The Lottery Sales Metric Trap

State lotteries have long used sales figures to report out data to regulators, citizens, and industry peers. The use of this metric ties back to our origins - deploying a distributed network of licensed retailers who are paid on a top-line sales commission. Top line sales had thus been recorded, calculated for commissions, reported out in an accounting standard, and thus enshrined as a practice among all lotteries going forward.

With the sale of classic lotto-style games drawn very infrequently this practice was reasonably justified. But as the industry evolved and moved into games that have a higher rate of turnover, such as scratch tickets and draw games that are drawn every few minutes, this sales metric became a further departure from reality.

"Turnover" essentially means that players are starting with some dollar amount out-of-pocket to play and then re-betting with subsequent winnings in a cycle that inflates sales figures by multiples. Imagine a player that purchases a $20 ticket, who wins $100 while scratching in the parking lot, returns to claim winnings and buys five more tickets of $20 each and does not win. In that example, we've logged $120 in sales (i.e., turnover) which is a 6X exaggeration of the player's actual spend.

However, $20 is the number that should be fully in focus which is otherwise called "gross gaming revenue" or GGR. A switch to GGR places proper perspective on actual out-of-wallet spend among players and provides the necessary adjustment factor for prize payout rates - which have a direct impact on inflating turnover (the higher a prize payout rate, the higher the rate of turnover).

As a specific example, consider the Georgia Lottery's financial information from fiscal year 2023:

The data above illustrates that sales information suggests citizens in Georgia expend nearly $600 per year on lottery tickets. When in reality, given that turnover is an inherent element of real-money gaming, we know the actual expense is much closer to $200 per year - a distortion of nearly 3X.

The implications of promoting our high-flying "sales" metrics can be quite profound. Legislators considering gaming expansion may act more restrictively because they see eye-popping spend figures per citizen that are massively inflated. This may overly limit the expansion of gaming out of misconstrued fears.

As another implication, responsible gaming frameworks can become too restrictive if they harness a sales-based approach. It is more accurate to consider a loss-limit approach, which is effectively the GGR metric on a per player basis. This is especially important with iLottery where high payout rates can create turnover multiples of 6X to 10X.

As an industry, our games have evolved significantly in the past few decades and so should our accounting practices. It is time to evolve and adopt a GGR-focused model across all lines of the lottery business. It will lead to improved insights and decisioning for lotteries themselves and for the external stakeholders that must craft supporting policy.