Michigan Lottery pursues online sales; retailers surprised, concerned
By Chris Gautz
By this time next year, Michigan residents will have the ability to gamble online or on their smartphones through the Michigan Lottery, despite the Legislature denying funding for the new endeavor and local retailers raising concerns.
The lottery department is still determining whether players would be able to make a payment online or on their phones to start playing the games or if they would have to make a payment first in a retail store. Also to be decided is how an individual would collect his or her winnings, said Jeff Holyfield, director of public relations for the Michigan Lottery.
Last week, the lottery announced the Canadian firm Pollard Banknote Ltd. was chosen through a competitive bidding process to provide the online gaming services for the state and will subcontract with Malta-based NeoGames, which has started iLottery systems in Italy and Belgium.
The move to online ticket sales came as a surprise to trade groups representing the retail community where lottery players purchase their tickets now.
Linda Gobler, president and CEO of the Lansing-based Michigan Grocers Association and Auday Arabo, president and CEO of the West Bloomfield Township-based Midwest Independent Retailers Association, found out the day of the announcement.
“When it was stripped out of the budget, we thought it was done,” Arabo said.
During the budget season in the spring, Gobler said she had ongoing discussions with lottery officials about the idea, but those ended when the Legislature stripped funding for the Internet lottery proposal from the budget.
Following the budget’s completion, she said, she hadn’t talked further with her members or the lottery because she didn’t realize the state was still moving forward with the Internet proposal.
“Apparently, the lottery has found a way to do that,” she said.
The lottery plans to use existing budget funds to pay for it instead.
Gobler said she had expressed concerns raised by her members that online lottery ticket sales would decrease revenue because fewer people would be coming into their stores.
“They assured me they weren’t doing anything to harm the brick-and-mortar retailers in the state,” she said.
Holyfield said the retailers are going to be an integral part of the new system and that it might lead to a boost in overall sales by enticing a younger generation that does not currently play lottery games to begin playing them online.
The lottery is estimating Internet sales will contribute an additional $128 million to the state’s School Aid Fund in the first four years. Last year, the lottery set a record with a contribution to Michigan schools of $778.4 million.
Holyfield said in other states and countries that allow Internet lottery purchases, it increases public awareness and interest in the lottery. The younger generation, he said, wants to do everything on their smartphones.
“We want to reach out to those potential customers and bring them in,” Holyfield said.
To ensure lottery players will still come in the door, Arabo said he is urging lottery officials to mandate that players must pay to play the online games at a retail store so a clerk can verify that children are not making the purchases and gambling online.
Auday Arabo
“We do have concerns about underage gaming,” he said.
Arabo said he also wants it so that when someone wins money on an online game, he or she has to go into a lottery retail location to receive the winnings.
He said he has not received any guarantees the lottery is willing to do that, but said he did receive an olive branch from the lottery that Daily 3 and Daily 4 games would not be able to be purchased online. Those games are the most popular and can account for 35 percent to 40 percent of business a retailer sees from lottery players, Arabo said.
Holyfield would not confirm whether the lottery has agreed to keep those two games out of the online system, but said the department is working with Arabo’s organization and wants to be sensitive to its concerns.
There have been discussions, Holyfield said, of creating player value cards that players could purchase in a retail store to use online, the same way someone purchases an iTunes gift card at a store to then purchase music or apps online.
Arabo said retailers do not get rich on their 6 percent commission on lottery sales, but when players go into a store, that person might also buy a snack or a drink, where the profit margins are better. “And that’s the big picture,” he said.
Two other states, Georgia and Illinois, recently began Internet lottery sales, and Arabo said it is still too early to see what impact it is having on retailers.
“We are taking a wait-and-see approach,” he said. “We want to work with the lottery. If this is really the route they want to go, we want to work with them.”
Chris Gautz: (517) 403-4403, cgautz@crain.com. Twitter: @chrisgautz
