Pumping Up Lottery Payments

More states are mulling the sale of lottery tickets through fuel pumps. Is this niche market a good bet for new payment-card volume?

A mere handful of the 43 states with state-sponsored lotteries permit game sales from non-traditional venues such as fuel pumps. Usually, a person looking for a little luck has to buy tickets at a store’s checkout counter or from specialized vending machines.

That could be about to change, however. A number of states reportedly are taking a look at fuel-pump ticket sales, according to a leading vendor in the niche.

First in line is Florida, where two bills to permit consumers to buy lottery tickets from point-of-sale terminals such as fuel pumps by using credit and debit cards are pending in the state legislature.

An expansion of sales outlets for state lottery tickets could be good news for the payments industry, because most such sales would be on payment cards. That means more transaction revenues for merchant acquirers, specialty processors, and card issuers.

But winnings for the states and their payments partners are far from assured. The new focus on fuel-ticket sales comes just a few months after Minnesota, an early adopter of non-traditional lottery-ticket sales, abandoned its effort to offer Minnesota Lottery sales from fuel pumps, ATMs, and online.

An overwhelming majority in the Minnesota Legislature voted against such sales last May because lottery officials apparently had expanded into new venues in 2012 without express approval from lawmakers.

Meanwhile, two of the three remaining states that permit fuel-pump lottery sales—North Carolina, Missouri, and California—are reporting minuscule sales from so-called play-at-the-pump. And some critics say fuel-pump and ATM sales with credit and debit cards would make it too easy for some consumers to part with their money and incur gambling debts.

Weak Sales

So why bother? For lottery commissions and the legislatures that oversee them, an expansion of sales outlets could help offset soft growth or outright declines in sales in recent years as competition for the gambling dollar has increased from new casinos, riverboats, and Native American facilities. Internet gambling, meanwhile, is having a tough time getting established in the U.S.

According to the North American Association of State and Provincial Lotteries, sales from the 43 lottery states and the District of Columbia’s lottery totaled $70.2 billion in 2014, up only 1.8% from $68.9 billion in 2013.

Sales declined in 19 states, led by Texas, where revenues slipped by $682.3 million in 2014, or 16%, to $3.69 billion, figures from the Concord, Ohio-based lottery association show.

After paying winnings, administrative expenses, and commissions to sales agents, most lotteries transfer their net revenues to funds for designated recipients, typically public education. The Florida Legislature, for example, expects the Florida Lottery to generate at least $1.2 billion a year for its Educational Enhancement Trust Fund. In fiscal 2013-14, the latest period for which figures are available, the Florida Lottery transferred $1.5 billion to the fund, an increase of 5% over the previous fiscal year.

Still, adjusted for inflation, the lottery’s financial performance hasn’t fully recovered from the recession that began in 2007.

“Revenues have sort of been, I wouldn’t say plummeting, but they’re down,” says state Rep. Holly Raschein, R-Key Largo. Raschein is sponsoring a bill in the Florida House of Representatives, HB 415, to permit sales of lottery sales with debit and credit cards from POS terminals, particularly fuel pumps.

The Experience So Far

In the Tar Heel State, fuel-pump sales of lottery games began as a pilot a year ago. Currently, 149 locations, out of 5,000 gas stations/convenience stores in the state, sell three games at pumps, says a spokesperson for the North Carolina Education Lottery.

Fuel-pump sales were running at about $1,500 per day in late 2015 compared with total NCEL average daily sales of $5.4 million. Once all the 2015 numbers are counted, the NCEL expects fuel-pump sales to total about $350,000, according to the spokesperson.

The Missouri Lottery began play-at-the pump sales of the national games Powerball and Mega Millions by PIN-based debit cards in February 2014. Sales in 2015 through Dec. 5 were $166,494, or 0.02% of the lottery’s total sales, a spokesperson reports by email.

The California State Lottery Commission last August expanded a year-long test of fuel-pump sales from a single location to 87 sites in the Los Angeles and Sacramento areas, according to a national analysis by Florida Legislature researchers. Digital Transactions was unable to obtain sales results for the test.

Before Minnesota’s lawmakers pulled the plug, play-at-the-pump was available by debit card at 53 gas stations with a total of 452 pump screens, and tickets also could be bought at 131 ATMs, says a January 2015 report from the Florida Legislature’s Office of Program Policy Analysis and Government Accountability. Total sales in fiscal 2013-14 were $20,000, the report says.

The small change generated by play-at-the-pump so far hasn’t dissuaded its backers. They say the option can make players out of people who don’t go inside the convenience store, where they could easily buy tickets, when they buy gas.

“We believe that that $350,000 in sales—it wouldn’t have been there without play-at-the-pump,” says the North Carolina Education Lottery spokesperson. “It’s a convenience for someone who’s in a hurry, and it’s an attraction to someone who wasn’t otherwise thinking about the lottery.”

Florida lawmaker Raschein says her bill “is meant to touch the occasional player. Everybody’s got to buy gas. It’s pro-education; it’s pro-consumer.”

The House bill has some minor differences with the Senate version, which Raschein expects will be resolved easily. Currently, Florida law prohibits credit or debit card sales for the lottery at regular POS terminals unless the tickets are part of a purchase of at least $20 for other goods and services. The House and Senate bills would ban terminals from revealing winning numbers or dispensing winnings, and sales would be limited to persons age 18 and older.

