At your convenience: how US lottery couriers could be the next industry disruptors stateside

Estimated read time 16 min read

As lottery courier services in the US gain popularity, are fears of retail cannibalisation justified or is the product simply resonating better with a younger, more tech-savvy generation of lottery players?  

E-commerce is big business in the US, especially among millennials who made 60% of their purchases online in 2019, as detailed in a report published in June 2023 by Spectrum Gaming Group. Whether it’s the convenience of ordering an Uber or a grocery delivery from the comfort of your own home or while out on the move, consumers can also order lottery tickets online from a lottery courier in 16 states, plus Washington DC, across the US.

A Technavio report in September 2023 estimates the US lottery market will grow by $39.4bn from 2022 to 2027. In 2021, total annual spend on lottery tickets reached $98bn, meaning consumers spent more on lottery tickets annually than on cinema tickets, sporting events, concerts, books and video games combined, as reported by the National American Association of State and Provincial Lotteries.

How the lottery courier service works is that a customer orders a lottery ticket for the state they reside in using either an app or website. As soon as the order is received, the courier will buy the ticket from a licensed lottery retailer. Lottery couriers charge a service fee, similar to other delivery businesses, but the actual lottery ticket cost must not be marked up. Next, the courier scans the front and back of the ticket, watermarks it with the customer’s name and adds the scanned copy to the player’s account. Finally, the physical ticket is stored by the courier in a fireproof safe located on their own premises, protected by a burglar alarm system with 24-hour monitoring.

If the player wins $600 or less, funds are immediately transferred. However, if the win is over $600, the ticket will be sent directly by the courier to the customer or can be collected by the customer from the courier’s own location to claim their prize from the state lottery.

The aforementioned Spectrum Gaming Group report on the future of lottery courier services, prepared for lottery courier Jackpocket, states that lottery couriers are growing in popularity by reaching younger demographics and offering a more convenient way of playing draw-based games. It is also advancing the interest of lotteries by supplementing state lottery operating budgets through advertising support.

Lottery courier services in the US date back to the 1980s when entrepreneurs were using new tech to purchase tickets in one state and transport them to players in another state by car in exchange for small fees. However, these early couriers were operating without the know-ledge of the lotteries and were subsequently shut down. Fast forward to 2021 when New Jersey and New York passed legislation requiring lottery couriers to be licensed before offering their services in the two states. Although now, additional jurisdictions permit lottery draw game tickets ordered through a courier without requiring a licence, such as Arizona, Indiana, Montana, Ohio and Washington DC.

In the US, there is only a handful of lottery couriers readily available, namely Lotto.com, Jackpot.com, Jackpocket, Mido Lotto and The Lotter. Currently 11 out of 46 lotteries in the US have their own ilottery platform. Lotto.com CEO Thomas Metzger believes this is due to many states requiring legislative approval to launch their own internet lottery platform. “Also, quite frankly, I think many lotteries don’t have the risk appetite,” he adds. This involves carrying out KYC checks to make sure customers have been age-verified as well as using geolocation to prevent cross-border activity. “Our geolocation, for example, is so precise that when you cross a bridge from New Jersey to New York, the New Jersey site stops working halfway across the bridge,” he says.

In addition to the KYC and geolocation requirements, lottery couriers have a number of responsible gambling measures in place such as the availability of self-exclusion tools as well as daily deposit and spend limits. For instance, Lotto.com’s default limits are $250 daily, $500 weekly and $2,000 monthly.

Another reason holding state lotteries back from running their own platforms is restrictions by statute or legislative budgets on how much they can spend on marketing. As Metzger points out, the majority of marketing by state lotteries is at retail or on physical billboards mainly promoting the jackpots. This creates what is known as ‘jackpot fatigue’ in the industry, with some players only prepared to wait in line at the shop for a top prize of a certain amount, be it $500m or even $1bn. For these “jackpot chasers”, as the CEO calls them, if they don’t win, they won’t return to the retail outlet until the jackpot hits that figure again. He sees this as a prime opportunity to “digitally acquire these customers who have very strong intent”.

Despite jackpot chasers being unlikely to return for a second ticket unless the jackpot is big enough to justify queuing at retail, Lotto.com has seen about 80% of its players come back for a second order. Metzger explains: “The value proposition is that we really like to think of ourselves as a marketing arm for our state lottery partners. We’re very comfortable spending those high customer acquisition costs because we know that we’re going to have a positive ROI.”

Keep it in the family

Alongside Lotto.com, as the only couriers licensed in both New Jersey and New York, is Jackpocket, which has been offering lottery courier services since 2013. It is self-proclaimed to be the first licensed third-party courier app in the US. Celebrating its 10th anniversary this year, the firm has over five million registered users, is live in 17 US jurisdictions, has fulfilled over $1bn in total ticket orders and seen customers win over $360m in lottery prizes as of October 2023.

Jackpocket’s CEO Peter Sullivan reflects on how the idea first arose during some quality family time. “My grandmother was known as the ‘Lotto Queen’ in her neighbourhood of Greenpoint, Brooklyn. She went to all the bingo halls, played scratchers and always played different numbers. That love for the lottery got distilled down to my father and his brothers and sisters.

