July 17, 2024


Association Of Law

Why Critics Are Concerned by Lotteries’ Online Push

17 min read

In late April, Luca Esposito was reflecting, like many of us, on how the coronavirus pandemic had upended his family’s life. Esposito wrote in a blog post that his elderly father in southern Italy had turned to WhatsApp to order groceries, because he could no longer visit the store in person; that his children’s school had struggled to adapt to the demands of online learning; and how remote working, once a privilege of senior managers, in his view could become the norm.

As the executive director of the World Lottery Association, or WLA, a lobby group that represents national, state and provincial lotteries around the globe, Esposito had also seen his industry sustain blows in the early days of the pandemic. The near-simultaneous lockdowns on multiple continents beginning in February and March prevented lottery players around the world from playing their favorite games, from draw tickets to scratch cards. Like other businesses that depend on in-person sales, many lotteries saw their revenues take a big hit.

For the global lottery industry, however, the pandemic may also prove to be a business opportunity by accelerating and expanding a transition to greater online lottery play. Many industry lobbyists and politicians have long advocated such a transition, as well as the greater integration of physical and digital lottery sales, which could hook habitual in-store players on ever-more-convenient ways of buying tickets, attract younger customers, and allow lotteries to compile troves of data on players, which can in turn be used to drive further sales.

In some regions and countries, this digital transition is well underway. In others, there has been resistance, including from regulators and lawmakers. But governments around the world rely on lottery revenues to help fund public projects, from national sports teams to high school education. By exposing the vagaries of a business model that depends on physical sales, the pandemic, perhaps more than any other single event, has the potential to melt such resistance.

“This is a bona fide transformative moment: there will be no going back to ‘business as usual,’” Esposito wrote in his blog post in April. “The pandemic has forced upon us a profound change in the way in which we understand the world. Let’s hope that it is a lasting change for the better.”

Not everyone shares Esposito’s hope, though.

The lottery industry’s many critics fear that expanding online play risks giving people with gambling addictions 24/7 access to their fix, while also giving governments license to scrape their citizens’ data in order to sell them products that amount, as researchers in multiple countries have argued, to a regressive tax.

“This is a bona fide transformative moment: there will be no going back to ‘business as usual.’”

“I don’t think it’s any of their business,” Dawn Nettles, a Texas journalist who runs Lotto Report, a website for lottery players, says of lotteries’ push to collect more and better data on their players. “They’re desperate for information. It’s an intrusion [on] a player’s right to privacy.”

Lotteries and lottery-affiliated groups, including the WLA, have a history of prioritizing revenues over critics’ concerns. Since 2017, Gaming the Lottery, an international investigative journalism collaboration led by the authors of this article, has reported on multiple problems linked to the industry—including regulatory inaction in the face of gambling addiction and possible fraud, a lack of transparency and apparent tax avoidance—from Bolivia to South Africa to the U.S. (Esposito and the WLA did not respond to multiple requests for comment on this article.)

Esposito isn’t the only industry advocate who has spoken publicly about wanting to grow lotteries’ online presence of late; lottery leaders on almost every continent have, too.

In a recent edition of its in-house magazine, the European Lotteries, an umbrella group for state lotteries in Europe, wrote that digital transformation could be one “positive” outcome of the pandemic. The African Lotteries Association also discussed the digitalization of games and payments, among other topics, at a conference in Cote d’Ivoire in March. In August, David Gale, the executive director of the North American Association of State and Provincial Lotteries, which represents lotteries in North America, told us in an email that while he would not describe COVID-19 as a “turning point,” it has “forced lotteries to evaluate how best to operate⎯not just during the pandemic, but in the future as well.” And Rodrigo Cigliutti, executive director of the Ibero-American Corporation of Lotteries and Bets of State, or CIBELAE by its Spanish initials, which represents lotteries in Latin America and Southern Europe, told us that “there was already a global opinion in the region regarding the urgent need to modernize lotteries,” and that the pandemic “has accelerated this process dramatically.”

