involving all the different participatinglotteries. I would estimate that 36 ofthe 45 US lotteries are targeting January 31stas the launch date. Reaching consensus fromthis many organizations on a multitude of issuesis no easy task.What’s involved logistically for implementingMegaMillions and Powerball in a whole new setof state lotteries?T. Shaheen: There are several pieces thatmust be in place. First of all, each lottery hasits own governing board and legislative procedures.So the approval processes will bedifferent. Even if all states sign on, the timingand launch dates may not be the samefor everyone. Some states are structured likea corporation, having a lottery board. Otherstates may be a state agency with a commission.In these cases, the approval process canusually be completed by that board or commission.Some states, however, may have togo through rule changes that are approved bybodies outside of the lottery. Some may evenneed legislative approval. A lottery that reportsdirectly to the governor may need thegovernor’s approval. As you can see, theprimary logistical issue impacting timing toparticipate is each state’s approval process.In the case of cross-selling MegaMillionsand Powerball, that could delay the startdate until June or even later for some states.But almost every state is in agreement thatparticipating in both jackpot games shouldbenefit their state.Tom ShaheenExecutive Director, North Carolina Education LotteryPresident of the Multi-State Lottery Association (MUSL)(This interview is continued online. Please go to www.publicgaming.com to see this interview in its entirety.)Any changes in prize structures and gamematrices?T. Shaheen: Right now we’re not planningon changing prize structures for either game.The prize structures currently in place shouldaccommodate the additional population andvolume of play for now. We may need to look atchanging one or the other or both in the future.For the January 31st launch, Powerball and MegaMillionswill remain exactly as they are today.What is the legal mechanism or arrangementthat enables Powerball states to sell MegaMillionsand vice-versa?T. Shaheen: The Powerball states willparticipate in MegaMillions as a licensee. Powerballstates will be granted authority througha licensing agreement from the MegaMillionsstates to sell their game. Conversely, MegaMillionsstates will be granted authority from thePowerball states to sell Powerball.Each group continues to control the gamesjust as they do today. Each lottery selling thenew jackpot game will in essence function almostlike a retailer that is licensed to sell lotterygames. Licensees in either group will not havevoting rights with regard to the rules, policies,procedures, etc. of the other game. So eachGroup continues to operate much like theyhave always operated; only now they have anew set of licensees. Of course, this new set oflicensees will have a dramatic impact on thebusiness, so they will still have input.Keeping that management structure the samewould seem to be the best way to minimize decision-makingbottlenecks.T. Shaheen: Exactly. This is the easiest,quickest, and cleanest way to bring the lotteriestogether. The challenge will be in trainingretailers and players. The games are very similarbut do have small differences. That’s good becauseit will give us a great opportunity to interactwith our retailers and players by providingan additional revenue stream, a new story totell, and an avenue to explain the differences.What are some of the differences?T. Shaheen: The second prize is a differentamount between the two games. The drawingtimes are the same, but the draw close times aredifferent. Starting jackpot amounts are different.The annuity factor is different. MegaMillions is26 years at a straight line of payments, and Powerballis 30 years at graduated payments. Thereare enough nuances there that it’s going to be alearning curve for players. But we don’t thinkit will be overwhelming. It’s similar to trainingretailers and players for any other game that weintroduce. They have to learn how to play thegame, learn the rules, when the drawings are,and what the payouts are.I would think the market is ready for somethingnew and different and the customer readyto be introduced to more options and variety inthe products.T. Shaheen: I think you’re exactly right.Why have a product available in some placesand not in others? Of course, what’s been happeningis those who live on the borders willdrive over and play that other game in otherstates when the jackpot is high. What thismeans is that people who don’t live near theborder don’t have the opportunity to buy theother game because the travel time makes it lessenticing. Now everybody will have easy accessibilityand opportunity to play both games andthat’s the way it should be.So there are enough differences between thetwo jackpot games that you don’t feel a compellingneed to differentiate them further right now.Is there a point of time in the future, maybe 12to 18 months from now, that you will explore additionalways to differentiate the games?T. Shaheen: Our goal right now is to offerboth games in as many states as possible. Then,as we continue to work together and learn abouteach other’s rules, policies and procedures, we’lldevelop a best practices approach to smooth outthe implementation of two multi-state jack-…continued on page 32Public Gaming International • January 2010 12

Public GamingJune RoacheChief Executive Officer of South Australia (SA) Lotteries;Chairperson of the Asia Pacific Lottery Association (APLA)Public Gaming:Chairperson of theAsia Pacific LotteryAssociation (APLA) is a two-year term?June Roache: Yes. All the terms of theexecutive committee are two years. Since thisterm began in October of 2008, it ends in Novemberof 2010, at the WLA World Congressin Brisbane.From your perspective, how does the gamingindustry and the role of the association in the AsiaPacific region differ from the other regions?J. Roache: One of the issues with the AsiaPacific region is that it has great diversity, notonly in its culture, but also with the lottery jurisdictionsbeing in various stages of organizationallifecycles. Some have been around fordecades, while others are quite young. Someoperate many lottery games; some only a few.In Australia we operate many different games.We have about 40% of the world’s populationin the Asia Pacific region. And we also havesome of the biggest, and longest standing lotteries,such as the Japan Lottery Association,Tatts Lotteries in Australia, and the HongKong Lottery. And there is the rapidly developingChinese Lottery.What are some of the agendas that APLA istrying to accomplish?J. Roache: The next 12 months will bea time of sharing information amongst membersthat could benefit and add value to theyounger organizations. We have a couple ofopportunities each year to do that. One is anannual seminar. This year we held that in Macaoin April. And the big one is our annualconference, this year held in Auckland, NewZealand. We are a relatively young organization,ten years old this year. So we’re not asdeveloped structurally as NASPL or the EL(European Lotteries Association). We don’thave a full time secretariat or administrativeoffice. An Asia Pacific Regional MemberLottery hosts the conference function, anothermember assumes responsibility for theadministrative duties of the association, andanother the Treasury function. Each require atime commitment.The WLA (World Lottery Association)has developed responsible gambling and securitycontrol standards against which memberscan benchmark their controls and seek accreditation.WLA’s accreditation program atteststo the standard of performance achievedby the operator. This is a very important programthat raises the level of performance andintegrity for the entire industry. So, one of ourregional priorities is to promote the awarenessof these programs, to inform the publicand political leaders about the importance ofthese efforts to raise the level of performanceand to encourage our member lotteries to seekaccreditation with the WLA security controlstandards, and the responsible gamblingframework. The importance and relevance ofthese programs is really universal, they applyequally to all parts of the world. So in spite ofthe tremendous diversity of our region, theseare initiatives that we can embrace becausethey apply to all of us.When we look at the major challenges thatface our members, we can see many similaritiesto other parts of the world. We all haveto remain strategically relevant and sociallyacceptable to our market. We have to protectour government revenues and consumersfrom illegal or unregulated operators. Theillegal operators really do take a lot of theturnover from the licensed operators, in AsiaPacific just like other parts of the world. Thisis a problem. And that is why we need to establishstandards of performance which arerequired of all operators. Ultimately, we needto differentiate ourselves from these illegaloperators. And the way we will do that is bybeing better, by achieving higher standards ofperformance in every category, but especiallythose that relate to protecting the public.That’s why the two accreditation programsare of immense importance.Is it important to convince the governmentsand lawmakers to make WLA accreditation aprerequisite for getting a license to operate?J. Roache: That’s an interesting question.But the answer is that I don’t think it is therole of governments and lawmakers to regulatespecific controls. That is a corporate governanceissue. The benefit of accreditation isto differentiate ourselves from illegal and unregulatedoperators. I also do not believe thatthe WLA accreditation programs should bebuilt into the licensing terms and conditionsas it would not be realistic to expect or evenwant the government to do so.What is important is that we raise the levelof performance so that the interests of theplayers and the general public are protected.WLA Accreditation is the standard againstwhich all operators can measure their controls.The comments you made about how the diversityspans not only over 40% of the world’s population,not only over a large geographical area,and not only across all different kinds of cultures…the interesting thing that I hadn’t really thoughtabout was that all the different lotteries would bein such different stages of evolution and maturity,and that would pose an interesting challenge tofind the commonalities that you can be addressingas an association.J. Roache: Absolutely. And in accordancewith our bylaws, you know, sharing ofinformation is the key objective. In spite ofour differences, there is so much to learn fromeach other. There are younger lotteries whogain a lot of insight from the experience ofmore mature lotteries.The diversity of our political and regulatorysystems makes it difficult to deal with politicalissues on anything other than a jurisdictionalbasis. What might be acceptable in Australiamay not be acceptable in a particular Asiancountry or countries, or vice-versa. We arequite different from the U.S. and Europe inthis respect. There is diversity in all regions…continued on page 34Public Gaming International • January 2010 14

Public GamingDick HaddrillChief Executive Officer, Bally Technologies, Inc.Public Gaming:Since you joinedBally in 2004 thecompany’s stock hasmore than tripled, goingfrom $12 to over$42. Is there anythingin particular that youwould point at as contributingto the success of Ballyin the last five years?Dick Haddrill: First,we developed a five-yearstrategic plan. The entirefocus of this plan wasbased on how we can bebetter partners with ourcustomers, how we can getevery single aspect of thebusiness to become obsessivelycustomer-centric. Then we assembleda great team with key positions led by peoplelike Gavin Isaacs as our chief operating officer,Ramesh Srinivasan to head our systemsbusiness, Bruce Rowe to lead strategy andbusiness development, and Dan Savage tooversee marketing and product management.We all like to think we are customer-centric.But with fully half of your employees concentratingon R & D, and tools like Business Intelligencethat help the customer optimize the performanceby making better use of information and data,that notion seems to have a genuinely substantivemeaning for Bally.D. Haddrill: It really does. We have doubledour R&D personnel in the last five yearsto ensure strong innovation and quality. Wealign every aspect of our business toward customersuccess.The most important thing we do is to createa great player experience. We work hardto be very active listeners to both players andcustomers. Our business is really about twothings; creating unique game play experiencesfor the player, and operating a casino for optimalbusiness success. Obviously, the two arerelated, but optimal business success requiresmore than great games, and we partner withour customers in all aspects of building a successfulbusiness. Our entire cultuture is builtaround being a great partner to our customers.How do you differentiate between the needsof the next-generation player and the core playerthat will continue to drive revenues for a longtime? Is there anything interesting about the wayyou approach the whole business of getting feedback… focus groups and all that kind of thing?D. Haddrill: We’ve continuously evolvedour product management and marking functions.Our Vice President of Marketing, DanSavage, joined us from 3M Corporation abouta year ago. Dan brings more organization anddiscipline to the market data processes. We’vegot much more data than ever, but there stillis an art to product planning. The art comesfrom the ability to manage the data, but at thesame time realize that data isn’t 100 % accurate.Game design and development teams arecreative and you need to allow that creativityto flourish. We must encourge their imaginationand ability to see connections that thedata sometimes do not reveal. For example,we have the license for Playboy games. Andyet the biggest players of our Playboy gamesare middle-aged women. I can tell you thatbeta-stage focus groups did not reveal that.That’s just one example of how certain typesof games can appeal to many different demographicsin unpredictable and sometimes verysurprising ways. Why are steppers more popularon the East Coast and video slots morepopular on the West Coast? Why did someinternational video markets all of a suddenadopt steppers as we evolved steppers to includemore bonusing and multi-line features?In the end it takes some good judgment callsto know when to bow to the imagination orstick with the measurable data-driven conclusions.And, to acknowledge that you will notalways bat 1,000.Information and data are ubiquitous. The challengewe all face now is how to inform with contextand meaning. It seems like you’re developingprocesses and tools like Business Intelligence thathelp you and your customers do just that.D. Haddrill: Absolutely. Bally BusinessIntelligence is a great example. Data aboutwhat happens across an entire property as wellas at the specific game stations themselves iscritical to guidingssolid operating decisions.Our Business Intelligence products applytechnology to the task of sorting through thehuge amounts of data so that the operator cansee patterns that guide the decision-makingprocess. It isolates the most relevant indicatorsthat drive their business This tool is onlyuseful if it’s coupled with solid judgment ofthe executives tasked with analyzing the dataand making the decisions.And use that knowledge to drive a more effectivedecision-making process.D. Haddrill: Exactly. We try to combineas much of our own broad experiences and insightwith the data of each customer so thatour customers can optimize their decisions. .Our industry really is five to seven years behindother industries in its adaptation of newtechnology. As this wave of data is mined andtools like Business Intelligence are developedto convert this data into insight, we will seeaccelerated planning, development, and decision-makingprocesses that ultimately drive abetter entertainment experience for players,and more profits for operators. There will bea leap forward in data-management in gamingover the next few years.Why is the gaming industry five to sevenyears behind?D. Haddrill: There are three main reasonswhy the industry is behind. First, the regulatoryenvironment has made it somewhat riskyfor suppliers to introduce new technologiesthat are not yet fully proven. Two, there are afairly limited number of technology suppliersbecause of the very strict regulatory environmentfor licensing, which is necessary. Andthree, the suppliers grew up primarily boxmanufacturers, so technology is not part ofthe core DNA.…continued on page 36Public Gaming International • January 2010 16

