The Impact of Online Sports Betting on State Lotteries: Myth or Reality?

Lottery commissions nationwide are preparing for what they anticipate will be a significant hit to their revenue streams: Is the surge in popularity of online sports betting truly the harbinger of demise for all forms of state lotteries? Do these concerns hold merit? Or are games of chance and lotteries fundamentally distinct forms of entertainment? For a detailed analysis, refer to the publication. 

Act or Lose: The Impact of Online Sports Betting on State Lotteries

Massachusetts Lottery Director Mark William Bracken has been at the forefront of advocating for the lottery industry. For the second consecutive year, he has used the traditional March meetings of the largest lottery representatives in the country to raise concerns about maintaining the status quo of the lottery in the face of the increasing popularity of online sports betting. Bracken highlighted a 6.8% decline in lottery sales in Massachusetts from February 2023 to February 2024 and pointed out that the lottery's net income for the year, $777.9 million, was $28.4 million less than the previous year's income for the same period.

But is Bracken's reasoning sound? Is online sports betting really causing a reduction in lottery sales?

A study conducted by the Universities of Alabama and Nevada, available at SSRN, suggests otherwise. Published in December 2023, their study, "The Impact of Sports Betting on Casino and Lottery Gambling," found that every dollar spent on online sports betting is associated with an average increase in lottery revenue of $0.21 to $0.26. This finding holds even when accounting for the peak COVID-19 period from March 2020 to April 2021.

This data challenges the assumption that online sports betting is detrimental to lottery sales, suggesting instead that the two activities may complement each other.

Lotteries - Sales Decline

If the study's findings are correct and online sports gaming is indeed boosting lottery sales, what accounts for the sluggish sales in Massachusetts?

"The Massachusetts Lottery story sounds like an excuse for other problems with their scratch-offs," says Gene Johnson, executive vice president of Victor-Strategies, a gambling consulting firm. "If you look at Ohio, scratch-off sales have increased significantly since sports betting was legalized. Kentucky has also seen an increase in lottery sales due to the adoption of online sports betting, with iLottery experiencing the most growth—something that Massachusetts does not see."

Bracken's argument that online sports betting poses a serious threat to lotteries rests on a simple thesis: consumers won't leave their homes and go to a store to buy a lottery ticket when they can place bets from their phones.

“As we have always said, we are not against sports betting,” Bracken told Mass Live in late March of this year. “But the challenge we've talked about many times is that sports bettors can offer the convenience of playing from a phone. To play the instant lottery, you have to physically get up and go to the store. This makes selling a product much more difficult when there is a more convenient option like mobile gambling, where you can play and receive money from the comfort of your home.”

Bracken's concerns highlight the need for the Massachusetts Lottery to adapt to changing consumer behaviors and consider integrating more convenient, mobile-friendly options to remain competitive in the evolving gambling landscape. 

Lotteries vs. Sports Betting

Bracken's solution, in addition to creating a variety of themed and mostly successful scratch-off tickets, is to continue lobbying state legislatures to legalize online lotteries. Bills aimed at this have been pending in legislatures for more than a decade, though most industry experts believe their passage is inevitable.

Interestingly, the convenience theory assumes a match between sports bettors, lottery players, and gamblers in general, suggesting they are the same people with similar gambling habits. The House budget also mentions a proposal to add iLottery, highlighting a belief that these services target the same demographic hooked on sports betting.

However, this claim is challenged by a study conducted in Italy that compared the gambling motives and emotions experienced by gamblers in three different subgroups: scratch card gamblers, slot machine gamblers, and casino gamblers. The study found that different games seemed to be associated with different motivations and emotions.

Reggie Roman, a project manager at a California software company, buys lottery tickets in stores (iLottery is illegal in California) and places online sports bets, mostly during football season. For him, these activities are unrelated. He visits stores to play the lottery, regardless of his sports bets. The lottery is more of a tradition, offering quiet and relaxing entertainment, while sports betting is linked to adrenaline and the desire to win, representing a more active form of entertainment where success partly depends on one's own decisions.

“I still always buy three tickets because I feel that if I stop playing, I might miss my long-awaited winnings. Call it superstition, but it's a constant,” says Reggie, echoing the thoughts of many longtime lottery players.

In other words, gambling is not as universal an entertainment as lotteries. Gene Johnson agrees with this statement.

“Our own customer research generally shows that these are two very different businesses, even if the demographics are the same,” he explains, noting that “there’s a lot of noise” that complicates obtaining hard data. “The widespread popularity of lotteries ensures that many gamblers are also sports fans, but so far I have not seen any research that shows cannibalization between sports betting and lotteries.”

Johnson, however, acknowledges concerns about different verticals impacting each other’s "gaming costs," especially when sports betting offers higher odds compared to lottery products.

Johnson believes the solution for lotteries is clear: “If state lotteries want to remain competitive, they need to bring their games online so people can play, bet, or scratch on their mobile devices.”

With a finite amount of gaming dollars available, it is understandable why state lotteries are doing everything they can to tilt the playing field in their favor—even if some of their assumptions may not be entirely accurate.