The lockdowns instituted in response to the pandemic did not completely curtail in-person lottery sales everywhere. While authorities in Canada, Italy, Spain and many other countries halted in-person lottery play for the strictest stretches of their respective lockdowns, other countries and regions continued to allow such sales, even as other items, from hot food to furniture, were cast as “non-essential” and therefore restricted. As one of the authors of this article previously reported, South Africa’s lottery continued physical sales until a government minister expressly forbade it from doing so; even after that, it went ahead with a massive jackpot draw. And as another of the authors has reported, all 45 state lotteries in the U.S. have continued to push sales in convenience stores for the duration of the pandemic, despite concerns about the health of players, retailers and lottery staff. In-person sales continued in some form in the U.K. and in France. Authorities in parts of China suspended all sales for more than a month, then authorized tickets to be sold in outdoor kiosks to allow the lottery to come back.

Given this varying international picture, it’s hard to generalize about the pandemic’s impact on in-person lottery sales globally. Regional trends are clearer. The European Lotteries, for example, said that its member lotteries saw a “tremendous drop in sales” in the early days of lockdown, with lotteries in countries that were hit hardest by the virus generally faring worse.

A few countries—Italy, for example—halted online play, as well. According to Esposito, however, across the board, lotteries that already offered online games when the lockdowns started mostly saw growth in that sector of 10 to 30 percent as of late April. Such growth hasn’t been limited to countries where in-person lottery sales were completely curtailed. Digital sales accounted for nearly half of all U.K. lottery play at the height of lockdown, up from less than a third beforehand. In the U.S., states including Pennsylvania, Michigan and New Hampshire saw online play spike.

Some lotteries that don’t currently offer online games are keen to get in on the act. Stuart Godfree, the managing director of mkodo, a U.K.-based provider of digital services to lotteries, says his firm is in high demand right now, especially in North America, where mkodo already has a sizable footprint.

“We’ve never been busier,” Godfree says. Lotteries “have to now look at how they still maintain that level of revenue for the state, and online is clearly the direction they need to take. And so they have been coming to us as providers of that service asking how quickly we can turn on online services for them.”

Setting up online lottery play, Godfree says, can be complicated for logistical reasons, such as software compatibility, but also due to regulatory hurdles. “It’s not a trivial project to turn a lottery from a purely retail to an online proposition,” Godfree says. “It’s quite time-consuming.”

A lottery vendor attends to a customer in Kochi, India.

A lottery vendor attends to a customer in Kochi, India, July 30, 2020 (AP photo by RS Iyer).

Despite the lottery industry being well-established in the U.S., the country has proven to be a relatively tough environment for online play. Initially, online sales were considered to be a violation of the Interstate Wire Act, a law that was originally enacted to curb gambling—and attendant corruption—across state lines. In 2011, then-President Barack Obama’s Justice Department ruled that the law only applied to sports betting and that online lotteries were therefore permissible. A number of states, including Illinois, Georgia and Michigan, moved to set one up. Today, roughly a quarter of U.S. lotteries offer at least some online services.

In recent years, however, President Donald Trump’s administration has muddied the waters, taking a series of confusing positions that together have not only thrown the permissive Obama-era ruling into doubt, but even suggested that online lotteries may not be legal after all. The New Hampshire lottery, with support from lotteries in other states, took Trump’s Justice Department to court. A federal judge initially sided with the lottery, but the Justice Department appealed, and the case has yet to be resolved.

Since long before the pandemic struck, many U.S. lotteries have advocated the idea of expanded online play in the U.S., seeing it as a growth area and an opportunity to target lottery games at younger demographics. Often they’ve faced pushback, from not just the Trump administration, but state politicians on both sides of the political spectrum as well as brick-and-mortar retailers, who fear that online lotteries would steer customers away from their stores. Retailers earn commission for selling lottery t
ickets, and customers who go to stores solely to play the lottery commonly end up buying other items at the same time. Lotteries have often touted such benefits to small businesses as part of their mission to give back to the community.