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Gordon Medenica Interview …continued from page 10happen last year when we thought it would. Wewere all prepared to actually replace Lotto withSweet Million, so we went ahead and launchedSweet Million anyway, and kept classic Lottoas well. And given the games’ characteristics,their player appeal, the similarity of matrices andthings like that, we viewed Sweet Million, Lotto,and our Take 5 game as being very competitiveto each other. And so we analyze the results ofall three together. We have come to a better understandingof the dynamics of how these threegames appeal to slightly different player preferences.And Numbers and Win 4 appeal to yet adifferent player group. We will be adapting ourportfolio management strategy accordingly tofine tune the marketing and positioning of thesedifferent products to appeal to the different, narrower,player segments. And even though SweetMillion is still not a very significant game interms of overall contribution to the portfolio, ithas seen a net increase, it has stopped the declinein Lotto, and we have evolved a strategy toretain the interest of small but, when the gamesare all added together, important segments of ourplayer base. So we are very happy with reversingthe trend and getting growth back for our instatelotto games. And I think we have learnedsomething in the process about our customerbase. There is a demand for more than just thesuper jackpot games and we want to have theproducts available to meet the needs of all of ourcustomers. We don’t expect our in-state gamesto cut into the momentum of the super jackpotgames. And frankly, we won’t over-invest in themarketing and support of these smaller categories.But no matter how dominant and profitableone game, like MegaMillions and Powerball, becomes,we never want to lose sight of the importanceof smart portfolio management and meetingthe needs of the smaller market segments.We need to truly understand our customer andportfolio management because now we will needto integrate the second super jackpot game andsoon we will likely have the Premium Game. Weneed to find the most synergistic portfolio managementstrategy to get the biggest net increasefrom the addition of these new games.Why did some of the Powerball states originallyobject to the cross-selling concept when it was votedon a few months ago?G. Medenica: You should probably askthem instead of me. But I will make the observationthat some jurisdictions really live and die bytheir Powerball sales. MegaMillions comprisesless than 10% of our total sales. That’s big but wecan easily manage the risks of making a change tothe portfolio of games. We can model the impactof introducing Powerball and know that we canmanage the overall impact on our other games.But what if Powerball comprised more than 50%of revenue, as it does in some states? Of course,as was ultimately decided by those states, addingMegaMillions will be a positive change. Butthe nature of this change is quite a bit differentfor them and they were rightly concerned thatsomething this major be done with thorough duediligence and forethought. We needed to eliminateas many of the uncertainties as possible andget the most well-conceived action plan in placebefore launching. That’s what we have done, 36states are on board and more will be joining, andso now it’s full steam ahead.What else can be done to minimize the risk andoptimize the net results of the addition of the secondsuper jackpot game?G. Medenica: I think it comes down tomarketing. Get your retail network up to speedon the new game. That is a big job and we can’tunderestimate the importance of retail educationthat has to take place for this to be successful.We’ve got a tremendously powerful story tosell. The increased number of draws and jackpotroll-ups sets everyone up to succeed at increasingsales. But it won’t happen without solidmarketing and retailer and player education. Itcomes down to basic execution, basic blockingand tackling. That’s what will separate the singledigit increases from the double digit increases.Keep in mind that it’s not as if we are establishinga whole new brand here. The consumeris already familiar with one jackpot game.And many of them are familiar with the otherbecause of hearing about it in a neighboringstate. I think everyone knows what to do andhow to do it. And I think 2010 will be a verygood year for U.S. lotteries.The cross-selling Powerball-MegaMillions initiativerequired open-minded thinking and overcomingcountless obstacles to make it happen. It seems to methat the success that lotteries have had in forging thiscollaboration should open doors to other opportunitiesand other kinds of collaborative initiatives.G. Medenica: Of course. We simply need toask ourselves, “Where do we have common goalsand agendas?” Two such issues jump immediatelyto mind, and you’re very familiar with both ofthem. The first would be Internet gaming, andthe issues we have vis-à-vis the federal government,and particularly the DOJ (U.S. Departmentof Justice). Several jurisdictions are workingtogether to communicate our thoughts andconcerns to the DOJ, and to other areas of thefederal government as well. The second issue isclosely related to Internet gaming, but is actuallya more immediate concern. That’s the wholecredit card coding issue, which, thankfully, hasbeen pushed back another six months due to thedelayed implementation of UIGEA. Still, it continuesto be a constant struggle about how ourcredit card transactions are classified so they canbe legally processed. This is definitely an area inwhich cooperation and unified effort on the partof all lotteries will produce results that will benefitall lotteries. These are issues which affect alllotteries in the same or similar ways and so wehave common agendas. This is where a naturalcooperation between lotteries, and vendors too,will evolve. I’ve never found it to be difficult toget other states and lottery heads to join forcesand to work together to accomplish a commonagenda. While we do work together on thesekinds of issues, we are never sure of the resultswe’ll get. Our ability to lobby and exert influenceat the national level is quite limited. We are sortof confined to dealing with our individual constituenciesin terms of political influence.Why couldn’t NASPL be used as an agent tolobby at the national level?G. Medenica: Maybe it can. We are exploringthose possibilities now. Think abouthow the MPA, the Motion Picture Association,operated and the power they exerted onthe movie industry; the way it was regulatedat the national level, the way that the ratingsystems were developed, and all those otherthings that were very much influenced by theirindustry association. We don’t really have thatmechanism to advocate for the lottery industryright now. But we are definitely looking at ouroptions and, specifically, how NASPL could beused to exert more political influence to advocatefor lotteries at the national level.Creating the Powerball – MegaMillions dealinvolved a tremendous amount of work. Manyproblematic issues had to be overcome. Nowthat the two consortiums are learning to work together,working through our differences, learningto trust one another and dealing with differentwork-styles and approaches to problem-solving,I am hoping that working together, as a wholeindustry, on a nation-wide basis, will be easier todo. I hope that our success in this endeavor willperhaps lead to bigger and better ways of cooperatingnationally as an industry.I would suspect that a year ago there were somepeople who wondered how much time they shouldspend on something that they were not confidentwould ever get off the ground. The success of thisinitiative should give everyone the confidence to goafter ambitious goals that require mutual supportand collaboration. Like creating an entity, or usingNASPL, that could lobby on a national basis forthe interests of state lotteries. State lotteries can’t getbudgetary funds allocated for a purpose like that but…continued on page 20Public Gaming International • January 2010 18

Gordon Medenica Interview …continued from page 18perhaps there is a way to use your association to do it.G. Medenica: That’s the tough issue, funding.How do specific state rules apply to the applicationof NASPL funds towards a purposelike lobbying at the national level? I think thevendor community would be willing to participateand contribute to funding that kind of aneffort. But it gets tricky on a political level. CanNASPL accept money from the vendor communitythat would be a contribution to lobbying?Can state lotteries pay dues to an organizationthat acts as a PAC? It would be a very good thingfor both states and lotteries if we could addressour concerns satisfactorily, because we really doneed to have an advocate on Capitol Hill. Everyoneelse in the gaming industry is spendinghuge sums to lobby on their behalf, and lotterieshave no voice, no advocate to even explain ourpoint of view. So, our congressional representativeswho are making decisions on issues like Internetgaming, sports betting…they get an earfulfrom everyone except state lotteries. That is notgood for the interests of the state or the public.A slightly different area that I am wondering mighthave potential for collaboration between lotteries…When I see all the TV commercials competing for theBatchy Awards, I’m quite astonished at the qualitythat’s being produced and the amount of money thatmust be spent to create all this television advertising.It seems to me that there are many commonalitiesbetween all these commercials and that the 40+ U.S.lotteries could get together and share some of thosecosts. Wouldn’t there be potential costs savings oftens of millions of dollars. Do you have any thoughtson the possibility of creating a collaborative effort betweenlotteries to produce TV commercials?G. Medenica: It has been discussed. Theproblem lies in the fact that lotteries haverestrictions about what can be said and donein the advertising. And those restrictionsand guidelines differ from state to state. Thatmakes it very difficult to produce a commercialthat is compliant with all these different rules.For instance, the Washington State Lotterymade a wonderful commercial called ‘EveryBird Should Fly’ and made it available to otherlotteries to use. It won the best of the Batchy’s.But I don’t think it has been used by other lotteries.(Editor note: the WA Lottery confirmedthat nobody has used it as of January 1, 2010.)Now you’re going to point out that just becauseyou can’t get everyone to sign on to acooperative cost sharing program doesn’t meanyou couldn’t benefit by getting ten or even fiveor even, for that matter, two lotteries to split thecosts. You know we have considered the possibilitiesbecause we’ve all discussed it together withLeo Mamorsky (DDB New York advertising executivewho manages the NY Lottery account).The analogy I use is that on the systems, support,and ticketing side of the business, we have just ahandful of major vendors between GTECH, ScientificGames, Intralot, Pollard. All the lotteriesbenefit by having a lot of commonality so thatthe cost of providing solutions is brought downand the quality and effectiveness of those solutionsis brought up. I think the vendors benefitas well from economies of scale and being ableto leverage their R & D and product developmentto support a large number of customers,and receive the increased revenue from thoseextra customers. Think about how less cost effectiveit would be if every online contract wereserviced by a different company which neededto incur all the R & D and product developmentcosts as well as acquire the skill sets on the humanresources side of the business to service justone contract. Obviously, the costs of doing thatwould be much higher. Theoretically, this samedynamic would apply to the advertising side ofthe business too, with significant efficiencies tobe gained by spreading the costs between two ormore lotteries. DDB New York is our agency andthey are a part of the Omnicom Group, whichhouses a large number of agencies all around theworld. There are a number of lotteries which areserviced by agencies which are also a part of theOmnicom Group. You’d think we could at leastget these agencies to work together. But the advertisingworld does not seem to work that way.Even in the case of the Omnicom Group, theagencies work independently from each other.They don’t really operate as divisions of thesame company. Looking at the way these agencieswithin the same company tend to competewith each other instead of cooperating makesme think that getting advertising agencies towork together is difficult at best. There are otherobstacles, and when you add them all up, it mayjust be more trouble than it’s worth to try to collaborateon advertising.I suppose everyone likes to think that theirmarket is unique and what works in New Yorkwouldn’t work in other markets.G. Medenica: And of course there’s somethingto that, of course there are differences. Irespect the fact that advertising creatives dotry to be relevant to their specific markets andproduce campaigns that really resonate with thecitizens of the specific regional market. But still,there are also many commonalities and so weshouldn’t necessarily allow the fact that thereare differences in regional markets to preventus from leveraging those commonalities. Butit’s true that this perception of differences is certainlyan obstacle. And, most of the ad agencieswould not see this as a benefit to them and wouldwant to convince the lotteries that it would bea big mistake to try to forge a collaborative approachto advertising. Maybe what we need is avisionary from the advertising side of this industryto champion this kind of innovation. Lotteriesthemselves have always been very generousabout sharing this kind of thing with one another,so I think they’d have a receptive audience.Having said all that, I do think there are benefitsto be gained by lotteries working togetheron advertising. And in fact, there’s an interestingeffort going on right now related to the PowerballMegaMillions launch to collaborate on acampaign that would be national in scope. Forexample, we explored the possibility of buyinga Superbowl spot. Something like this has nevermade sense before and may well not make senseever again. The Superbowl is scheduled for February7th, one week after the targeted launchdate for many lotteries to sell both multi-statejackpot games. This fortuitous timing createdthe impetus to do something on a big scale, likea Superbowl ad.’ We offered to produce the spotand to put a significant contribution towardsthe media purchase. GTECH also agreed to bea sort of charter funder. We opened it up to allthe member lotteries, and we got a lot of support.Lots of support and lots of people willing to pitchin. But it looks like it’s not going to happen. ASuperbowl spot costs something on the order of$2 million to $2.5 million, and we ended up shortby about half that number. But we’re going aheadand producing a spot, and the spot promotes bothgames, Powerball and MegaMillions. We’re goingto offer it basically for free to anybody whowants to use it. As we talked about, that doesn’tmean it will be used by everyone because all lotterieshave their own set of rules and restrictionswhen it comes to advertising. Also, we need towork out the residual rights fees issues for talent,music and the like and how those are charged.These seem to be two stumbling block for producingads that are shared between lotteries: theresidual rights’ fees issues and the need to re-workthe ad for use in the individual jurisdiction.The selling of both games in most of thelotteries does create even more incentive toovercome those obstacles. For example, to buythe Superbowl spots through the local affiliateswould cost around $300,000 in New York If wecould purchase the national spot for $2 millionand share the cost between 35+ lotteries, thenthat would obviously be a hugely cost effectivecampaign. So I think it’s something that willhappen eventually. It may not happen for theJanuary 31 launch, but everyone’s aware of thebenefits and, I think, very supportive of theconcept in principle. Everyone wants to findeconomic efficiencies, especially in advertising,since budgets are so tight everywhere. uPublic Gaming International • January 2010 20