“My dad, who worked for the New York City Transit Authority, carried on the family tradition and bought a Pick 3 and Pick 4 ticket every day. Watching them made me realise that there was a need to make the lottery more convenient. Then, in 2012, I saw my dad with his first smartphone and thought ‘Why can’t we order a lottery ticket on your phone?’”

Jackpocket has seen significant growth in states recently added to the app such as West Virginia, with an increase in orders of over 160%, and a more than 2,700% surge in usage by the end of the quarter following its launch in Arizona in early January, as set out in its Q1 2023 report.

It has signed some significant partnerships over the years, the latest being this month with Gannett and the USA Today network as the lottery courier’s official media partner. In the summer, Jackpocket announced a multi-year partnership with the Boston Red Sox following its recent launch in Massachusetts, where it features on in-game signage, scoreboard LED branding and a pregame commercial as well as having a presence on Red Sox social media channels.

Through its media agreements plus 10 professional sports partnerships across the NFL, MLB, NBA and NHL, Jackpocket is able to reach a wider audience as well as raise more state lottery funds to help local communities.

Pique your interest   

San Francisco-based lottery ticket app and platform Jackpot.com is one of the newest to join the lottery courier space after expanding into the US just last year following a $35m Series A funding round. The startup has an impressive roster of backers including the Kraft Group (owner of the New England Patriots), NBA stars James Harden and Joel Embiid, Draft-Kings CEO Jason Robins and Fanatics boss Michael Rubin.

Jackpot.com CEO Akshay Khanna tells EGR that people often ask him why lottery couriers exist and what the benefits are compared to the status quo. His response is: “There’s the immediate aspect that you don’t have to leave your home and that underpinning factor drives all of e-commerce.” Other notable reasons are not having to transact with cash and the number of unclaimed prizes in the US due to physical lottery tickets being lost.

The former StubHub general manager, who swapped the event tickets marketplace to run Jackpot.com, reflects on the many similarities between the two industries. “StubHub’s premise was very similar to couriers – it was convenience, safety and responsibility, and that those should go together,” he explains.

Around 20 years ago in the US, if you wanted to buy a ticket to a live event you had two options: visit the box office or buy it from a scalper/tout. Khanna recalls how some customers were afraid of e-commerce in the early days due to trust issues over using credit cards or purchasing online. The 36-year-old has many friends in their 30s and 40s who have never brought lottery tickets due to the current purchasing processes still being somewhat manual and analogue. But now, that trend has completely transformed with the majority of live event tickets being purchased through a marketplace, and Khanna hopes that parallel will extend to lottery as couriers become more prevalent.

Lotto.com’s Metzger attributes the growth of the business to “reaching players where they are”. This is especially true of the younger demographic who are used to convenience. Among the younger staff at Lotto.com, the CEO says he’s “amazed” at how they are completely agnostic to the fees of Uber Eats and willing to pay $7-$8 to have a pizza delivered. “We really view ourselves as similar to Uber Eats in the sense that we’re not selling a lottery ticket online, we’re really just delivering it,” he details. “We are the last mile. We’re delivering it from the retailer to that player and, except for putting it on a bicycle or in a car, we’re delivering a scanned version of the ticket, which is uploaded to the account and available forever.”

As well as the convenience, there is also the security element as a player’s lottery ticket cannot be lost. It is scanned and stored on a customer’s account while the original is kept in a fireproof vault at the lottery courier’s location. It also means there is no risk of an ownership issue arising over who the winnings belong to if, for instance, a family member or friend took the money into a retailer originally to buy the ticket.

Jackpocket has also seen an increase in interest among the younger demographic, in particular for its unique features such as joining lottery pools with friends in the same state, setting up automatic orders and quick ordering via Venmo or Apple Pay. Over 65% of Jackpocket’s users are aged 45 and under compared with the average age of a traditional lottery player, which stands between 45 and 54.

The New York City-headquartered courier has some quite ambitious plans to have its app live in about half of the 46 states that offer lottery by the end of 2023. Also in the pipeline is the debut of a Jackpocket-branded online casino product in New Jersey, through a skin partnership with Caesars Interactive Gaming New Jersey.

Sullivan shares his thoughts on the opportunities available beyond lottery for Jackpocket. “Our vision is to build a large mall of interactive customer experiences where players can win real-money prizes, using our lottery product as the anchor tenant or incentive to ‘drive to the mall’ in the first place. From there, players will be able to visit our other ‘stores’ – sweeps, slots, bingo, social games, sports lottery and other experiences – that will create new and exciting ways for users to engage with us.”

Taking control

In July 2023, Lotto.com surpassed the one million customer milestone across six states and now boasts more than 1.3 million customers. The company, which started building its own bespoke lottery courier service platform in late 2019, established its HQ in Jersey City at the height of the pandemic on 1 June 2020. Having opened the office with just four employees, the firm has seen hyper growth over the past three years and its current headcount exceeds 150.