Lottery officials in Massachusetts, for example, have repeatedly asked lawmakers to allow online play, only to be rebuffed. At a legislative hearing last year, Michael Sweeney, the executive director of the state’s lottery, held up an old rotary telephone as a metaphor for the lottery’s outdated systems. Since the pandemic began, Deborah Goldberg, the Massachusetts treasurer, has doubled down on such demands, warning that the coronavirus exposed the limitations of the lottery’s exclusively in-person model. Lawmakers, however, are still saying no, much to Goldberg’s chagrin.

While the U.S. regulatory system for gambling is in many ways peculiar, similar pressures against online lotteries exist in many other countries. The result globally has been a patchwork of the two models. Some regions, including some of Europe’s Nordic countries, have relatively well-developed online sales. As of 2018, lotteries were the third-most-popular form of online gambling in the European Union as a whole, after sports betting and casino games. But many other countries offer no online play at all. In poorer parts of the world, additional factors—such as the prevalence of cash transactions, inconsistent access to banking services and spotty or nonexistent internet connections—have also combined to stall the development of online play.

While this patchwork persists, Esposito and other lottery lobbyists argue, unlicensed lottery game operators will continue to fill the gaps, drawing potential play and revenue away from state-sanctioned lotteries. “Crooks poach our players and prey upon those that suffer from gaming addiction,” Esposito wrote in April. “But we can meet these criminals head on by ensuring our players have access to secure and responsible gaming products online.”

Rolling the Dice on Data Privacy

For many people, the lottery is a superstitious pastime. Players commonly pick a “lucky” set of numbers—their wife’s birthday, say, or the date of their wedding anniversary—and stick with it through thick and thin. And given the astronomical odds against winning big, the outcome for most players is usually thin.

To play in stores, customers of many lotteries have traditionally been required to mark their numbers on a slip of paper and hand it to a cashier, who then runs the numbers through a computer. “What Mr. COVID has done is rather screw that, because nobody wants to be scribbling with a little pencil that’s been left on a table in a retail outlet,” Godfree of U.K.-based mkodo says. “And no retailer wants to pick up your piece of paper and handle it.” Many scientists and health officials now believe that the coronavirus is not principally transmitted via surfaces, but as The Atlantic reported in July, many of us have nonetheless developed enduring new hygiene habits since the start of the pandemic.

Godfree has been working on an app that allows lottery players to pick their numbers before scanning them into a physical machine as a QR code; this allows for in-store sales without much risk of physical contact. The idea of the app sounds obvious, Godfree says. “But it is actually a significant step forward for the lotteries, who have been predicated absolutely for the last 25 or 30 years around the blue-colored lottery terminal sitting on the retailer’s desk.”

The broader principle of Godfree’s app, which many lotteries are currently seeking to apply, is to introduce a greater digital component to lottery play without entirely rendering in-store play obsolete. This doesn’t just have the potential to placate retailers and other skeptics of expanded online play. Many lottery players like, or are at least accustomed to, buying physical tickets. The European Lotteries said in an email in early August that while some players continue to find refuge in “safe” online games, many others have returned to playing in retail outlets as lockdown measures on the continent have eased.

“It raises so many red flags, I don’t know where to start. The incentives for hacking an online lottery seem enormous beyond the insider threats.”

Combining physical and digital lottery sales, however, has the potential to hook such players into playing online, when they may not otherwise think to do so. Crucially, it also allows lotteries to track their customers’ behavior. “The big, big problem you have with retail is you really don’t know your players,” Godfree says. “The only way you can really understand who your players are is to sit a survey person in the store who watches what’s going on, in the store or on a video camera.”

On their own, apps such as Godfree’s are somewhat limited from a data-collection standpoint. But they can be useful, he says, in driving further opportunities for data collection—for example, by offering users incentives to enter their email address or other personal details.