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Lottery Marketing Mixwith the 5th “P”central systems can also handle direct mail coupons bringing in outsideCasual and Curious players. These efforts add to the “news” of gamelaunches, special buying opportunities, media-driven promotions suchas the London Daily Mail EuroMillions Sweepstakes developed withassistance from IGI Europrint, part of GTECH Printing Corporation,to create marketing “events” on which to focus precious advertisinginvestment for maximum sales return.With over thirty years of expansion andincreased productivity through technology“Performance” of the lotterymarketing mix has grown tobe the all-important fifth “P,”especially as modern lotteriesmature. Fine-tuning growthstrategies is now essential tosustain sales and revenue sincethe low hanging fruit of retailexpansion and game developmentthrough prize payoutincreases may not be as easyto find.To gain insight for marketingstrategy improvements andfinancial management presentations,lotteries are looking forindependent reviews to benchmark their performances. This also meanslearning from global Best Practices, accessing credible databases and derivinguseful interpretations.To assist lotteries with these efforts, GTECH has put together an independentgroup of long-standing lottery professionals, GTECH ProfessionalServices, to conduct a comprehensive review of game portfoliosand sales performances in a four-step process:1 Analysis of sales by major game portfolio segment with comparative performancebenchmarks using both industry and exclusive GTECH databases2 Retail and other site visits to player-facing locations for a qualitative reviewof in-field and organizational execution of lottery business programs3 Synthesis of the quantitative and qualitative data into a situationanalysis and considerations for future sales, marketing and managementdevelopment4 Reconciliation of considerations with lottery planned programs andworking with lottery staff to implement business strategies for growth,including full implementation plans and benchmarked sales forecastsFor example, an analysis of a “Sample Lottery” Instant Ticket businessmight start with a comparison of Total and Instant Games per capitasales indicating that Total Portfolio Sales are fine but the Instant Gameportion is performing below average.Additional data drill down indicates that the entry-level price and,in particular, the $5 games are under-developed – a condition being reinforcedby a distortion in the games launched by price point. Parallelto this finding will be the need to compare sales and profitability performancesby price point to determine if gains through higher prize payoutat higher price points justify the absolute dollar return.2009 Comparative Instant Game Sales by Price Point2009 Comparative Instant Game Launches by Price Point#of FY09gamesFY09 $1 $2 $3 $4 $5 $7 $10 $15 $20+Sample Lottery 64 9 29 17 0 5 0 4 0 0Avg Best PracticesLottery Group60 13 14 4 0 16 1 6 0 2Avg Other Regional Lotteries 76 14 20 21 3 12 1 3 0 2While the review will discover other factors causing the sales performancedifferences, the overall marketing spend is also looked at todetermine its impact on reaching players with Out-Of-Store communication.In this case it is evident there is room for expanding the budget,which COMPARISON can be used OF to support PEER AND the BEST development PRACTICE of MARKET $5 Instant SPENDING Games.Marketing budget (2008)Millions of dollars100 88500Per capita marketing budget (2008)Dollars6420Marketing budget as percentage of sales (2008)Percent of sales1.5 1.3%1.04.52322.571.0%211.8119Lottery A Lottery B Lottery C Lottery D Lottery E Sample Lottery U.S. Avg1.86Lottery A Lottery B Lottery C Lottery D Lottery E Sample Lottery U.S. Avg0.9% 0.8%101.542.8751.25%122.001.4%0.50.0Lottery A Lottery B Lottery C Lottery D Lottery E Sample Lottery U.S. Avg0.2%Comparison of Peer and Best Practice Market Spending2009 Comparative Total and Instant Game Sales per CapitaIn the lotteries of today the fifth “P” is the ultimate benchmark bywhich the dynamics of the original “4 Ps” are measured. Quantitativetools such as correlation and regression analyses combined with directobservations of the “real life” situations and thoughtful interpretation areessential. With this perspective the influence of other gaming galaxiescan be measured and lottery game portfolio performances improved. u23 January 2010 • Public Gaming International

Philippe Vlaemminck & Annick HubertThe EU Gambling Debate afterthe ECJ Ruling in Liga Portuguesade Futebol Profissional CaseIn the fall of 2009 the European Court of Justice has been very activein the EU gambling debate. Not only did we see, on September 8, thelong awaited judgment in the Liga Portuguesa de Futebol Profissionalcase, but in the meantime we had oral hearings as well as the opinionof the Advocate-general Bot ( AG) in the Dutch Ladbrokes and Betfaircases, and oral hearings in the German Markus Stoss, Carmen Media,Winner Wetten and other cases.The ruling in Liga Portuguesa is a clear victory for the EU MemberStates, as the European Court of Justice has clearly recognised the rightof the EU Member States to regulate and control their national onlinegambling markets and therefore the application of the principle of mutualrecognition in the gambling sector was explicitly denied.The delivery of the judgment, almost a year after Advocate-generalrendered his Opinion in this case, has proven to be a very challengingtask for the 13 judges of the Grand Chamber. Nonetheless, the Courthas managed to deliver a very clear and even concise ruling, establishingthe core principles of the power of the Member States in the field ofonline gambling.The Court was asked to rule upon the validity of the extension of anexclusive right for the organisation of lottery and gambling activitiesto an online offer, under the European free movement principles. Thecase concerns the Portuguese legislation which confers on Santa Casa deMisericórdia de Lisboa, a centuries-old non-profit making organisationoperating under the strict control of the Portuguese Government, theexclusive right to organise and operate lotteries, lotto games and sportingbets via the Internet. The aim of this restrictive legislation is to preventthe operation of games of chance via the Internet for fraudulent orcriminal purposes and to protect Portuguese consumers against gamblingaddiction and other gambling related risks. The Portuguese legislationin question also provided for penalties in the form of fines which may beimposed on those who organise such games in breach of this exclusiveright and who advertises such games.Bwin and the Portuguese Professional Football League were fined74500€ and 75000€ respectively for offering games of chance via theinternet and for advertising those games within Portuguese territory. Accordingto a sponsorship agreement between Bwin and the PortugueseFootball League, Bwin logos were displayed to the sports kit worn by theplayers and affixed around the stadiums of the First Division clubs. TheLeague’s internet site also included references and a link allowing accessto Bwin’s internet site, making it possible for consumers in Portugal andother States to use the gambling services thus offered to them.In its ruling, the European Court of Justice first confirmed its previouscase law. According to the case law the Member States are free to set theobjectives of their policy on betting and gambling and, where appropriate,to define in detail the level of protection sought. It must however berecalled that national legislation is appropriate for ensuring attainmentof the objective pursued only if it genuinely reflects a concern to attainit in a consistent and systematic manner.The Court extended its previous case law on the validity of an exclusiveright in the gambling sector to an exclusive right system regardingthe online provision of gambling services. Indeed, in the Liga Portuguesade Futebol Profissional ruling, the ECJ acknowledges that the grant ofexclusive rights to operate games of chance via the internet to a singleoperator which is subject to strict control by the public authorities may,in circumstances such as those in the proceedings, confine the operationof gambling within controlled channels against fraud on the partof operators.The key point and most important achievement of this ruling is thatthe European Court of Justice has explicitly denied the application ofthe EU principle of mutual recognition in the gambling sector. Accordingto the basic “mutual recognition” principle a Member States has inprinciple to recognise a license granted in another EU state withoutduplication. The Court considers that this basic principle cannot be appliedto gambling services.The Court states that in the absence of harmonisation, a MemberState is entitled to take the view that the mere fact that a private operatorsuch as Bwin lawfully offers gambling services via the internetin another Member State, in which it is established and where it is inprinciple already subject to statutory conditions and controls, cannot beregarded as amounting to a sufficient assurance that national consumerswill be protected against the risks of fraud and crime.According to the Court, in such a context difficulties are liable to beencountered by the authorities of the Member State of establishment inassessing the professional qualities and integrity of operators.The Court also recognised that games of chance accessible viathe internet involve different and more substantial risks of fraud byoperators against consumers, compared with the traditional marketsfor such games, given the lack of direct contact between customerand operator. Thereby the Court thus ruled that internet games aremore dangerous than physically offered games, even when regulatedand controlled by the competent authorities of the Member State ofresidence of the consumer.This assessment goes very far and means the end of gambling hubslike Malta and Gibraltar. The ECJ indeed rules that the competent authoritiesin those jurisdictions, being the jurisdiction of establishmentof the operator, cannot sufficiently guarantee the integrity and qualityof operators providing their games in another Member State. Therefore,the Member State of residence of the consumer can maintain its own[1] Philippe Vlaemminck is the managing partner of Vlaemminck & Partners, a Belgian law firm specializing in EU & WTO law and for more than 20 years substantially involved in defending the causeof lotteries at all levels (internet, privatizations, regulatory approaches…). His e-mail address is Ph.Vlaemminck@vlaemminck.com[1] Annick Hubert was previously a State Attorney of the Belgian Department of Foreign Affairs, legal representative of the Belgian Government at the Court of Justice of the European Union and theEuropean Free Trade Area Court. She is a partner of the EU law practise group of Vlaemminck & Partners. Her e-mail is A.Hubert@Vlaemminck.comPublic Gaming International • January 2010 24

estrictive conditions and can legitimately prohibit access to its marketfor operators established abroad.Although the legal counsels of Bwin and other companies operatingfrom such jurisdictions have heavily criticized this ruling as being ‘irrelevant’or very limited to the particular circumstances of this case, thereis no doubt that they need to put an end to the abuse of the internalmarket committed by providing their games all over the EU withoutabiding by the restrictive legislation in the Member State of their consumer.Several of their legal counsels have tried to find escape routesby inventing terms like ‘conditional mutual recognition’ and presentingthe solution for the Member States to engage in bilateral agreements.Admittedly these thoughts are very creative but unfortunately they arenot only very unclear as to their meaning but also in blunt contradictionwith European law.The answer the ECJ formulated to the question referred by the Portuguesejudge leaves no room for interpretation.In the Ladbrokes and Betfair cases the AG Bot confirms the rulingin the Liga Portuguesa de Futebol Profissional case, in which the Courtclearly has taken the position that the principle of mutual recognitiondoes not apply to a licence to offer games on the internet.He further states that a system of exclusive rights has preciselythe object of preventing any operator other than the holder of thoserights from engaging in the activity covered by that system. Such asystem is justified and therefore compatible with EU law, it is immaterialthat the operators wishing to offer games in the Memberstates where such a monopoly exists are authorised to do so in theirMember state of establishment.Meanwhile, the Swedish Presidency of the EU came to its end andthe Progress Report on the discussions held between the Member Stateswithin the Establishment and Services Working Group was be presentedto the Competitiveness Council. A special attention was paid to the issuesof responsible gaming and the need for proper regulation. A largetask is still waiting for the upcoming Spanish and Belgian Presidencies,shaping the position of the Member States even more, by determiningwhich gambling related elements should remain national and which elementsrequire a European solution. The different cases in the EuropeanCourt show us the issues which remain under discussion and will requirerather a regulatory approach.In the Ladbrokes and Betfair cases the AG pointed to two maindifficulties which remain unresolved: the possibility for exclusiveright holders to expand their activities and still to fulfil the consistencytest and the discussion regarding the procedure for allocationof operating licences.Similar to the position of the Commission in recent German cases,the AG limits the recognition of the theory of controlled expansion tothe objective of the prevention of crime and fraud. He states that anattractive alternative is indeed necessary if a Member State aims to preventfraud and crime, but he doesn’t recognise this regarding consumerprotection (prevention of gambling addiction). Therefore, one cannotconclude, based on this opinion, that an attractive alternative, requiringa wide range of games, advertising to a certain extent, and the use ofnew distribution techniques, might be necessary to channel the gamingdesire into a highly regulated offer which aims to protect the consumeragainst gambling addiction etc.The AG concludes that the fact that holders of exclusive rights tooperate gaming in The Netherlands are authorised to make their offersattractive by creating new games and advertising is not, as such, inconsistentwith the aims of the Dutch legislation, because it contributes tothe prevention of fraud.However, in so far as the Dutch legislation also aims to protect consumersagainst gambling addiction, the creation of new games andadvertising must be strictly controlled by the national authorities andlimited so that they are also compatible with the pursuit of that aim.Accordingly, the reconciliation of the two aims pursued requires thatthe games offered by the holders of exclusive rights and advertising forauthorised games be sufficient to induce consumers to remain within thelegal gaming system without constituting an inducement to excessivegaming, which would lead consumers, or at least the weakest amongthem, to spend more than the share of their income available for leisurepursuits. If this balance is not respected, the policy is not consistent andcannot be upheld.The AG also argues that the case law concerning the obligation oftransparency is also applicable to a licensing system limited to a singleoperator in the gambling sector.The obligation of transparency appears to be a mandatory prior conditionof the right of a Member state to award to one or more operators,other than the state, the exclusive right to carry on an economic activity,irrespective of the method of selecting the operator(s). According tothe AG, the particular nature of gaming does not justify authorising aMember state to create an exception to that obligation. Once a Memberstate decides to entrust the operation of one kind of gaming to the privatesector, the Member state must respect the principle of equal treatmentof all economic operators who would be potentially interested.He does not believe that a call for tenders for the contract would havedetrimental effects comparable to those of competition in the market. Inthe context of a system of an exclusive right granted to a single operator,protection for consumers against the risk of addiction to gamblingand the prevention of fraud are ensured by means of conditions imposedby the Member state on the single operator in order to strictly limit itsactivities. A call for tenders would also enable the competent authoritiesto grant the licence to the operator who appears best able to complywith all the conditions in question.The AG emphasizes that transparency is the fair counterpart of theconstraints which the Member states, in exercising their sovereignrights may impose on the freedoms of movement.The grounds capable of justifying such constraints on the freedomof movement in the gambling sector may also legitimise the grant ofexclusive rights for a sufficiently long period of several years. A Memberstate may consider that the protection of consumers against the risksassociated with unauthorised gambling, in particular through Internet,necessitate a degree of stability in the selection of the holder(s) of exclusiverights. However, the grant of exclusive rights for an unlimitedperiod is difficult to justify in principle, because it closes the market ofa Member state to all the operators who would be potentially interestedwith no limitation in time.When it comes to the renewal of the exclusive licence, it may bejustified by the defence of an essential interest or by reason of overridingreason in the public interest, such as the protection of consumers againstthe risks of excessive expense and addiction to gambling, as well as theprevention of fraud to renew the licence without a call for tenders. Itis for the Member state to show that the derogation from the principleof equal treatment and obligation of transparency are justified on oneof those grounds and that it conforms the principle of proportionality.To what extent the European Court will follow the reasoning of theAG regarding consistency and transparency in licence allocation , isnot yet totally clear, but clearly it will have a serious impact on theway games of chance are operated in the EU, unless the Member Statesdecide to provide for a regulatory consolidation of their model throughEuropean legislation. u25 January 2010 • Public Gaming International