Lotto.com first went live in New Jersey in June 2021 where it formerly worked with retail partner QuickCheck. However, after expanding into other states, Lotto.com decided to go in a different direction to control its entire ecosystem. One of the top priorities for the lottery courier is security when choosing a new location for its offices/retail venues. Metzger jokes that he’s “probably [US security firm] ADT’s favourite customer” after spending tens of thousands of dollars per location on surveillance equipment such as cameras, high security locks and fireproof doors. “We really like making sure that our production facilities are 100% secure,” he remarks.

As part of controlling its ecosystem, Lotto.com has opened a chain of retail stores in eight locations across the country. Metzger describes Players Cafe as “an Apple Store for lottery” with a clean and inviting atmosphere providing customers with a place to scratch tickets, hang out and grab a drink. “We really try to create an environment that encourages new players to be introduced to the lottery. And then, of course, hopefully become both bricks-and-mortar and online customers,” he says.

Having worked in the lottery industry for more than 20 years for the likes of Camelot and Scientific Games, the CEO is keen to emphasise that Lotto.com’s mission is not to cannibalise retail. He understands the importance of the retail channel to state lotteries and openly shares that he has no interest in converting a land-based customer to the online platform. “The customer who enjoys going to the store in the morning and purchasing a 50-cent Pick 3 ticket with a cup of coffee, I’m not interested in converting that customer. That customer is very happy at retail, and I don’t want to detract from retail at all.

“Secondly, just from an economic perspective, I don’t think they would be high value customers for us. I think they would be sensitive to fees. We’re looking to bring people to the lottery who can afford to play, and I’m not interested in converting those or encouraging more spend from those who could conceivably play above their means.”

Jackpot.com CEO Khanna is quick to assert that his company has very amicable relationships with the state lotteries where it operates and that most lottery commissions welcome couriers bringing in a younger demographic that perhaps would never have purchased lottery tickets before. “Rather than cannibalisation, we think it’s incrementality,” he says.

Lotto.com CEO Thomas Metzger

Lotto.com’s slogan is ‘We ask for permission, not forgiveness’ and by that Metzger means his company would not enter a state unless it was welcomed with open arms by the state lottery. By way of support, the state lotteries receive the same return to good causes from Lotto.com as they would from a giant retailer selling millions of tickets. “Most of our sales currently are from draw games, and draw games only have a 50% payout. So, for every $2 Powerball we sell, $1 is going to good causes. That’s something we can feel really good about,” he shares.

There’s also the question around unlicensed lottery couriers, which Jackpot.com’s CEO is well aware of. While his business has always been transparent and open with state lotteries, he knows this isn’t always the case. Khanna explains: “We are always willing to work with state legislators and lottery commissions to make sure that we’re following the rules. We can’t police what other operators in the space are doing. But certainly, if I had it my way, we would make sure that only the best actors were in this space because a bad customer experience reflects on an entire industry.”

Looking at the technical challenges for a lottery courier, Lotto.com’s boss points out that compared with Europe, the US lottery industry is “in its infancy” and about 15-20 years behind in terms of digitisation. The Lotto.com platform was built user-first without any barriers or friction for first-time customers signing up. Metzger details why the firm never launched an app: “There still isn’t 100% trust in lottery and gaming the way there might be, for example, in the UK. So, we wanted to create a platform where you didn’t have to download an app or pre-fund a wallet. We felt that was very gaming-centric, and we feel lottery is much closer to fast-moving consumer goods than a gaming product. That’s why lottery is sold at the cash register at retail,” he explains.

Scratch my back

From a product perspective, Lotto.com’s USP is its digital scratch ticket offering, live in Texas and Colorado and coming to a third state soon. “The US is a little bit scratcher crazy in the sense that it has the largest percentage of scratch ticket sales of any country. We have over two-thirds of our lottery retail market here in the US from scratch tickets,” says the former Camelot exec.

Scratch tickets have a higher price point, and in states such as Texas and Florida you can buy one for up to $100. “We realised that if we wanted to really grow the market for couriers, we needed to find a way to offer digital scratch tickets,” adds Metzger. Lotto.com uses its own proprietary technology to scan a scratch ticket twice, once unscratched, followed by a proprietary machine that reveals the ticket and overlays a digital covering. Customers receive a notification that tickets have been uploaded to their account and can scratch the ticket using a touchscreen or mouse.

Being a lottery courier means you have the “worst of both worlds”, jokes the Lotto.com CEO as he describes the technical setup as fairly complicated, comprising both analogue and digital technology. With ESG in mind,

Lotto.com decided to move away from paper play slips to digital QR codes for the processing of draw games, saving more than five million paper slips since its implementation in 2022.

Having developed its own proprietary tech and citing the challenges around managing the hardware and software, Metzger believes this is why there aren’t more rival lottery couriers. “When they see what we have to deal with, I think most digital betting companies say, ‘No thanks, that sounds like a big headache’. Quite frankly, it takes years of development. Fortunately, we were young and nimble, and able to develop it quickly. But it’s not an easy life,” he warns.

 

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