The more data that lotteries can collect, the better able they are to communicate with their players and tailor games to their behavior and interests. In a recent blog post for the WLA, Srini Nedunuri—an executive at IGT, a gaming-technology behemoth that operates in about 100 countries worldwide—advocated for lotteries to use artificial intelligence to target and retain customers. “With digital play, data accessibility is a lot easier, as the electronic fingerprint is easily tracked,” Nedunuri wrote. “The key to understanding the player journey is to leverage data on where players came from, what content they accessed, what promotions they liked, what games they like, why and when they decided to register, or why they didn’t like the experience and exited.”

This prospect scares many advocates of data privacy. They see tracking players in such a way as more than just a standard outgrowth of surveillance capitalism, because lotteries are run by the state and typically style themselves as a public good.

“It’s one thing to post a generic ad on Facebook,” Jennifer King, a consumer privacy expert at Stanford University, says, referring to lotteries’ current advertising practices. “The idea that a state-sponsored venture might use targeted ads or consumer profiling to try to get people to buy lottery tickets is very disturbing and morally questionable.”

King also has concerns about the security of online lotteries. “It raises so many red flags, I don’t know where to start,” she says. “The incentives for hacking an online lottery seem enormous beyond the insider threats.”

A lottery vendor in Yangon, Myanmar.

A lottery vendor in Yangon, Myanmar, March 27, 2020 (AP photo by Thein Zaw).

Lotteries often boast that their game security on the back end is extremely tight. But there have been breaches, most notably the case of Eddie Tipton, the former director of information security for the Multi-State Lottery Association in the U.S. Tipton used his position to create lines of code that made it easier for him to predict winning numbers. And breaches of individual players’ online lottery accounts are not unheard of. In 2016, cybercriminals reportedly accessed more than 25,000 online lottery accounts in the U.K.; Camelot, the lottery’s operator, said at the time that this constituted a very small fraction of all online players, and that no bank details had been compromised. In 2018, hackers reportedly accessed over 100 U.K. lottery accounts; again, no financial information was compromised.

If online play is to be expanded, privacy experts say, lotteries will at least need to be transparent about the data they’re collecting, how they plan to use it and any potential risks. “If a lottery seeks to employ an algorithm in order to accomplish a particular task, they need to have a process in place to assess whether this new algorithmic process will impact some groups more than others,” John Verdi, vice president of policy at the nonprofit Future of Privacy Forum, says. “If new technology has an overall positive impact on individuals, but some individuals are burdened, the organization has a responsibility to mitigate those harms and those risks.”

Advocates of online play see privacy trade-offs as an inevitable part of the modern consumer economy. “I think my data security is an important facet to me,” Godfree says. “But I think if you want to game online legitimately, then I think we’ll have to just expect to share some level of personal data with government.”

New Platforms, Familiar Debates

In countries around the world, lotteries have long come in for sharp criticism. Studies in the U.S., Germany, South Africa and elsewhere have suggested that they are regressive. Rather than taking income from the relatively wealthy and redistributing it, as many tax systems do, lotteries take revenue from players who frequently come from poorer backgrounds and, in many cases, fund programs—such as college scholarships, elite sports such as sailing and equestrianism, and so on—that disproportionately benefit wealthier citizens. For their part, lottery industry leaders generally dispute the idea that lotteries are a form of tax, because playing isn’t mandatory.