Public GamingVictor Duarte & Robin DrummondVictor Duarte, President and Chief Executive Officer, Spielo;Robin Drummond, Vice President, Sales, SPIELOThe variety of games that are readily accessible to almost everyone is exploding,as is the variety of media and channels of distribution. The player will wantto easily navigate this new superstore of options, migrating from one gamestyle to another and using the most sophisticated account management toolsto facilitate access to all the different gaming options. The technological infrastructure and central system server willbe required to support a far more complex environment that manages customer relationships. The operator in thisnew gaming environment needs to enable all this to happen. These are positive trends for those operators positioningthemselves now for the next generation of gaming enthusiast.SPIELO and its affiliate, GTECH, are on the leading edge of this trend towards convergence of products, games, anddistribution channels. Public Gaming visited with Victor Duarte and Robin Drummond of SPIELO at the G2E Las Vegastrade show to talk about the strategies and products that operators are implementing to meet the demands of thisnew gaming environment. We also talked about the different approaches taken by Sweden, Illinois, Italy, Oregon, theCanadian lotteries, and other jurisdictions.Public Gaming: SPIELO has had long-standingrelationships with many lotteries that operate inhighly regulated gaming environments. How havethose relationships informed your research and developmentprocess?Robin Drummond: We’ve been very fortunateto have developed these relationships thatcontribute to our R & D. Most are focused on thelottery and VLT business. When you look at thetrends in our industry, those relationships positionus very well for the new jurisdictions comingon board. Svenska Spel in Sweden has been inthe VLT business for decades, and is unquestionablyone of the leaders in the industry. A lot ofthe trends that we see coming into the industrystart in Europe, then migrate to Canada, and thenmigrate to the United States, to jurisdictions suchas Oregon. So the fact that we’ve had that longstandingrelationship with Svenska Spel andwith customers in Canada like Atlantic LotteryCorporation and Loto Québec, and the other Canadianlotteries, helps to keep us on the leadingedge in technology and games. Now we’re startingto see more of the U.S. customers, like Illinois,follow Oregon’s lead. SPIELO is in a uniqueposition to help those new programs because ofthe relationship that we’ve built up in the lotterybusiness over the course of the last 20 years.Our customer-directed product developmenthas taken place in three fundamental areas of thebusiness. We credit our relationship with SvenskaSpel for facilitating the development of our latestgeneration central system. The INTELLIGEN Central System has very well-developed andadvanced value-added features that have neverbeen seen in a central system before. These value-addedfeatures allow our customers to investonly in the functionality they need, and help customersmanage their businesses and player basesmore effectively, while introducing concepts likeResponsible Gaming to the marketplace.The second element of customer-directed developmentis the machine itself. As a result ofcooperation with various lottery customers, theWinWave Vu and the prodiGi Vu cabinetswere developed to meet and exceed the expectationsof the government-sponsored market.These are innovative, value-driven cabinets incorporatingthe features and functionality thatour customers want. They are easy to service,reliable, and do exactly what the lotteries needthem to do, for as long as they’re needed to doit. The replacement cycle is typically in the 7-to-10 year range, often in distributed networks thatare difficult to reach and service, since they don’thave dedicated onsite personnel. This is a verydifferent situation from the traditional casino.It is imperative that you have a product that’srobust, and that has long-standing capability toperform day after day.Of course, the most important part of thispicture, from a revenue-generating standpoint, isthe games themselves – this is the third element.Bars and taverns are different from big casinofloors. The player styles and preferences can bedifferent as well. Our R & D team studies thosedifferences and creates content that appeals toeach specific market. There are new ideas andnew markets being created all the time. Communityplay and appealing to the players’ desire forsocial interaction is becoming more important.Networking bars and taverns for progressivegames, creating other games for players to competewith each other, or at least allow them tobe dialed into the activity of the other players…these are some of the things we are working on totruly maximize the appeal of our games in eachmarket. And we rely on the special relationshipwe have with our customers, the operators, tohelp us develop and produce the best products.This enables us to help new jurisdictions launchtheir programs and generate income as quicklyand efficiently as possible.So there is sort of a positive feedback cycle wherethe work you do for each jurisdiction drives your R& D process, and ultimately helps you be a betterpartner with all of your clients.Victor Duarte: Exactly. The impetus fordeveloping the INTELLIGEN Central Systemwas Svenska Spel and their needs. We spent alot of time listening to their needs, playing backto them what we thought we heard, and makingsure that we were on the same page. And wedidn’t stop there. We actually took that informationand went to all of our customers, such asOregon, Atlantic Lottery Corporation, and LotoQuébec, and validated those needs with them.Once we really understood the needs, we werePublic Gaming International • January 2010 26

able to build products and functions that metthose needs. So it becomes a self-fulfilling prophecy,or a positive feedback cycle, as you put it.We make sure we have heard our customers correctly.We then build the product to meet theirneeds. And when a new requirement comes up,either from a new jurisdiction or from an existingcustomer, we are in a great position to combinewhat we already know about the market withthe new idea that we integrate into our knowledgebase. Everyone benefits – especially new jurisdictionsthat are just starting out. Our depth ofexperience and knowledge in meeting the needsof markets all around the world enable us to helpnew operators launch their programs quickly,and with the right products.It’s sort of a unique thing, isn’t it, to be the supplierto customers who are in essentially the samebusiness, and yet they aren’t competing. And so everyonecan feel free to help each other succeed. Andeveryone benefits by helping you to produce a betterproduct since that will contribute to their own success.Are there any obstacles to cooperation that Idon’t really see, or the fact that everyone is basicallyoperating in different markets means that no, thereare really minimal obstacles to full and open collaborativeefforts?V. Duarte: I really don’t see obstacles. In fact,I see the opposite. I see the Canadian jurisdictionsgetting together with Oregon and Swedento actually talk about how to move the industryforward, and getting suppliers to meet theirneeds as well. The jurisdictions then come backto us and tell us what they need collectively, andask us what we can do to meet those needs. Notonly is it not competitive, it’s actually a very collaborativeenvironment, and we help facilitateand participate in that.R. Drummond: From a vendor’s standpoint,this also reinforces your need to live up to all thecommitments that you’re making. These jurisdictionsare all communicating with each other– some on a daily basis. Because the communicationis so quick and so collaborative, whathappens in one jurisdiction like Svenska Spel isimmediately known by another, such as OregonState Lottery, and what you do in Oregon is immediatelyunderstood by the Alberta Lottery,and so on. Of course, that can have both positiveand negative implications. Our reputationis something that we value extremely highly.We realize that our performance is being evaluatedevery day, and those evaluations are sharedamong all of our customers in real time.Convergence…Is there any reason why all differentproducts can’t be distributed through all differentchannels and games? Like using the VLT cabinet tosell lottery tickets?R. Drummond: GTECH is well-positionedto take advantage of the potential created byconvergence of channels, products, and markets.There are four different parts of GTECH’s businessthat are positioned to specialize in differentareas of the gaming industry, but most importantly,they’re positioned to build an integratedapproach to the business. The players want theoperator serve up these products in ways thatsupport the kind of flexibility that young peoplein particular expect. We have the core onlinelotto business, the printed product business, thenew media and sports betting business with G2,and of course we have the video lottery gamingand casino gaming business with SPIELO andATRONIC. The operators want to be able tomanage a more complex relationship with theplayer – one in which players easily migrate fromone game type to another. The players wantsomething similar. They want to be given thetools to manage their play across all of the differentchannels and games. The primary vehiclefor doing that is the central system. The centralsystem enables the kind of dynamic dialoguebetween operator and player, and provides thetechnological tools to manage a more complexset of distribution channels and wider variety ofgames. You need a system that provides a playeraccount, so that if the player wins on a scratchticket provided by printed products, they can usethat scratch ticket money to go and play a VLT,and when they go home they can use their VLTwinnings to play on the Internet, and then takethat and purchase a PowerBall ticket. Their accountallows them to manage their play acrossall four of those product lines. That would alsofacilitate doing things like playing PowerBallor Mega Millions on the VLT. These capabilitiesexist, and will become increasingly relevant.In the short-term, there also is the questionof whether or not one wants the player to beable to migrate easily across all game types andchannels. It raises questions about the effectconvergence could have on time-on-device, forinstance. In the short term, the operator willwant to think carefully about how to introducethese capabilities, and make sure they are implementedin ways that contribute to revenue fortheir operation and satisfaction for their players.In the long-term, the young players will demandthis kind of flexibility and will be quite capableof managing a wider variety of interests withoutbeing confused or distracted by the variety of options.We need to move now to build convergenceinto our systems to meet the needs of ourplayers, because it is definitely the direction ourplayers are going in.I read that you just signed on with a distributionpartner in Illinois. Are you required to partner with alocal distributor to maintain and service the product?R. Drummond: This is a new program in Illinois,so they didn’t want people parachuting inand taking advantage of the new program andbecoming a distributor with no track record asan Illinois company. The requirement in Illinoisis that the distributor has residency and that thecompany has been operating in the state of Illinoisfor four years or more. GTECH has been theprovider to the Illinois Lottery for more than fouryears, so we could distribute our own product ifwe wanted to set up the infrastructure. We couldbe our own distributor because we do meet theresidency requirements. However, an existingdistributor has the advantage of pre-establishedrelationships with the operators, as well as connectionsto those contacts and the places wherethe equipment is located all around the state.We decided that we would serve the customersbest by partnering with AG&E, the subsidiaryof Wells-Gardner, primarily because they havethose relationships with the community that putthem into a better position to deliver great serviceand support.The VLT program is overseen by the IllinoisGaming Board. Are there any kinds of dotted-lineconnections between the Illinois Lottery and the IllinoisGaming Board? Does the State Lottery haveanything at all to do with the VLT program?R. Drummond: No. They are separate organizations.However, they are both obviouslyagencies of the State of Illinois.Will the Illinois program be a performance-basedsystem allowing the best machines to replace the under-performers,like it is for many of the state lotteries?V. Duarte: Illinois would operate in a verysimilar fashion, except that the individual operatorsare making the decisions, not the lottery.In states like Oregon, Rhode Island, New York,Delaware, and in jurisdictions in Canada, the lotteriesmake the decisions. Commercial partnerswin or lose machines on a regular basis througha structured process. However, in Illinois, the operatorsare going to be making the decision aboutwhat machines they’ll buy. And they’ll be makingthat decision presumably on the basis of howthose machines are performing. The speed withwhich they choose to replace those machines willbe very dynamic. The business model they havefor their five machines, 500 machines, or 1,000machines – depending on how large the operatoris – is one they can adjust on a daily basis. It is avery entrepreneurial situation, with each operatordeciding every day, “Do I want to stick withthe same machines that I have? Are they alreadywritten off? And even if they aren’t already writtenoff and paid for, is there a benefit to switchingto a higher-performing machine anyway? Whatcan I do today to maximize the profitability of mybusiness plan?” Those decisions will be made bythe individual operators.u27 January 2010 • Public Gaming International

