U.S. Online Lottery Subs Still Limited

13 November 2008

In the United States, just four states offer online intrastate subscriptions to their lotteries. Although another two are exploring the possibility, state law may prove a hindrance to any launch.

The Unlawful Internet Gambling Enforcement Act, which took effect in October 2006, prevents banks, credit card companies and other financial handlers from processing Internet gambling transactions. However, a provision in the act exempts state lotteries from enforcement.

Shortly after the UIGEA was enacted, IGamingNews found three states were selling their lottery products online: New York, North Dakota and Virginia.

Two years later, New Hampshire, New York, North Dakota and Virginia are offering online subscriptions for certain products.

The model is similar in all four states. A resident of North Dakota, for instance, logs on to the lottery's Web site, chooses games, selects a subscription length and funds an account.

Each state has certain rules -- New York, for example, might require subscribers to have a physical or I.P. address within New York. Whether the rules are being comprehensively enforced, however, is debatable.

IGN, located in Missouri, was able to sign up for a subscription in North Dakota, despite its requirement that subscribers have a North Dakota address.

On the other hand, in attempting to subscribe to the New York Lottery, IGN was blocked for having an out-of-state I.P. address, and New Hampshire did not recognize the zip code.

Financially, the subscriptions have proven a worthy investment for some of the lotteries.

New Hampshire's lottery, which established the United States' first legal lottery in 1964, has operated a subscription service since 1988 but didn't launch online until 2005, Maura McCann, spokesperson for the New Hampshire Lottery, told IGN.

In the 2007 fiscal year subscriptions accounted for $1.7 million of $263.9 million in total revenue generated by the New Hampshire Lottery. Of the $1.7 million, 24 percent, or $408,000, came from online subscriptions, Ms. McCann said.

In New York, in 2007, revenues for the state's lottery -- which was established in 1967 and launched its online subscription service in 2005 -- totaled $7.5 billion, John Charlson, director of communications for the New York Lottery, told IGN. Subscriptions contributed $18 million to the lottery's total revenue, Mr. Charlson added. He could not say, though, what percentage of total revenue derived from online subscriptions.

Although the Virginia Lottery still officially allows online subscriptions, the service has been out of commission for several months following an upgrade to the lottery's computer system last summer, according to its Web site.

John Hagerty, spokesperson for the Virginia Lottery, told IGN that all current subscriptions will be honored for their duration, though no new online subscriptions are being accepted. He said no date has been given for when online subscriptions will be available again.

Prior to the technical glitch, total subscribers for Virginia's lottery brought in $5.2 million annually, $3.5 million of which derived from online subscribers, Mr. Hagerty said.

The youngest operator in the group, the North Dakota Lottery, was just established in 2004 -- but its sales are down for the first time since it launched. Ticket sales for 2008 dropped 2.2 percent to 22.1 million from $22.6 million last year, according to the Bismarck Tribune.

Randy Miller, director of the lottery, told the newspaper he blames the declining economy and the lottery's failure to launch any new products in the last two years.

Donna Thronson, communications director for the lottery, told IGN that subscriptions were bringing in a good percentage of revenues, but the lottery has run into a familiar problem with credit card transactions.

"We were at 3 percent of sales for subscriptions," Ms. Thronson said. "However, we encountered a little problem with credit cards being rejected because of the type of code that is being put on credit cards."

In 2001, Visa Inc., the United States' biggest credit card network, created the 7995 code to prevent having its cards used for online gambling transactions. Now, in North Dakota and New Hampshire, according to Ms. Thronson, credit card companies are changing the codes for online lottery subscription transactions and rejecting them, therefore, from being purchased.

Ms. Thronson said the lottery is working to resolve the problem, but until the lottery finds a solution, it will not offer its holiday subscription promotion.

Ms. McCann could not comment on the credit card issue in New Hampshire.

Mr. Hagerty said the Virginia Lottery has never accepted credit or debit cards for its online subscription, so did not experience the same problems as North Dakota and New Hampshire.

Meanwhile, Florida and Georgia, perhaps seeing a way to expand their respective customer bases, are exploring the idea of bringing some of their products online, according to Mark N.G. Hichar, a partner at Edwards Angell Palmer & Dodge in Boston.

Mr. Hichar told IGN that the Florida Lottery has put out a formal request for information seeking responses, from advisors, as to how the lottery could put its games online.

He said the lottery is seeking not just technical solutions, but legal solutions, because Florida has laws that could be problematic for launching an online subscription model.

"For example, Florida state law says a (lottery) transaction has to occur within the eyesight of a clerk -- geared toward purchases at standalone instant ticket machines," Mr. Hichar said. "So, that law would obviously preclude any type of transaction that occurred over the Internet. Also, the law prohibits purchase via credit card, so that would need to be addressed."

Jackie Barreiros, public affairs director for the Florida Lottery, told IGN that launching a subscription service been shelved -- for now -- because the lottery is preparing to launch Powerball, the largest multi-state lottery in the United States.

Meanwhile, the Georgia Lottery Corporation, which runs the state's lottery, has had some consultations on putting its games online, Mr. Hichar said.

But, like Florida, Georgia may come up against a legal brick wall with its own statutes. According to Georgia law, all Georgia Lottery tickets must be purchased with cash. The Georgia Lottery Corporation, like the Florida Lottery, does not accept credit cards, debit cards, checks or any form of deferred payment for the purchase of lottery tickets.

Mr. Hichar was unaware, however, if Georgia had put out any requests for information, as Florida has done.

Calls to the Georgia lottery were not returned by press time.

Emily Swoboda is the senior staff writer at IGamingNews. She lives in St. Louis, Mo.