Nor are lottery funds necessarily distributed effectively, fairly or transparently. In South Africa, an ongoing, multiyear investigation led by Gaming the Lottery uncovered wasteful spending, cronyism and apparent fraud in lottery-funded projects. Some lotteries—in California, for example—have also been accused of spending too much of the revenue they generate on administration and game prizes. In theory, prize expenditure is democratic, even if it isn’t necessarily an efficient use of public money. In 2017, however, Gaming the Lottery, in conjunction with U.S. news outlets including The Boston Globe, the New York Daily News, and PennLive, found that in many states, a handful of players win big lottery prizes with highly improbable frequency. The reasons for this can include fraud and theft—retailers pocketing winning tickets, for example—but also practices that many lotteries allow, including a single person claiming prizes on behalf of a large group of winners in a given community. One man in Massachusetts cashed more than 7,000 winning tickets totaling nearly $11 million in just six years; he has since pleaded guilty to lottery-related charges of tax fraud. Gaming the Lottery found that officials in many states did not consider frequent winning patterns to merit regulation or sustained investigation.

Some frequent winners identified by Gaming the Lottery appear to be problem gamers; one Connecticut man, for instance, ran up so much debt buying scratch cards that a store owner ended up suing him for tens of thousands of dollars. The fear that lottery play can be addictive isn’t limited to the U.S. “Playing the lottery is an archetypal form of escapism which is so pervasive in our society
that we don’t even see playing the lottery as gambling,” says Doug Kemp, who has worked with the gaming industry internationally and now works with victims of various forms of addiction in Cape Town, South Africa. “The escape from your present financial situation by hitting a jackpot win is the ultimate fantasy of absolute financial freedom.”

There has been some resistance to this digital transition. But many governments rely on lottery revenues to help fund public projects.

Many frequent lottery players are fully in control of their habit, and many people with gambling addictions, Kemp notes, are hooked on different games that offer better odds than lotteries typically do. Still, many players, and by no means just those with a gambling problem, do indeed view the lottery as a path to richesespecially during periods, such as the current moment, of massive economic dislocation. In April, multiple experts told one of the authors of this article that they expected lottery sales in the U.S. to spike once the federal government began to distribute coronavirus stimulus checks. In Texas, at least, that happened. Other states, including Arkansas, Montana and Minnesota, have also reported strong sales since the pandemic began, though other states’ lotteries have continued to see revenues dip.

The idea of expanding online play is of obvious concern to advocates of problem-gaming victims. It offers such people ever-more-convenient ways to play and allows for them to be targeted with personalized promotions. “It is unlikely that they will ever go back to buying tickets at a kiosk again if their experience online is seamless,” Kemp says. “Your brain does not care—it is trying to solve a problem. That problem is freedom from financial slavery; the means to solve that is purchasing a ticket.”

Lottery industry leaders, including at North American State and Provincial Lotteries and IGT, point out that account-based online play allows lotteries to cap the amounts players can stake. In many places, players themselves can personalize these caps or freeze their own accounts.

Questions persist, however, as to whether it’s realistic to expect problem gamers to self-regulate in this way. And the caps that lotteries put on online play often still allow players to stake significant sums of money. The Kentucky lottery allows players to deposit up to $1,000 per month; in New Hampshire, that figure is $3,000 per month. In the U.K., players can add up to £350 pounds, or $450, to their account every week.

Industry leaders counter that no such limits exist when it comes to the physical buying of tickets. Online play, they claim, is thus an opportunity to tackle potentially addictive playing, putting the data that lotteries accumulate on their players to good use.

For now, the strength of this commitment remains open to question. But if Esposito gets his wish, there may soon be a much broader pool of online lotteries to hold to such promises.

Jon Allsop is a freelance journalist based in the U.K. He writes a daily newsletter for the Columbia Journalism Review, and his other work has appeared in publications including The Nation, The Atlantic, and Foreign Policy.

Raymond Joseph is a journalist and editor specializing in data-driven investigative journalism and storytelling, and fact checking. He works as a journalism and fact-checking trainer and is also the southern African editor for the Center for Cooperative Investigative Journalism.

Jeff Kelly Lowenstein is the Padnos/Sarosik endowed professor of civil discourse at Grand Valley State University in the U.S. and the executive director of the Center for Collaborative Investigative Journalism.

All three authors are leading members of Gaming the Lottery, an investigative journalism project that covers the global lottery industry.

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