Public GamingMichael WaxmanExecutive Director, Safe & Secure Internet Gambling Initiative (www.safeandsecureig.org)Public Gaming: Please describe your missionand advocacy position.Michael Waxman: Our mission at the Safeand Secure Internet Gambling Initiative is toreverse the federal prohibition against Internetgambling. We believe that Americans should begiven the freedom to gamble online in a regulatedenvironment where operators are required to protectagainst fraud while preventing problem gamblingand underage gambling.There are some who would argue that federal lawdoesn’t explicitly prohibit Internet gambling. What’syour view?M. Waxman: While current law – UIGEA –does not expressly prohibit Americans from gamblingonline, since it requires the financial servicesector to block payments for unlawful gamblingactivity, the intention is quite clearly prohibition.The financial service sector has argued thatthis approach is burdensome and doomed to fail,which should encourage Congress to forge a newpath.In moving forward, Chairman Barney Frankhas drawn from the playbook used during the reversalof the prohibition of alcohol in the 1920s.In that case, the federal government removedthe federal prohibition and allowed the states todetermine how best to control and distribute theproduct, or if they choose, to prohibit it. ChairmanFrank’s approach is similar. He proposeshaving the federal government regulate Internetgambling activity and grant licenses to qualifiedoperators, while allowing the states to decide how,and even whether, Internet gambling would occur.States would also have the authority to imposeadditional fees or taxes on Internet gamblingas is allowed with other similar economic activities.You referred to the Frank bill. What are the differencesbetween the Frank and the Menendez bills?M. Waxman: They are more similar than different.Both want to expand the opportunity forAmericans to gamble online. And both requirelicensed operators to impose stringent safeguardsto protect consumers. The most significant differenceis that Chairman Frank’s legislation wouldallow for Americans to play a wider range ofgames including poker and casino games. TheMenendez bill would only allow for games of skill,which I would presume implies to be games likepoker, chess and bridge since it isn’t defined in thelegislation.The other significant difference is in the waythat fees on the activity and industry would becharged and allocated.To clarify, in the House, the Frank bill is morefocused on the non-financial regulatory requirements,only specifying that licensed operatorscollect and pay all applicable taxes. A companionpiece of legislation, introduced by Rep. JimMcDermott, lays out in more detail the fees thatwould need to be paid. This includes a two percentlicensing fee on all player deposits that wouldbe paid by the operators.In the Senate, Sen. Menendez wrapped allthe provisions into one bill. He proposes a flat10 percent license fee paid by the operators onall deposits, which would be evenly split betweenthe federal government and the states or Indianterritories where the online gambling activity istaking place.And the state government can apply additionaltaxes if they choose, correct?M. Waxman: This would be the case withapproval of the McDermott bill, which wouldgrant states the authority to regulate the activityand impose fees beyond what is mandated byfederal law. Sen. Menendez’s bill would not havethis flexibility. States would only be entitled to thefive percent fee on all deposits, as well as other applicabletaxes on business operations and incomegeneration, which is also going to be a hefty sum.With so many cash-strapped states, I’m shockedthere aren’t more elected officials at the state andlocal levels calling for the regulation of Internetgambling in order to protect consumers and collectsubstantial revenues otherwise lost to offshoreoperators who accept wagers in the US.To give you a sense as to the size of the undergroundmarketplace and opportunity to generatenew revenue, if this regulation is enacted, it’s estimatedthe federal government could receive upto $42 billion over the next ten years. This figuredoesn’t even factor in what could be collected atthe state level.Do you have an advocacy position that favors onebill over the other? The Frank bill versus the Menendezbill?M. Waxman: Passage of either of these billswill be better than what we have now. The firststep is just getting the door opened and expandingthe opportunity for Americans to wager online ina safe and secure environment.Do either of these bills allow for an evolutionaryprocess to occur without going through this burdensomeprocess of having things approved by Congress?M. Waxman: With the passage of either bill,Congress would determine how the industry isregulated and which activities would be permissible.However, any legislation passed to regulateInternet gambling can be improved over time. Forexample, in the future, we would hope that Congresswould consider permitting online wageringon sporting events.As previously stated, the key first step is gettinglegislation passed that creates a framework for expandingonline gambling activities while protectingconsumers.What is the likely timing for the passage of any ofthis legislation?M. Waxman: Momentum has clearly swungin our direction and we believe passage of legislationto regulate the industry is inevitable.One major factor working in our favor is thesupport of key leaders in Congress. Not only is ourmost ardent supporter – Barney Frank – chairmanof the Financial Services Committee, but amongthe growing number of co-sponsors are GeorgeMiller, John Larson, John Conyers and CharlesRangel – all key power brokers in the House.Another factor is Congress’ opportunity to collectbillions of dollars in new revenue throughInternet gambling regulation. These monies aredesperately needed for critical unfunded or underfundedprograms.It’s hard to predict when this is going to getdone. It could be accomplished this year or, mostlikely, sometime in the next couple of years.There is so much money on the table in the form oftax receipts. It seems such a shame for Congress to letwhat would appear to be a minimum of $15 billion intax receipts go out the window every year. And that’sactual tax receipts, not just taxable revenue. The statesneed that revenue desperately.M. Waxman: I agree with you that the incentiveis there for Congress to act quickly. However,Congress moves at its own speed and we will notbe able to get this done until more members comeon board. We have some great champions on ourside, and we need to support them. But, we alsoneed to continue to push to get this done. Aspreviously stated, I ultimately believe we will besuccessful, and am hopeful it will be sooner ratherthan later. uPublic Gaming International • January 2010 28

Lotoclic: A Source of Interesting FindingsBy Carole Pinsonneault, IngenioAround two years ago, on October 15, Loto-Québec launchedLotoclic, its gaming portal. Since then, over six million roundsof interactive lottery games have been played by the corporation’sWeb clientele.Like many of the world’s lottery corporations, Loto-Québec continuouslyinvests a great deal of effort in its gaming line-up in order to meetthe ever-changing needs and demands of its customers. The Web hasbecome a top source of entertainment for consumers, so Loto-Québecmust position itself strategically to meet that demand.“Loto-Québec decided to introduce the Lotoclic gaming portal as away for the company to make its first foray into the world of interactiveWeb-based gaming without launching into online gambling per se,” saysNathalie Rajotte, director general of Ingenio, Loto-Québec’s R&D arm.Rather, Lotoclic brings together a large variety of short-play multimediagames called Quick Play Games, which are part of the greater family ofinstant interactive lotteries that require customers to purchase a ticketat a retail outlet.Our first two years have taught us that something can always belearned about online player behavior. “The portal helps us understandthe market and establish a direct relationship with consumers withoutan intermediary,” says Nathalie Gemme, head of the Loto-Québec Marketingbranch’s Instant Lotteries department. As a result, we get virtuallyinstant feedback: a Quick Play Games portal can be used as a nearlyreal-time lab for testing games, gauging user preferences and honingoverall approaches.Major surveyWhen it was launched, the portal hosted nine games. Today, Lotoclicplayers can choose from some 30 small games in three categories: action/sports, discovery and word games/puzzles. The site now also includes a“Game Trivia” section about the games, a list of the five most populargames, and a background that changes with the passing seasons. Plus,each player can view a list of the games he or she plays most often.To paint a picture of Lotoclic fans, a survey hosted on the site itselfwas launched in winter 2009. Over 5,200 customers accepted the invitationto take part, and the responses of 2,035 of them were retained asa representative sample of people who purchased four or more Lotoclicproduct tickets.Among the survey findings, “click and reveal” games turned out tobe just as popular as “skills” games, a statistic that supports an approachbased on diversity. While confirming that it was successfully reachingthe intended target market, namely women in their mid-forties, it waspleasantly surprising to note that 20% of Lotoclic clients were in the 34or above range, despite the fact that none of the advertising campaignstargeted them in particular.A bridge between lotteries and casualgame playersThe findings also led to a very interesting conclusion for Quick PlayGame developers. According to the survey, 80% of Lotoclic clients arealso fans of online casual games. Quick Play Games just happen to meetthe criteria of these kinds of games: they’re easy to play and entertaining.“This particular finding has confirmed what we’ve said all along, thatfans of Web-based casual games are attracted to Quick Play Games, multimediainstant lottery games that give players an opportunity to havesome fun combined with the added value of maybe winning cash prizes,”adds Nathalie Rajotte.Loto-Québec is not the only ones who can see a market for this productcategory. A large number of online gambling Web sites operating inparallel with our industry have understood just that. For some time now,they have been peppering their traditional gaming offer with their ownbrand of instant multimedia games; marketed under a variety of names,each one is clearly related to a lottery game.A more varied line-up, without additionalretail costsOne of the big benefits of implementing a Quick Play Games portal isthe ease with which the gaming offer can be managed. When it comesto paper instants, adding a new product usually means withdrawing anexisting one, a choice that is not always easy to make.“In comparison, there’s no additional cost to the Lottery to keep allinteractive games on its portal once it has been launched, because thespace it takes up is only virtual. At the same time, consumers are offereda wide selection and can therefore customize their gaming experience,”says Nathalie Rajotte. A closer look at this product also revealed thatit is an excellent example of the Long Tail phenomenon popularized byChris Anderson of Wired magazine.A number of lottery corporations, including the British ColumbiaLottery Corporation (BCLC) and Denmark’s national lottery, DanskeSpil, have added Quick Play Games to their product line-up. The KentuckyLottery is also conducting a pilot project involving this kind ofgame, while GTECH features a Game Lounge portal among its lotteryproducts.“In the age of 2.0, where now more than ever consumers can access awide array of custom products, and where using the Web space as a commercial,and yet state-of-the-art, responsible gaming tool, Quick PlayGames constitute a key transition solution for Lotteries seeking to taketheir first steps in that direction,” says Nathalie Rajotte. u29January 2010 • Public Gaming International

Margaret DeFrancisco Interview …continued from page 8all operational aspects of the business and theimplementation of these games. The launchis still very complicated, but I do think everyonehas all of the technical and operationalaspects well under control.It seems to me that this cross-selling initiativereally introduces a whole new level of complexityto the concepts of brand management and optimizationof the whole portfolio of products.M. DeFrancisco: It absolutely does.The introduction of the second super jackpotgame into our product mix does dramaticallyimpact the entire brand management strategy.The goal, of course, is to maximize net sales.Some games will likely decline as a result of achange like this. We need to make sure thatthe net effect is positive. Ideally, we will findcreative ways to reposition all the differentproducts so that everything appeals to differentplayer preferences and all products inthe portfolio continue to increase or at leastmaintain their positive sales trend line. Andwe definitely need to explore new conceptsand strategies to make that happen.Isn’t it the case that all participating lotterieswould expect a minimum net sales increase of 6%or 7%? And nobody will really get in trouble fordelivering a 6 and 7% increase. Isn’t it also thecase, though, that there will be some state lotteriesthat are going to execute in a way that deliversdecisively more than that. I know we do not wantto raise expectations because nobody knows forsure precisely what the impact will be. But canyou point at some of the things that can be doneto truly optimize the net impact on overall sales?M. DeFrancisco: I think it’s about creativity,collaboration, energy, enthusiasm. It’sabout knowing your customers, bonding withyour customers so that they know you andunderstand your products and you understandtheir wants and needs. We all do pretty muchthe same thing, which is sell lottery tickets. Wewill go about the business of doing that in differentways. And with a smart, collaborative,‘best practices’ approach, we should be able tomove rapidly up the learning curve and identifythe strategies that work best and fine-tunethe skills to implement them. I also want toassure you that I do not have all the answers!We’re all learning a great deal as we go along.The Mega Millions lotteries have a differentway of managing the jackpot game and theirworking relationship than the Powerball lotteries.M. DeFrancisco: Yes, of course. MUSL isan institution, handling many of the functionsof administrating and implementing Powerballfor its 30+ members. The Mega Millions groupis 12 states. We have no organization likeMUSL, so our game is operated within and thework is done by the Mega member lotteries. Wehave twice weekly conference calls and are directlyinvolved with all the decisions requiredto operate the game. So both groups needed toadjust their work styles and to understand eachother’s operations in order to create the consensusneeded to make this work.With two rolling jackpots, is there a concernabout jackpot fatigue syndrome, and is there anythingthat can be done to minimize the negativeaspect of that?M. DeFrancisco: Of course, that continuesto be a challenge. But the selling ofboth games should give us a wider variety ofmarketing and promotional options. We’re alreadyworking on the next stage, the Premium/National game. I honestly feel we have neverbeen in a better position, with more momentumand creative ideas to drive us forward inpositive ways. Challenges like jackpot fatiguewill never go away, but I don’t see it being exacerbatedby having two games. I see us as havingmore tools in our bag to deal with this andall other challenges that come our way. Really,it’s our ability to work together as a group thatwill empower us to accomplish so much morethan we can as isolated lottery organizations. Itwon’t necessarily be easy, but it is fun.You mean if you like extreme torture andhard work?M. DeFrancisco: Yes, exactly! Seriously,as difficult as it has been at times, it’ssomething that you know will reward all thehard work a hundred-fold. That’s what makesit fun. It’s a real tribute to all the lottery directors,all the lottery employees, our commercialpartners and all their employees, thatthey pulled together to make it happen. Infact, sitting at the table the other day withmy friends and colleagues from all around thecountry, it struck me that this is what this industryis all about. It’s just flat-out exciting towork with really smart people to solve problemsand figure out how to deliver more fundsto the lottery beneficiaries.This cross-selling initiative has probably consumedso much time that there’s not much timeleft over for another important initiative, the nationalretailer ‘big box’ channel.M. DeFrancisco: I’m afraid that’s not howit works. Nothing ever stops. We need to keepthe pressure going on all different fronts at thesame time. Opening up new channels of distributionis more important than ever. Of course,states need the revenue. But one of the thingsthat the bad economy did was to cause everyone,even the big national retail chains, tolook for new revenue opportunities, new productsto sell. Many of us have pilot programsgoing. We get very positive feedback, and sowe hope for some breakthroughs to happenat some point. We’ve engaged our three majorcommercial partners, Intralot, ScientificGames, and GTECH, to help get better accessto the very top management level, the CEO’sand COO’s of the big companies. We need allthe help we can get because we have a powerfulstory to tell and know that the nationalchain stores will benefit from selling lotteryproducts. GTECH was instrumental in helpingmove the Dollar General account forward.Now is really the time to push hard to openthese new channels and get positioned for theeconomic recovery. Can’t say I have a crystalball, but I think we are all hoping to see someimprovement in 2010.You’re saying that the national chain storesmight be more receptive than ever because of thedown economy, that now is perhaps the time tostrike while the iron is hot?M. DeFrancisco: Yes. Every retailer, ingood times and bad, is looking to expand thecustomer base. Of course, we believe that it isalways the right time to offer customers entertaininglottery products. For instance, wehave had inquiries from other lotteries askingabout our airport retail project. Everyone isthinking about new channels, new strategies,new and better ways to reach more customers.Where can we go that we haven’t been in thepast because that will likely mean brand newcustomers. Transportation centers are certainlya great target because there is huge trafficthere. The Atlanta airport alone has over 90million passengers a year. Think about that.The entire population of Georgia is less than10 million. To have that kind of exposure tonine times our entire population is amazing.And businesses of all kinds are more receptivethan ever to opportunities to enhance theirsales and profits. To go back to your originalquestion, obviously we need to focus on allthese different things at the same time. Wecan’t afford to drop any balls for any reason.The term “modernizing” the basic model for lotteryorganizations. What does that mean to you?M. DeFrancisco: I think it has been usedPublic Gaming International • January 2010 30

