Pat McDonald, Director, Ohio Lottery Commentary on COVID-19 for PGRI: Challenges

Pat McDonald, Director, Ohio Lottery

Commentary on COVID-19 for PGRI:

Challenges

The COVID-19 crisis has damaged the persistent myth that lotteries are immune to shifts in the economy. In three short weeks, the Ohio Lottery shifted from forecasting profit gains over its fiscal year profit commitment to planning operating cuts to mitigate persistent revenue shortfalls. Lotteries are part of the local economy and will continue to see negative revenue effects alongside retailer partners. With decreasing foot traffic to retail locations as a result of social distancing, our consumer base will inevitably decrease for a period of time. There is also the possibility that, after the current crisis, some retail partners may shutter, resulting in a contraction of the Ohio Lottery’s retail base. Finally, the likely decrease in consumers’ discretionary entertainment income will directly impact our industry.

The present social and economic circumstances are difficult for everyone as a result of this virus, but the Ohio Lottery has remained vital through diversification. While we had to close the racinos we regulate, and many of our bars and taverns are closed due to government orders , certain traditional sales networks have remained key revenue contributors. Daily draw games, lotto products, and scratch-off tickets continue to contribute to our beneficiary, and also continue to help keep retailer revenue flowing in this critical time.

The trade channels that include social lottery products, such as Keno and EZPlay, are invariably impacted by this virus. This will continue to constrain a lottery's ability to generate revenue. Throughout this crisis, we have seen consistent sales decreases of 60-70% in the social products within our portfolio, illustrating that lottery activity is impacted alongside the rest of the local economy. But these sales decreases would become a complete elimination of revenue in our monitor game category, for instance, if it weren’t for our “Keno-to-go” product launch several years ago.

Diversification

A key item that we will need to consider in the future is to continue ensuring we are diversified enough to manage these sorts of crises. This type of innovation illustrates that using novel channels for existing products are a key metric to overcoming economic challenges. After the end of the COVID-19 crisis, state governments and their lotteries may follow private industry innovations and become more modern in their methods of offering existing products in new ways. Diversifying into more digital mediums (whether that means prize cashing, direct activity, or consumer engagement) will become more than an innovation -- it'll become a part of a lottery's critical infrastructure.

I believe it’s also critical to be explicit when discussing the benefits of offering products and services over a myriad of consumer platforms and maximizing customer convenience. When talking to stakeholders, legislators, and regulators, the key is always to be open and communicative as to what responsible offerings can do for a lottery beneficiary. There is no better alternative in the long run than to be honest and open with our partners and stakeholders. Stakeholders are ultimately more receptive to change when they’re shown the whole picture.

The Future

For quite a while, change in the way that government and industries interact with citizens and consumers will be the order of the day. But, thankfully, not everything will change after social distancing lets up. Our mission will always involve generating money for education in Ohio. The fundamentals of the way we operate will also remain unchanged. Ultimately, Lotteries need to  be responsible public stewards, considering integrity first and foremost, alongside its commitment to its mission and stakeholders. To illustrate the importance of the commitment to integrity and fairness to stakeholders, we modified our retailer incentive program this quarter so as not to punish our retail network for a social and economic crisis that was  outside of their control.

For the Ohio Lottery, the ultimate mission of generating profits for education will always remain. Although there will inevitably be economic and social challenges to navigate through, we will take what we have learned from the COVID-19 crisis and implement new strategies for future growth and success.