Holding online re-sellers of lottery products to a higher standard

PUBLIC GAMING INTERVIEWS Lynne Roiter, President & Chief Executive Officer, Loto-Québec; General Secretary, World Lottery Association

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PGRI Introduction: Re-sellers like theLotter.com and “secondary” (or “synthetic” or “virtual”) lottery operators like Lottoland claim they are legal because they are licensed in one jurisdiction (like the UK, or Malta, or Gibraltar) or maybe even licensed in multiple jurisdictions. But they also sell into jurisdictions where they are not licensed. The community of legally authorized lottery operators abides a higher standard, expecting its distribution partners to operate legally not just in some jurisdictions, but in all jurisdictions. Operate illegally or without proper license in even one jurisdiction and that qualifies the operator as being and illegal operator. And the community of authorized government lotteries should not do business with illegal operators, either by selling to them directly or by selling to retailers who sell to the illegal operators.

Consider the business model of theLotter.com which sells branded lottery tickets like Powerball, EuroMillions, MegaMillions, El Gordo, New York Lotto, and many more. They sell all around the world, and employ agents who buy the lottery tickets from retailers that are willing to sell to them. In that sense, re-sellers like theLotter. com are not as destructive as Lottoland which doesn’t even buy the tickets from the authorized lottery. Lottoland just insures against the liability, places a bet on the outcome of the lottery, and pockets the profit. Lottoland is essentially hijacking the financial benefit from lottery beneficiaries and turning it over to private shareholders. theLotter.com model may not harm the jurisdiction where it is buying the lottery ticket, but it is most definitely harming the jurisdiction where it is selling the ticket.

PGRI and most of our readers are enthusiastic advocates for innovation and embracing a culture of change. But the kinds of change being wrought by “secondary” lotteries like Lottoland, and online re-sellers like theLotter.com who are not respecting the laws of the markets where they are selling – this is not innovation. This is disruption based on evading the enforcement mechanisms of the laws and produces no positive benefit for society. Lotteries, their beneficiaries, and society depend on the enforcement of laws to prevent these kinds of destructive business models from undermining the industry. Lotteries also depend on each other to monitor their distribution partners to make sure they are not violating laws. The call-to-action is for all lotteries everywhere to monitor their retailers to ensure they are not selling to illegal online operators like theLotter.com.

This is an industry that stands for the highest levels of integrity. To sell to retailers which are in turn selling to re-sellers like theLotter.com is to aid and abet an activity that is illegal, harmful to our colleagues, and damaging to the reputation for integrity that the government lottery business has taken decades to build. Further, a globalized market in which all lottery products are sold everywhere does not serve the interests of government lotteries which depend on exclusivity to command high margins and maximize benefit to their beneficiaries. In fact, it could potentially destroy that fundamental business model.

Paul Jason: Online “secondary” or “synthetic” lotteries that enable the player to bet on the outcome of the lottery, and re-sellers who operate without proper license in each jurisdiction where they operate – these online operators claim they are not damaging lotteries because they comprise only a very small percentage of total lottery sales. Lynne Roiter: Two things about that. One, their market-share is increasing and amounts to millions of dollars in funding that belongs to the intended recipient of Lottery proceeds. Two, these operators are creating confusion in the market-place, and this confusion is damaging the brand of legitimate Lottery. Governments have assigned Lottery the exclusive responsibility to offer lottery games, to regulate that offer for the benefit of the consumer and Good Causes that are supported by Lottery funding, and to channel economic benefit away from private shareholders and over to Good Causes. Private companies which operate without proper license are undermining the purpose of laws intended to preserve the exclusivity of Lottery which is so vital to the effective execution of its mission.

Why is it so hard to prevent these private companies from invading markets where they have no license to operate?

L. Roiter: These operators are based in jurisdictions where they do have license to operate, countries like Malta and Gibraltar. These countries charge minimal taxes, as low as 1%. But they are being enriched by the tax proceeds based on revenues from the global market-place. Countries like Canada and others all around the world have no authority in Malta and Gibraltar, and therefore no legal recourse to enforce their own laws against operators who violate those laws.

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