in different ways. To me it refers to the needto allow and encourage lotteries to be entrepreneurialenterprises. In Georgia, our enablinglegislation actually refers to the lotterycorporation as an entrepreneurial enterprise.But not every jurisdiction sees its lottery thatway. Modernizing the organizational structurecould mean that we function like a resultsorientedsales and marketing operation; anorganization and culture that is innovative,creative and driven to accomplish greatthings, like increased funding to good causes.Our mission is fundamentally different fromany other governmental agency.What are some of your other priorities as presidentof NASPL?M. DeFrancisco: John Musgrave, theimmediate past president of NASPL, createda strategic planning committee that I thinkshould play a very important role for all of themembers. As important as it is to achieve ourshort-term objectives, we also need to clarifylong-term agendas and make sure that ouractivities are aligned with those long-termgoals. Cross-selling of the jackpot games, forinstance, is aligned with the long-term agendaof getting us all to work together. Our ability tocollaborate on large scale projects, on a nationalscale, will be instrumental to putting us intothe leadership position in the gaming industry.If we can harness the combined power of allthe state and provincial lotteries and have atleast some of our agendas be implemented as aunified force, that would clearly be good for allindividual lotteries. Working together to buildrelationships with national retail chains wouldbe another long-term agenda that should guideour short-term efforts to crack these big accounts.Clarifying the common interests whenit comes to new media like internet gaminginvolves long-term strategic perspectives toguide our more immediate actions.It’s my goal to enlist the active participationof past-presidents of NASPL and othersto take a serious look at where our industry isgoing and what we can do to position us forsuccess two, three, and five years down theroad. We used to talk about ten year plans butI think everything is a little more compressednow. Better to have a well-conceived five-yearplan that is updated quarterly. NASPL is agreat vehicle to mobilize a strategic planningcommittee to address these long-term issues.In addition to the tremendously valuableservices that NASPL has been performing foryears, we are taking stock to find new ways forthe organization to be used to promote the interestsof its members. For instance, NASPL isclearly in a perfect position to facilitate additionalcollaborative projects between its memberlotteries. Perhaps it can take a more activerole in regulatory and legislative affairs at thenational level. We’re exploring all those kindsof possibilities for our association. Another purposeof the long-term strategic planning committeeis to create better continuity for all of theprograms. We all serve in our offices at NASPLfor just one year. That’s not enough time to seemost projects through from beginning to end.The strategic planning committees can help toensure continuity and follow-through.2010 is a huge gubernatorial election year.There will likely be some new faces at the beginningof 2011, so now is a good time to setNASPL on a course to maintain continuityand a strong strategic focus. That will help alllottery organizations be more successful and itreally is vital to each individual lottery thatour colleagues around the country be strongmembers of a healthy nation-wide industry. uLOTTERY GAMING EQUIPMENTFor over 30 years Smartplay technicians havebeen dedicated to the creative development andmanufacture of lottery drawing equipment. As theworld’s leading supplier of lottery drawing machinesSmartplay serves more than 150 clients in over70 countries. With unsurpassed draw machinetechnology and reliability we are proud to be thechoice of the world’s most prestigious lotteries. Whenyou won’te settle for second best, choose Smartplay,supplier of Mechanical draw Machines as well asDigital Draw Systems.SMARTPLAY INTERNATIONAL INC.WWW.SMARTPLAY.COMPhone: (001) 609.880.1860

Tom Shaheen Interview …continued from page 12pot games in all, or at least most, of the lotterystates throughout the country. We’ll integratewhat hopefully will be a sophisticated best practicesapproach to optimize performance of bothgames. The next step is the National Game. Ofcourse, we are working on all these initiativessimultaneously. As we move forward toward anational game, we need to focus on the prioritiesand the importance of execution. It is vitalthat we execute well each step of the way.The addition of the second jackpot gamehas the potential to impact sales in a dramaticway. Obviously, we do not want to raise expectationsunrealistically. But we do want toexecute in ways that truly deliver the full benefitsof what this initiative has to offer. Weneed to take this time to study and learn asmuch as we can about the dynamics of sellingtwo big multi-state jackpot games. We will belearning a great deal in the next six monthsand fine-tuning our approach continually toimprove and implement the best practices.It’s an exciting opportunity but the end resultwill be determined by how well we execute.Everyone anticipates achieving sales increases.The true measure of success, though,will be whether we leverage the maximumpotential that this initiative has to offer. Forinstance, 7% net overall sales increase wouldseem to be an impressive result. But what ifwe could have achieved 20% or even higher?Implementation of these two games presentsus with a tremendous opportunity. But alongwith that we have a massive responsibility towork diligently to ensure that we achieve thebest possible results.National Game?T. Shaheen:The things we learn overthe next several months while implementingboth games in all the different stateswill make us that much more prepared andeffective when it comes to implementingthe National Game. We believe the greateropportunity ultimately lies with a NationalGame. The strategy is that we will havegained excellent experience executing ourtwo big jackpot games, we will have learnedhow to maintain harmony within a largecontingency and, finally, we will have gainedexperience in how to deal with each other’spolicies, procedures and rules. We will havebuilt a set of Best Practices that can be appliedto additional initiatives like a NationalGame. So the development and implementationof the National Game should actually bea more seamless process.Will the National Game be a third big multistatejackpot game, or will you re-brand one ofthe two multi-state games?T. Shaheen:That’s the beauty of the wholeplan, Paul. We don’t need to decide that rightnow. Instead, we can take this opportunity toclosely analyze what works best during theimplementation of cross-selling Powerballand MegaMillions. We can apply the BestPractices approach towards the developmentof the National Game, leveraging our experiencewith the cross-selling initiatives that wedo this year, analyzing all the elements thatproduce the best results. We’ll take advantageof the mistakes we make along the way tolearn what not to do and what areas need themost attention. To answer your question, theNational Game could be a third large jackpotgame, or it is also possible that the NationalGame could eliminate either Powerball, MegaMillionsor both. We really don’t knowright now. The National Game will likely besimilar in playstyle to Powerball and Mega-Millions , but there may added features thatincorporate secondary plays, T.V. shows, etc.The game will most likely be at a higher pricepoint, such as $2, or $5. The jackpots couldpossibly grow to nearly a half billion dollarsor more. Having different jackpot sizes, pricepoints, and features will appeal to a broaderrange of player preferences. There may besome players who look only at jackpot size,others may look at the odds of winning, andothers may want to spread their play aroundto enjoy a variety and higher frequency ofdraws and winning opportunities. Mainly thisgives us the ability to create a game that hasappeal to a broad base of players.So often we are confronting choices in whichthe wrong choice has severe downside consequences.Sometimes we even choose betweenthe lesser of two bad choices. In this case, itseems like the challenge is that everything is sogood that you need to press hard to not settle formerely good when, with the extra effort, you canproduce great.T. Shaheen:I think that is correct. This willopen doors for new opportunities for all lotteriesin the U.S. to build their business. And mostimportantly, raise more money for beneficiarieswhile creating more options for the players.You are currently president of MUSL, theMulti-State Lottery Association. Could you explainthe mission and purpose of MUSL, and howit works to achieve those?T. Shaheen:MUSL serves a management,administrative, operational function for all thegames under the Multi-State Lottery Associationumbrella. The product most people arefamiliar with and talk about is Powerball. Butthere’s also Cashola, 2 by 2, Hot Lotto, and WildCard 2. MUSL’s responsibility is to manage theadministrative, financial, and operational functionsof all of these games.MegaMillions has a less formal structure thanthat, doesn’t it? What role did MUSL perform inthe cross-selling of MegaMillions and Powerball?T. Shaheen:MUSL staff have been participatingin the meetings and handling documentationof the processes that both partiesare agreeing upon. Member representativesfrom both organizations are involved with allaspects of decision-making such as building thelicensing agreements. As you might imagine,there are many details that need to be workedout and that require involvement from membersof both organizations. Each lottery has itsown set of issues, especially legal and complianceissues, which need to be addressed. Sowhile MUSL may perform some administrativeand support functions, these multi-stateinitiatives require the active involvement ofall parties to the agreements. MUSL staff doesnot have any decision-making authority. Thatis the domain of the lottery leadership and therepresentatives appointed by the Powerballand MegaMillions Groups. The lottery directorsserve as a Board of Directors.Why couldn’t MUSL be used to do otherthings? For instance, when you develop a nationalgame, won’t there be a need for management ofa national brand and advertising campaigns andall the things that go with promoting a product nationwide?Won’t there be a need to operate differentlyon the national stage than is done presentlywith each state operating in its own independentorbit? And couldn’t MUSL be a useful tool that isalready in place to coordinate something like that?T. Shaheen:MUSL does have a marketingdivision that performs research and make proposalsto its members. For instance MUSL staffmay have an idea or may have been contactedby an outside organization about a multi-statescale promotion such as a Superbowl package.MUSL staff can contribute to the developmentof a big picture plan for this type of multi-stateinitiative. They can do research, vet the prosand cons, make presentations to the directorsand/or invite third party researchers to makepresentations to the directors. But at the end ofPublic Gaming International • January 2010 32

the day, everything comes down to a vote of thedirectors. Take your specific idea - developing anational marketing and advertising campaignfor a national game. MUSL is a great resourcefor conducting the research, proposing somecampaigns, and then possibly, subject to theapproval of the directors, even be involved inaspects of coordination and implementation.But everything that MUSL does is contingentupon the approval of the lottery directors thatcomprise the membership of MUSL.Let’s say you’re sitting in a room having a generalmeeting of MUSL member directors. Someoneproposes that you build a truly national brandfor a national game and that you build a nationaladvertising and marketing campaign to promotethat national brand. Let’s suppose that as a groupyou decide in principle to explore this possibility.You’ve already said that MUSL does research andworks up proposals so let’s go to the next step andsuppose that MUSL did all that and now you’vedecided to pull the trigger and create a truly nationalbrand with campaigns that span all lotterystates. How would you implement that?T. Shaheen:The members of the associationwould operate much like a lottery wouldin that we would outline the details of implementationand the roadmap for implementingthem. And yes, MUSL could very well be theresource we rely on to implement it. Let’s say thedirectors decide and vote on the need to retaina public relations firm. The directors could voteon a proposal to give MUSL the task of draftingan RFP seeking services, then evaluate the proposalssubmitted, and make recommendationsor perhaps come up with a short list of publicrelations firms that could then make presentationsdirectly to the directors. Likewise with advertisingfirms. MUSL definitely has the abilityto do all those things and more.You were the inaugural winner of the Sharpaward for Good Causes. This award was namedin honor of Sharon Sharp, industry veteran andfriend to everyone who passed away last year.You increased the amount that the lottery contributedto its beneficiary by an astounding 19%.What were the primary drivers of that increase?T. Shaheen:There were two major driversto that increase. We raised the Instant Ticketprize payouts from the previous year. And wereceived approval from our legislature to increasethe prize payout percentage to the players.That change in the value proposition tothe players was instrumental. We also introduceda second daily drawing for our Pick 3game. As a result, we sustained a 42% increasein Pick 3 sales for the year. It was phenomenal.We never would have expected it. The industryaverage is 5-9% for a second drawing inthe same day. It’s still holding strong at 42%,and so you’re close to doubling your Pick 3sales as a result. By increasing our instant prizepayouts, we were able to introduced two largeorder $10 games last year that sold out in sevenand eight months respectively. Multiply theincreased number of games by a higher pricepoint and you get the big surge in revenue.And those were primarily the drivers for theincrease in sales. Interestingly enough, though,the increase to our beneficiary nearly matchedthe increase in sales. Our sales went up 20%,and our return to our beneficiary went up about18.9%. Usually, sales increase by a much largerpercentage than net.It seems like there are two takeaways. Theobvious takeaway being that increasing the prizepayout in an intelligent and prudent way improvesthe value proposition to the player anddrives sales. The other thing, though, is that if thedirectors and their organizations were given thelatitude to operate more entrepreneurially, youare able to produce the results. Lottery organizationshave a wealth of talent and creativity inhousethat can drive superior results for their beneficiaries,if they are given the freedom to do so.T. Shaheen:Yes. One of the keys is to staygenuinely open to all ideas. We welcome anyand all kinds of new ideas in North Carolina.I can’t guarantee that we’ll do all of them, butwe keep an open mind to all the ideas that areout there.What are you trying to do this coming year totry to get close to what you achieved in ’09?T. Shaheen:We opened this summer witha Mustang ticket. We followed that up withour Ric Flair wrestling ticket, then our first $20instant game, which is selling very, very well.Right after the beginning of the calendar year2010, we will introduce another $10 game inJanuary. Then on January 31st we will haveMegaMillions going on sale. Then we’ll haveinstant games tied to Valentine’s Day and St.Patrick’s Day. And then the Powerball with the10X multiplier promotion before the end of thefiscal year, and that should about wrap it up forus. Most lotteries do similar games and campaigns.The timing of when you introduce thenew games is always very critical to their success.You look historically at what’s happenedand then you try to time it accordingly. Rightnow we’re running over 17% ahead of last year,but we’re still a little cautious because of theeconomy and so are projecting a year-over-yearincrease of 7% to 10%.Must be nice to have a 7% increase be on theconservative side. Don’t you expect the economyto come back in 2010? Perhaps not gangbusters,but at least an improvement over 2009.T. Shaheen:Hopefully. But we do not wantto raise expectations since nobody really knowswhat will happen next with the economy.Whenever I see the videos of TV commercialscompeting for advertising awards at the NASPLand WLA conferences, I am always astoundedat the creativity and quality of the work. It wouldseem that there is tremendous commonality betweenthe four marketing “P”s across all USstate lotteries. The product and the reason peoplebuy them is similar everywhere, isn’t it? Whycouldn’t MUSL be used as a resource to coordinateand implement advertising campaigns forall its member lotteries? Why do we have 40+lotteries spending hundreds of millions of dollarsto produce a similar end result? Why not use amechanism like MUSL to create some templatesand tools that could be used to defray the cost ofall this advertising? Is something like this a possibility,or is it ultimately a non-starter?T. Shaheen:It certainly is a possibility.MUSL is capable of doing that if the membersdecided to entertain such an idea. The problemwith universal advertising is that different stateshave different issues with advertising. Take ourstate of North Carolina. We have an enormousamount of restrictions here. In fact, we probablycould not participate in any national campaignbecause sooner or later there is going tobe something in the campaign that we are notpermitted to do in North Carolina. There havebeen efforts at times to do joint advertising.MUSL conducted a campaign several years agoutilizing Ray Charles. The series of commercialsutilizing Ray were tailored for each state withtheir name and other local information onthem. That campaign was very successful. Infact, state lotteries had Ray Charles promotingPowerball, utilizing the same spot in every state,and the only thing that changed was the nameof the lottery. So those types of things have beendone before.Continued online. This interviewis continued online. Please goto www.publicgaming.com to seethis interview in its entirety.33 January 2010 • Public Gaming International

