Lower sales in PA and MI drove the overall decline in year-over-year iLottery revenues, while other states with iLottery continue to see growth. We take a look at what’s behind the conflicting trends.
A new report called iLottery Tracker, put together by gaming research firm Eilers & Krejcik Gaming, shows that Americans are spending more money on online lottery in every state where it’s legal – except Pennsylvania and Michigan.
Thirteen states so far have legalized online lottery sales, also known as iLottery. The legal states include GA, IL, KY, MI, NY, NH, NC, ND, PA, RI, DC, VA and CT. Connecticut only recently legalized iLottery and is yet to launch its online platform.
The sales numbers for all states combined show that iLottery gross sales decreased 7% in the first Quarter of 2022 compared to the same period last year. However, Q1 sales were up 6% from the previous quarter.
This doesn’t tell the whole story however, since declining PA and MI totals skew the overall numbers. As the iLottery tracker illustrates, separating MI and PA shows the rest of the states combined enjoying 20% YoY sales growth for online lottery. Meanwhile, MI and PA are seeing negative YoY growth but longterm stabilization in their more mature and competitive iGaming markets.
Pennsylvania third-highest iLottery revenue state
Michigan continues to have higher iLottery gross sales than any other state while Pennsylvania ranks third. The following are estimated gross sales in Q1 2022 for the top four iLottery states:
- Michigan: $450 million
- Virginia: $350 million
- Pennsylvania: $200 million
- Georgia: $100 million
To put it in perspective, MI made more than 4x the next highest state, GA, which brought in less than $100 million. Together, PA and MI made up 50% of iLottery sales in the country.
The COVID boost
Both states enjoyed a huge boost in iLottery revenues following the 2020 COVID shutdowns, when record numbers of consumers turned to the internet to make purchases they’d normally make in stores and federal economic stimulus was distributed. With that impact now tapering off, and society returning to a pre-2020 way of life, iLottery sales have taken a hit.
That said, PA iLottery sales still remain higher than pre-2020 numbers. In 2019, the second year of PA iLottery operations, total sales hovered around $40-50 million each month. Coming down from the 2020 surge, monthly sales seem to have leveled out in the $60-70 million range so far this year. Sales haven’t dipped below $60 million per month in PA since early 2020.
What’s behind the iLottery sales decline in MI and PA?
A reasonable guess might be that these two states, with their high sales numbers, have maxed out their sales potential as it relates to their population size. However, it’s not that simple. PA takes in only the third-highest total iLottery sales, while having a larger population than both MI and VA who make up the first and second ranks, respectively. And those states outsell PA by a significant margin. We saw above that MI makes more than double the annual iLottery sales that PA does. In addition, VA continues to see growth after the COVID sales boost.
The difference between VA and PA is fewer other gambling options in VA. There are no online casino options in VA to compete with iLottery. The only other forms of legal gambling in VA are retail lottery, online sports betting and HHR slot machines (and some retail casinos are on the way). The increasing popularity of iGaming options in PA and MI means more options for consumers in those states, and more competition for their discretionary gambling dollars.
Recent sales drop no surprise to PA Lottery
Recent declines in revenue were not a surprise to the PA Lottery. The Lottery’s Profit Report for the 2020-2021 fiscal year acknowledged the COVID sales boost and projected the decline in YoY sales we’re now seeing. The report’s projections also show a return to positive growth in the 2022-2023 fiscal year, which begins July 1.
The Profit Report considers the two main categories of iLottery games separately (referred to as eScratch and eDraw). eScratch, or online instant games, were projected to see an 11.9% decrease in annual sales from $887 million to $781.09 million. In contrast, online sales of draw game tickets were projected to increase significantly. A smaller piece of the pie, eDraw sales were projected to grow from $21.4 million to $34.5 million, an increase of more than 61%.
Based on the iLottery Tracker’s estimates for the first quarter, eDraw sales will have some ground to make up if they’re going to meet the PA Lottery’s expectations for the year. The Tracker’s estimates for 1Q22 show sales of eDraw games decreased 26% compared to the same period last year.
However, the PA Lottery added a number of draw games to iLottery at the very end of the first quarter. A likely boost to sales from those additions, combined with the positive QoQ growth of 3% suggests eDraw sales might be on the right track.
Online instant game sales paint a similar picture. Q1 sales were down 16% YoY, but up 6% over the previous quarter. Sales for the year could meet the projections if the upswing in sales accelerates.
How do iLottery sales compare to other iGaming in PA?
Other forms of online gaming launched in PA in July of 2019, and the industry has seen massive year-over-year growth since. In the previous five quarters, as iLottery has seen YoY declines, Pennsylvania iGaming (online casinos and poker) has enjoyed double-digit growth.
PA iGaming revenue in March 2022:
- Gross Gaming Revenue (GGR): $142.7 million (27.9% YoY increase)
- Adjusted Gross Revenue (AGR): $118.1 million (20.9% YoY increase)
According to Eilers & Krejcik Gaming, Q1 2022 numbers show iLottery revenue making up about 8% of the online gaming pie, down from 10% a year ago.
The iLottery tracker notes the ongoing fierce marketing battle between iGaming operators competing in the relatively new market. As marketing spending cools off, iLottery could gain back some of its market share in the coming years.
iLottery compared to traditional retail lottery
The report also notes that iLottery makes up about 13-15% of total lottery sales in Pennsylvania, and predicts that number will continue to grow slowly. The PA Lottery has been proactive in modernizing and adding to its online platform since its inception.
As mentioned in the most recent PA Lottery Profit Report, there are plans to add Keno, Derby Cash Horse Racing, Cash 5 with Quick Cash, as well as subscription play and electronic playslips to its already robust online offerings. It will be interesting to see if these additions will expedite the growth of iLottery’s share of overall lottery revenues.
Lead image via Shutterstock.