Raschein also says her aim is not to affect gambling revenues that currently go to the Seminole tribe of Native Americans under a 2010 compact with the Legislature.

The Florida Legislature’s Office of Economic and Demographic Research determined that the bills, if approved, would have a “positive, indeterminate” financial impact, depending how lottery officials implement the measure, according to a spokesperson for Raschein. But the maximum impact could be as high as $300 million over the next four years if fuel-pump sales are rolled out statewide.

‘Really Excited’

Missouri, which also is testing lottery sales at about 100 ATMs, North Carolina, and California all use Atlanta-based Linq3 as their vendor for play-at-the-pump. Linq3’s program requires no hardware upgrades or new printers or screens at fuel pumps, says Daniel Cage, chief executive of the 6-year-old company. Instead, Linq3 provides a software-based service that integrates with the retailer’s point-of-sale system.

Cage echoes Raschein’s view that play-at-the-pump is meant to attract consumers who otherwise wouldn’t be buying lottery tickets. He cites a statistic from NACS, formerly the National Association of Convenience Stores, claiming that 73% of c-store customers pay for gas at the pump. At least half never go inside the store (“Ticket Sales Get Pumped,” September, 2013).

“We’re trying to connect with them,” Cage says, adding that offering play-at-the-pump has a spin-off effect of spurring more lottery sales inside c-stores.

It may have taken some time, but more states are beginning to get pumped up about selling lottery tickets at fueling locations, according to Cage. He says his company could do deals with up to six new states this year. He declined to identify them.

“We’re really excited about the line-up of states we have for 2016,” Cage says. Linq3 also has a pending deal with VeriFone Systems Inc., a major provider of payments technology for fuel pumps, which could expand its reach, according to Cage.

Under Linq3’s service, the consumer typically is charged $1, and the lottery pays a commission. Part of that, 3% of the sale, goes to the retailer. Only so-called draw games such as the national Powerball and Mega Millions games, along with one potentially high-payout in-state game such as North Carolina’s Carolina Cash or California’s SuperLotto Plus game, are offered, not instant or scratch games.

Just like many fuel pumps that have prompts asking if the customer wants to buy a car wash, play-at-the-pump generates a prompt for a lottery purchase. If the answer is yes, the customer enters a purchase amount, subject to state law, and can charge it to permitted cards. In California, for example, fuel-pump players are limited to $20 per purchase or $50 per week. The player’s age can be verified by scanning a driver’s license.

The pump does not dispense a conventional ticket. Instead, the player gets a paper receipt, or numbers can be divulged electronically, such as by text message to the customer’s mobile phone.

In North Carolina, where only debit cards are permitted for fuel-pump purchases, winnings of under $599 are deposited into the customer’s debit card account, the NCEL spokesperson says. Winnings above that amount are redeemed by conventional methods.

Modernizing Distribution

Given that many state lotteries have now been around for decades, some observers believe it will be hard to convert those who don’t already buy tickets into players. But others say technology that can make ticket sales more convenient will expand the player pool.

“The limitation for this is the gas-pump technology,” the North Carolina spokesperson says. “You have to have the newest type of gas pump for this type of service to work.” He adds that bringing in VeriFone as a vendor “will give us a chance to grow this program.”

Cage of Linq3, quite naturally, believes that technology can help lotteries reach customers where they are.

“We feel if we do our job … we’ll allow the lottery to modernize their distribution,” he says. “That’s what our mission is.”

 

States Take a Cool Approach to Online Gambling

For proponents of Internet gambling, coming up with three cherries in statehouses is proving difficult.

Bills that would legalize online gambling were pending in seven states as of last August—California, Illinois, Massachusetts, Mississippi, New York, Pennsylvania, and Washington. Not one of them passed, says a spokesperson for the National Conference of State Legislatures.

Had the bills passed, those states would have joined Delaware, Nevada, and New Jersey, along with the U.S. Virgin Islands, in permitting some form of Internet casino gambling.

The bills came in the wake of actions by federal authorities that removed some longstanding obstacles to states being able to offer online wagering to people within a state, according to Prof. I. Nelson Rose of Whittier Law School in Costa Mesa, Calif., a noted expert on gambling law.

“There’s no federal law now preventing a state from having intra-state Internet gambling,” says Rose. “The state lotteries can do just about anything intra-state.”

Nevada, home of gambling Mecca Las Vegas, not surprisingly passed the first online-gambling law more than 10 years ago, but implementation was held up until federal issues were resolved. Currently, wagering is limited to poker.

Still off limits, however, is allowing people outside the state to bet online through casinos or other venues in a state that permits Internet wagering. That greatly reduces the pool of potential players.

“The big problem is you have to be in the state,” says Rose.

Apart from logistics, demographics may be a bigger problem for backers of online gambling, at least if the wagering attempts to mimic what goes on in Las Vegas.

“Millennials are not really interested in traditional casino games,” says Rose.

Online sports betting generally is a no-no, too. But adding to Internet betting’s woes last autumn was a scandal involving two big firms in the unregulated world of online fantasy sports, where wagering is common.