June Roache Interview …continued from page 14of course, but there are also opportunities tospeak in one voice and have a shared politicalagenda in those regions that we do not havein Asia Pacific.How is internet gaming regulated in Australia?J. Roache: Australian gambling policyand legislation is the domain of the variousstates and territories. It’s not regulated at thefederal level. There are, however, two importantfederal laws in Australia. One is the CommonwealthInteractive Gambling Act, whichwas enacted in 2001. And the other one is theHigh Court of Australia Decision on Betfair,which was handed down in March, 2008.The first one, the Commonwealth InteractiveGambling Act was enacted under thetelecommunications powers in the federalconstitution. Essentially what that does isprohibit an interactive gambling service.However, lotteries have a general exemptionwith the exception that the exemptiondoesn’t apply to electronic instant scratchiesand a provision exists for a regulation to bemade preventing the exemption of highlyrepetitive or frequently drawn games such asKeno. There are other exemptions under theAct allowing for internet and telephone bettingwhere it occurred prior to this Act, suchas off-track betting or wagering on horses,dogs and sport, etc.It is interesting to note that a recently releasedDraft Report on Gambling released bythe Australian Government’s independentresearch and advisory body, the ProductivityCommission, includes a draft recommendationthat the Interactive Gambling Act berepealed with a managed liberalization of onlinegaming.Can people in Australia play on websites thatare operated in a jurisdiction outside of Australia?J. Roache: Yes, they can. And I think oneof the issues facing our industry gets back tothese illegal or unlicensed operators becauseour players can’t tell whether it’s a legitimatesite or not. Some of them look very real andlegitimate. People play on these sites withoutunderstanding that they are not legal.Of course the real test is whether prizes arepaid and sometimes the players do not knowif they are genuine until they attempt to redeema prize.These operators are allowed to operate untiland unless someone complains about them.Well, then, why wouldn’t somebody complain?J. Roache: Two things about that. First, itis often-times vulnerable people who play onthese illegal sites and do not understand whenthey are cheated or what to do about it if theyare. Second, as you know, these operators setup new sites with new ISP’s and move aroundin ways that make it difficult to block them.Wouldn’t your governments want to collect taxon that economic activity?J. Roache: You’re absolutely spot on. Andperhaps I’ll just talk about the other law in thiscountry, ie the High Court “Betfair” Decision.Betfair is licensed by the Tasmanian stategovernment to conduct online wagering inthis country. The Western Australian governmentlegislated against Western Australiansbeing able to bet with Betfair. Betfairchallenged the legislation in the High Courtof Australia. And the decision came downagainst Western Australia’s right to legislateagainst using a betting operator authorized inanother state. The High Court Decision effectivelymeans that any licensed online operatorcan sell on the internet, by telephone,or other electronic means and advertise anywherein this country. That means that sinceBetfair is licensed in Tasmania, they are legallyallowed to sell into all the Australian statesand territories.Does Betfair have to pay taxes to those statesand comply with all of the regulatory standards ofeach of those states?J. Roache: States do have the right tocollect taxes from online operators like Betfair.In South Australia, for example, legislationhas been passed relevant to betting operatorswho must be ‘authorized’ to sell intoSouth Australia and to pay taxes.Another issue is that state lotteries, e.g. SALotteries, are subject to very, very strict consumerprotection measures. We must adhereto strict responsible gambling and advertisingcodes of practice. Unlicensed operators don’thave to adhere to those strict consumer protectionmeasures. Unlicensed operators don’tpay the taxes nor do they comply with thestringent consumer protection measures thatwe are required to do.It is complicated, though, because the HighCourt Decision is a reinforcement of the promotionof free trade and commerce acrossborders. Much the same issue as you see inEurope.A license in just one jurisdiction does allowthe operator to do business in all states.Can each state have different tax rates, or isthat pretty uniform throughout the whole country?J. Roache: No, it is different from state tostate. And the same applies in the lottery industry.There are different taxes because thatis determined by the individual states. Ourwhole country with six different states andtwo territories has a population of just 22 millionpeople. To put that in context, the stateof California has 36 million. We have a verydiverse and complicated regulatory framework,given the population of Australia.What are some problematic issues that we faceas an industry?J. Roache: I believe that privacy is a keyissue. As more and more jurisdictions haveplayer customer registration card services fortheir games, and as more and more jurisdictionssell online, I think the privacy issue isa key one for us. We introduced our first customerregistration service in 1984, and weenhanced that service in ’94, which predatesmy time. We now seek additional informationfrom registering members. And we usethat data to micro market to those customers.Therefore, we have to be very mindful of thecontrols around the retention and use of thatdata. That’s very, very much a key focus. Asincreasing numbers of lottery jurisdictions sellon the internet, the player identity securityand the protection and system security controlfor online players will be paramount. Identityfraud and theft is a major and an escalating issueeverywhere. And it will be a critical flashpointof reputation vulnerability if we don’tget that right, if the controls are not tightenough to protect our players’ identity.Registration is not a requirement to play, is it?J. Roache: The registration process resultsin a large database of player information. Itcaptures the data of when those players play,what they play, how much they spend, etc.There’s also the personal profile informationincluding name, address, phone number forcontact, birthdays, bank account informationetc. We do hold a lot of that very importantand private information for the individual.So it’s a very powerful tool. This is a tool thathelps in a responsible gaming framework aswell as marketing. Creating a dialogue with ourplayers is an important step towards helpingthe players to play responsibly. I think you willsee more and more operators implement playerregistrations systems in the future. So securityand the methods of guaranteeing confidentialityof that data is of critical importance.Public Gaming International • January 2010 34

Privatization: The whole world is watchinghow things unfold in Australia. Golden Casket,the Queensland Lottery, was sold in the form ofa long-term lease to Tattersalls and now NewSouth Wales is likely to be similarly privatized.Does the privatization of a different province haveany implication for the province like South Australiawhich has a government operated lottery?J. Roache: It’s very interesting in ourcountry at the moment, since we too are veryconscious that the whole world is watching,Paul. And when New South Wales Lotteriesis privatized, there will be only two stateowned lottery organizations as governmentbusiness enterprises in the country. And thatwill be SA Lotteries, and Lotterywest.There may be a significant impact uponthose two jurisdictions depending on thepurchaser of New South Wales Lotteries.That said, it would probably be better if I notspeculate on what the implications may be.What is happening in the lottery segment ofthe gambling industry in Australia is really nodifferent from what has happened in the offtrackbetting segment and the consolidationthat has taken place in the gambling industryin Australia over the last few years. So it’s avery interesting situation, and it’s definitelygot a lot of my attention at the moment.Scratch-off games versus lotto…Why is the ratioof lotto to scratch-offs so much higher in Australiathan in the US where scratch-offs seem tohave had the momentum?J. Roache: I can’t say exactly. I can saythat in South Australia our instant scratchesreally suffered with the introduction of pokermachines here. Now, we run 3-1/2 minutekeno, we’re the only jurisdiction in the countryto do so. Initially keno also took a hit whenpoker machines came in. And if you thinkabout instant money games, and 3-1/2 minutekeno, they’re both impulse products. Gamingmachines are also impulse products. We’re nottruly competitive with gaming machines whenit comes to speed of play because one can playa game on a machine every 2-3 seconds.That’s very interesting. I suppose that explanationcould have implications for the USmarket if casino-style gaming continues toproliferate. That is, instant scratch-offs beingmore vulnerable than lotto to competitionfrom electronic gaming machines. Howdo the player motivations differ by age group,what are younger players interested in?J. Roache: I think one of the key thingswith players in general, but the younger generationin particular, is that they do wantcontrol. They want player choice and controlof games. And choosing who they play with,when they play with that person, leadingmore to the community style games. Theydon’t really want to be told what their spendlimit is or how long they can play. Communityand social ethics are also very importantto a younger demographic. I believe we’re goingto have to provide games that meet thoserequirements if we want to engage the interestof the younger demographic.Do you have self-service check-out in the US?Yes. You mean at a grocery store where youscan the barcode yourself and weigh produce andpunch it into the system yourself without a checkoutclerk?J. Roache: I believe we have to creategames that allow for a similar level of control.We need to realize that for our generation wemay prefer to have a check-out clerk do it forus because we don’t feel like learning how tocheck ourselves out. But that’s not so for theyounger generation.I didn’t do it until one time when all the regularcheck-out lines were all too long and so I wentover to the short line and discovered I had to learnhow to check myself out. Even now, I typicallyonly go to self-service check-out when the otherlines are long.J. Roache: Exactly. The thing that weneed to understand is that young people actuallyprefer to do it themselves. They don’teven want to be assisted by a clerk. They arevery comfortable with figuring out how tooperate in a world where they are constantlyneeding to learn new technologies and procedures.They know that the payoff is good interms of time saved, they have gotten quiteefficient at minimizing the learning curvesince they are doing it all the time, and sonow they actually would prefer to do it themselvesthan have clerks assist them. But it’smore than just a matter of time savings. It becomesa way of thinking about your relationshipto other people and the world aroundyou. These young people assume that everyonewould want to be independent and selfsufficient in matters of technology and thisattitude transfers over to an important shift ingame styles and preferences.We need to evolve our products to appealto this consumer attitude of wantingcontrol and independence and multipleoptions about how the game is played,how payment is made and transactions executed,who they play with, when and howmuch they play…just about everythingneeds to be revamped to appeal to the attitudesof the younger demographic.As you’re describing it, it would seem thatplayer cards and registration would be an importantcomponent to this trend line.J. Roache: Well, yes, but…that is a bitof a conundrum because younger people arenot patient with anything that is inconvenient.If they want to buy something, theywon’t necessarily be keen on needing tohave a special card that they enter a numberor swipe at the counter. That whole processis not necessarily consistent with their notionof control and freedom.Another point is, the use of the mobilephone or iPhone as the scanning device andpayment device. There are discussions nowabout using the mobile phone as a paymentdevice. There will be new ways to executetransactions, younger people will be the firstto adapt to them, and that’s why I think wehave to figure out how to get into these spacesas quickly as possible.Relating the privacy issue to the younger demographic…I’mthinking that younger people wouldperhaps be less concerned about the privacy issuethan older people would be.J. Roache: I think that’s got a lot of basis,but am not sure. I think that younger peoplemay be less concerned about the privacy issuethan about the inconvenience. With them it’smore about how can I become famous quickly,how can I be a part of the hot community.Delivering the benefits they care about andminimizing the inconvenience is what willsmooth the way for them to register.You mentioned that about 30% of your playersare registered. That seems like a high number.Are you pleased with that level of engagement?J. Roache: From where I sit, Paul, I’d liketo see 99%. The more information we haveabout our players, the better we will be ableto create products that appeal to them, andwork the best distribution channels, and communicatein ways that get their attention.Capturing the customer information is thekey to evolving our products and business tostay relevant with our younger players. Andstaying relevant with each new generation ofplayers is obviously critical to future success.Player registration is the most useful means ofcapturing that information. u35 January 2010 • Public Gaming International

Dick Haddrill Interview …continued from page 16Are you saying that it is actually a perfectlylogical thing that our industry lags in the adaptationprocess? If the new iPhone or even Microsoftoperating system does not perform as well as we’dlike, nothing terribly bad happens as a result. Thegaming industry is different in that it has muchless room for error, doesn’t it? You can’t reallytake the risk of pushing the beta version out thedoor and then fix it on the fly.D. Haddrill: That’s exactly right. Butit doesn’t need to be a five-year lag. We believethat the industry should perhaps be oneyear behind because of this need to fully vettechnology before it’s in the marketplace. Integrity,security, responsible gaming, politicalsensibilities…these are all issues that need tobe dealt with carefully and take more timethan other industries. But there is no reasonwhy we can’t accelerate the cycles and delivercustomer benefits much more quickly thanhas been done in the past.So our objective is to help move the industrymuch closer to current standards. There is noreason we should be behind the retail industryin areas like database management and sophisticatedplayer-marketing techniques. You cansee the changes happening already, though.Some casino operators are moving forwardquickly.. I think it’s going to be very excitingas we see operators create a better player experience,build a better business model, and set ahigher standard for the industry.You’ve worked in our sector of the industrysince the early nineties, haven’t you?D. Haddrill: Yes. I first got into the publicgaming arena in 1994 when I joined VideoLottery Technologies and Automated Wagering,Inc. (AWI). I became the CEO of thatcompany in ’96. It was evident to us then thatthe public gaming sector was poised to grow.With the current budget shortfalls, the videolotterymarket is now again growing. It’s a tremendousopportunity for new jurisdictions toget off to a good start. But there are also plentyof pitfalls and ways to get off to a bad start.Like what?D. Haddrill: Most important, it is necessaryto get the regulatory and tax environment correct.Regulations need to ensure that playersare protected, and an appropriate regulatorybody established. This regulatory frameworkshould facilitate a diligent but efficient productapproval process. Certain jurisdictions aremuch more efficient than others. So, the timeto get a new product into the marketplace ismuch faster. The tax structure needs to beconsistent with a long-term goal of optimizingthe return to the public. That does not meanthat a high tax rate results in more money tothe state. It is important to have a balancedbusiness model that allows the operator to investand be competitive. The public has many,many options when it comes to gaming andentertainment. And, those options are increasingrapidly. So implementing a business modelthat positions the operator to compete effectivelyis imperative, and a fair tax rate is key. Itis also important to partner with the right operatorsand suppliers to implement the gamingprogram. Along with creating an entertaininggaming experience, that means implementinga good ‘back-of-the-house system’ for marketing,monitoring, and reporting, andtwo-waydialogue between the players and the operator.Would you say that part of the concept here is touse a buzz word that may be useful, ‘future proofing’ourselves to ensure that the big capital investmentsrequired to launch a new gaming programwill have a long life-cycle and be flexible to adapt tochanges in the market and changes in technology?D. Haddrill: Absolutely. The need todownload game content and change deviceconfigurations is going to increase. You wantto make sure that the system and the suppliersare G2S and S2S-protocol compliant so thatyou can have reliable interoperability andflexibility to adapt to new technology.Would you say that it is a priority for the operatorto insist that all suppliers provide them with theflexibility and the back-of-the-house infrastructurethat really supports genuine interoperability?I’m sure that Bally has great games, but do yousupport the operators’ ability to implement othergames provided by third-party game developers?D. Haddrill: I absolutely agree. All commercialpartners should be supportive of interoperabilityand enabling the operator to have flexibilityand choice to implement the best gamesand devices as they become available, and fromwhatever supplier that produces them. In addition,the jurisdiction or the customer ought tohave the ability to develop their own productsto roll out into their marketplace. However, Iwill add that gaming is new to interoperabilityand it is not as easy as in business-to-consumerindustries. When you’re doing business-tobusinesssystems, it’s not as plug-and-play as itis with your cell phone. In consumer software,you sell millions of copies at a very low priceand you throw it out in a year and you buy anew one. Business-to-business enterprise applicationsinvolve millions of lines of code. Thisis all very powerful and sophisticated software.But it’s also very complicated, and requirescomplex integration.When you upgrade to newer versions ofyour enterprise software, the ability to plug inthe other software, the third-party software, requiresthat the interface must also be upgraded.Keep in mind that G2S and S2S are sets of codethat aren’t perfect. Jurisdictions should demandopenness and interoperability, but should bereasonable in their expectations of just howsimple that is. For our part, we do our very bestto minimize the cost for the operator and thirdpartysupplier to create that interface. We’vedeveloped the Bally Interface Gateway, whichis a product to make it easier for our customersto integrate their own software and third-partysystems into ours. It’s still not plug-and-play,but it makes it much, much easier.That does cut to the heart of my questioning.It is up to the commercial partner to genuinelyembrace the spirit as well as the letter of the conceptof interoperability. The operator should assessthe degree to which the commercial partneris genuinely committed to providing the flexibilityto integrate the newest and best technology andimplement the best games, regardless of whetherthose products are provided by a competitor.D. Haddrill: Exactly. I think the summarypoint is that the jurisdiction should expect interoperabilityand a focus on future-proofingthe operator. An informed customer needsto recognize the reality that interfaces costmoney. At Bally, I can tell you that we do goto great lengths to serve the interests of thecustomer and support their ability to havemaximum flexibility.You commented earlier that you don’t want toover-control developers. Is there a trade-off betweenthe amount of direction you provide, and thefreedom to be imaginative? In Academia, they differentiatebetween applied and basic research. Forinstance, you might tell your R & D team to createa game that leverages this new brand license youacquired. And we need it next week. That versustake all the time you want to let your imaginationgo wild to create something magical and let meknow what you come up with in six months.D. Haddrill: It is a challenge. We havesome of our development teams that are reallydoing very disciplined coding of specificationsthat are derived from our system customers,for example. And that requires high intellect,Public Gaming International • January 2010 36

high work ethic, and a great engineering background.Then, on the other end of the R&Dspectrum, we have game studios charged withdeveloping creative game content in veryshort time frames. Each studio will include amathematician, a graphic artist, a coder, anda game designer on a team that brainstormsideas based on a combination of our marketresearch, their own ideas, and their own skillsets. I call it a loose/tight kind of managementstyle where you have certain areas you managetightly, and others you allow more freedom toroam. Creative people expect to be respectedfor their creativity. If you manage too tightly,you won’t retain those creative people. So it’sthat classic loose/tight management of thegame studios versus the tighter managementof core big systems development.To what extent do the games that you’re developingand the markets you’re appealing to differbetween the next-generation player and the coreslot machine player? I would assume that winningmoney will always be a universal motivation. Butdoes the next-generation player demand more inthe form of entertainment? And to what extentdoes the product you develop have to appeal to acore player that perhaps is more oriented towardsthe traditional spinning wheel slots versus moreelaborate forms of entertainment?D. Haddrill: The younger players are usedto higher video and sound capabilities, morecommunity-style gaming, and more multilevelgaming. So those are some aspects thatwe would be looking at to appeal to youngerplayers. That said, older players like community-stylegaming as well, and they also likegood sound and graphics. So by appealing toyounger players, we can also develop bettergames for more mature players as well. Wesuppliers have done a relatively poor job inthe last 20 years of appealing to younger players.But, that is starting to change.Your presentation yesterday at the G2E show wastitled “Selling the Sizzle for Slot Manufacturers.”D. Haddrill: There’s been a lot of innovationin gaming devices in the last few years byBally and our competitors. During this sameperiod of time, the operators have been underinvesting.So there’s a lot of pent-up potentialfor the operators to unleash to create greaterplayer experience from these new game innovations.There’s also been cool new systemtechnology such as our player-communicationnetwork (iVIEW) and data mining (BallyBusiness Intelligence). So, - there’s lots of incredibleinnovation that is ready to be implementedand positively impact this industry.One of the innovations is to think of the gamingmachine as a distribution channel through whichyou can sell all varieties of products, isn’t it?D. Haddrill: Yes. Say it’s 4:00 in the afternoon,and you’ve got 40 seats still open inyour 6p.m. show that you’re not likely to sell.Why not give them to your good players whomight stay until 6instead of leaving at 4:30?Or, send dinner coupons to get the players totry out your restaurants. The promotions optionsare endless. Combining powerful databaseswith a player-communication networklike iVIEW explodes the entertainment potentialbecause you can then target the specificpreferences of each individual player.You refer to two different types of games andhow one game appealed to people on the EastCoast and a different one appealed more to thepeople on the West Coast. It is interesting thatgame preferences would differ in what I wouldhave thought was a somewhat homogeneous marketand gaming culture.D. Haddrill: Game preferences do varysomewhat and are driven by a number offactors. Analyzing this is somewhat of anart form. I can share a few insights.. First,you can’t be 100 percent sure about playerpreferences until you’re actually in a marketand seeing the players actual response to thegames. Second, some games will play wellinitially but “burn out” quickly as players loseinterest. For a distributed gaming network,it’s important to have devices that have goodmaintenance records, because maintenance ismore expensive where you have games distributedin small numbers over a large geography,and a good system to monitor the games sothat you know immediately if a game is down,can diagnose problems, and can see if play islagging and the games need to be changed.Bandwidth will be increasing, so having arobust central system capable of serving upa variety of games will become more importantin the future. Distributed venues willwant to have the flexibility to download gamecontent. Finally, a good indicator as to whatkinds of games will be successful is to lookat the neighboring jurisdictions that alreadyhave electronic games. The players in Maryland,for example, will likely favor the typesof games that are popular in New York andPennsylvania because that’s where they mayhave recent experience in playing.We’ve talked about Business Intelligence.What about Command Center and iVIEW ?D. Haddrill: These are the three productsthat are probably most relevant to distributivevenues. Bally Command Center is our serverbasedsolution that allows operators to view,examine, and manage the games, whether theyare on a casino floor or spread out over a largegeography. Command Center is a powerfulproduct to enable changing of game configurationsand downloading of game content andanalyzing game performance and player preferences.The iVIEW network is an especiallyinteresting tool for the distributed gaming environment.If you only have five or 10 gamesin a venue, you might not have a big enoughvolume to build an interesting bonusing experience.But if you connect all the games in ajurisdiction, you could have very exciting bonusingprograms, fun player communication,and the ability to implement marketing promotionsacross the entire jurisdiction.It sounds like these products are ideal for thedistributed venue in the sense that their capabilitiesare really put to the test much more in thatenvironment than they are in the large casinos.D. Haddrill: The needs for monitoringand downloading game content and analyzingdata are the same in a casino as for the distributedenvironment. But you are correct inpointing out that the distributed environmentdepends even more on the central system tomanage and control the entire operation. Indeveloping a jurisdiction that’s going to bedistributive venues, I’d start with the systemside of the business. From a player experiencepoint of view, you have to counteract the factthat you don’t have 2,000 games in a big sexycasino, and yet you still want to create a greatplayer experience. Without a robust and reliablecentral system and monitoring system,you won’t be able to manage and implementthe games in ways that gets the right productto the right people and the right places.It’s also about protecting the security andintegrity of the operation. So, the centralsystem is key to the distributed environment.Players have many ways to spend their entertainmenttime and money. In spite of theneed to operate this business in a disciplinedway on all levels, it still comes down to oneprimary mission – to create the most fun andexciting player experience. Creating a newcustomer and then delighting the customer iswhat this business is ultimately all about. u37 January 2010 • Public Gaming International

A Lesson from Facebook:Multi-Player GamesBy Roy Weiss, Executive Vice President, MGT Lottery Technologywww.MGTLottery.comOThe discussion the lottery industry is having about socialnetworks far too often leads to a review of some new marketingapp for Facebook, instead of addressing how lotteriescan benefit from the factors that are driving the dramatic growthand popularity of game-play on these social sites.Social networks like Facebook confirm, once again, that peoplelove to play digital games. New games of all types take off everyday,however competitive and collaborative multi-player games likeZynga Poker, Mafia Wars and Farmville are, by far, the most popular.In fact more than 30 million people played Texas Hold ‘em Pokerin December 2009, in spite of the fact that a major attribute of thegame was missing – you can’t win money. The fact that millionschoose to play the games through a multi-player format, rather thanalone (i.e., single player vs. the computer), is a key factor particularlyrelevant to lotteries.What this means to lottery administrators is that social networksprovide something much more important than simply another genericaudience to advertise to. Social networks show how multiplayergames appeal to the basic human desires for thrills and thefun of playing web games against other people.Lottery professionals who recognize the importance of the multiplayergame trend occurring in social networks might rightfullywonder how to use that information in an industry that deals almostexclusively in single player tickets. The answer could be secondchancelottery programs.Interactive Games are FunSecond chance web-based lottery games offer lottery players additionalvalue out of an otherwise non-winning lottery ticket, andcan be linked to any printed lottery ticket purchased in a store.These games extend the excitement and enjoyment of the lotteryticket purchase by offering lottery fans a second chance to playand compete for prizes, while providing lotteries with a second opportunityto stay engaged with each lottery player after the pointof sale.Everyone, including the core lottery player and online game fans,are looking for more fun and entertainment value, and games thatallow them to compete or collaborate with other players to win aprize, are interesting, exciting and can attract repeat play.State lotteries with second chance web-based games, will findthat as the player fun-factor increases, so too will the number ofrecreational players making return visits to the lottery web site aftereach new ticket purchase. For the 24/7 web-based lottery game center,this means new and returning traffic. Web-based multi-medialottery games can be created for virtually any type of game genreincluding cards, casino-style, word and discovery games, as well astournament versions of standard games that keep players comingback for more.Play-by-Play: Connecting Retail Salesto Web Based Game PlayConnecting in-store ticket sales to web-based multi-player gamesthrough a second-chance ticket programs can extend the excitementof playing the lottery and double the entertainment value ofevery lottery ticket purchase.Second chance game programs all start out with the purchase of alottery ticket in a store, which turns out to be a non-winning lotteryticket. While the traditional game is over as soon as a player finishesplaying the printed version of each game, in states with secondchance web-based games, lottery players who have a non-winningticket are only halfway through the experience.Players with a non-winning lottery ticket in second chance gameplay states will have an opportunity to play another game, or toenter tournaments being hosted on the lottery website. Once registered,lottery players can be directed to a specific second chancegame linked to the original ticket purchase, or be presented witha menu of single player games like spin the wheel, or multi-playergames where card skills, word puzzle ability or trivia knowledge canbe used to compete for different prizes.Facebook-like tools provided in the online game area might allowplayers to invite friends on the fly, or to arrange a game table in advance,where friends or groups can meet at a designated time to playa competitive game together. This type of multi-person game playwill create a social dynamic that reaches far beyond what game fanscan find or experience on any social network site. Lotteries can offerpopular word, number or card games, multi-media versions of statelottery scratch ticket games, and customized games that are linkedto regional/local promotions.Behind the scenes, everything from player registration, contestadministration and web-based game play takes place digitally, andis seamlessly connected to the player-managed user profiles. Highqualitygame administration software will enable lotteries to provideplayers with access to their favorite games through personal computers,mobile devices, or in-store lottery terminals. Simple self-serviceregistration software streamlines the age and location verificationprocess and allows lottery players to access the second chance gamecenter through a secure login.Lotteries working under the premise that every lottery ticket purchased,can actually be two games, (i.e., traditional lottery gameprinted on the ticket, and a second chance game played online), cancreate games that appeal to a whole new audience, eager for interactivityand game socializing. Lottery games offered on a lottery website,like second chance winner programs, are a bridge lotteries canstart to build today towards a fun interactive web centric future. uPublic Gaming International • January 2010 38