4024 KB - California Lottery

Message from the Lottery Commission
Phil Tagami, Chair Person
Gregory Ahern,
Commission Member
Nathaniel Kirtman III,
Commission Member
June 27, 2013
John Smolin, Vice-Chair
Connie M. Perez,
Commission Member
The Lottery Commission is pleased to celebrate the 28th year of the California State
Lottery being in business. This year also marks the completion of the Lottery’s 2010-2013
Business Plan. During the past three years, the Lottery has done much to be proud of –
most notably, significantly increasing sales and providing record levels of financial
support to public education in California. Some of our major highlights in the past three
years include:

Generating $4.37 billion in total sales in FY 2011-12, an increase of 27% over FY
2010-11

Transferring $1.32 billion to public education in FY 2011-12, an all-time record for
the Lottery

Reducing the Lottery’s operating expense as a proportion of gross revenue from
4.2% in FY 2010-11 to 3.2% in FY 2011-12, a reduction of 24%

Conducting the first comprehensive rewrite of the Lottery’s regulations since the
Lottery was initiated, including a Code of Conduct for the Commission and Senior
Management, thereby strengthening our internal oversight and governance
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
Enhancing our commitment to Corporate Social Responsibility and being a leader
in promoting Responsible Gaming in California, as evidence by being one of only
two states in the country to achieve a Level Three Certification from the World
Lottery Association
The Lottery is committed to ensuring that it operates with the utmost integrity, security,
honesty and fairness. The Strategic Direction document for FY 2013-14 through FY
2015-16 that the Lottery’s Senior Management Team has developed builds upon the
strong foundation that the Lottery has put in place in its nearly three decades of
operation. Accordingly, our focus for the next few years includes four major themes.
These are:

Products – introducing new and sustaining products following in the footsteps of
the recently launched Powerball game. The next three years will see the
introduction of a $20 Scratchers ticket along with efforts to reinvigorate existing
Draw Games, such as MEGA Millions and Super Lotto Plus. In addition,
strategies to expand our current Hot Spot game will be developed since this game
has growth potential.

Players – the Lottery has a dedicated core group of players which is slowly
shrinking, yet still playing at a strong level. The Lottery needs to continue to
market to its core and infrequent players, but it must also re-attract lapsed players
and generate more new players in order to continue to be successful.

Retailers – the California Lottery still has significantly lower levels of retailer
penetration when compared to other lotteries in the nation. It would need at least
4,000 new retailers added to our current base of 21,500 retailers to reach the
average level of retailer penetration in other states.

Infrastructure – the Lottery has not invested sufficient resources in the past
decade in its people, processes and technology to keep pace with trends in the
lottery Industry. The Lottery needs to continue to grow and train critical staff as it
grows its retailer base, as well as modernize its business processes and expand
its use of enabling technologies.
This document provides our General Vision for the next three years to build a stronger
and more competitive Lottery that achieves $6 billion in annual total sales and
provides more than $1.5 billion in funding each year for California’s public schools.
The Lottery Commission would like to thank our Director, the Lottery’s Senior
Management Team, and Lottery staff for the hard work that went into developing this
plan for the Lottery’s future.
We are excited about what the Lottery has achieved in recent years and look forward
to the continued progress, growth and success that underscore the Strategic Direction
document for FY 2013-14 through FY 2015-16.
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Section 1 – Introduction and Background
The landscape for the upcoming three-year period for the California State Lottery is vastly
different than it was prior to the 2010-2013 Plan. In 2010, the Lottery was just beginning
to see a turnaround with very modest sales growth after a few years of either declining or
flat sales. The removal of prize payout restrictions had just occurred with the Lottery
needing to deliver higher profits to education to demonstrate its ability to effectively
implement Assembly Bill 142 (AB 142).
The Lottery just set all-time record highs for both sales and profits in FY 2011-12. With a
solid trajectory of sales growth from the various initiatives in the 2010-2013 Plan, the
Lottery has the opportunity to build on this success to deliver even higher levels of
funding for California public schools over the next three years.
This Strategic Direction document provides a general vision and outline for FY 2013-14
through FY 2015-16. It will set the major goals and delineate their associated tactics to
be employed over the next three years. And, the resulting financial objective to be
accomplished by the end of this period will be defined. However, the specific details such
as project timelines and yearly financial targets by individual product will be laid out in the
Annual Business Plan that the Lottery submits to the California State Lottery Commission
in the Spring of each year.
After this brief introduction, the rest of this section outlines the strategies and tactics
implemented from the 2010-2013 Strategic Plan and their results. The lessons learned
from these past initiatives have helped the Lottery craft its directions for the next three
years.
In Section 2, the Lottery business will be reviewed including industry trends, sales trends
and issues related to our products and to the retailers selling those games. This situation
analysis provides another key element to developing the Strategic Direction for FY 201314 through FY 2015-16.
In addition, the Strategic Planning process included a two-day public meeting of the
California State Lottery Commission. During those proceedings, lottery industry veterans
from other jurisdictions and key vendors were invited to present their insights into the
critical elements for moving the lottery business here in California, as well as to answer
questions from our Commissioners. On the second day, Lottery staff and the
Commissioners exchanged thoughts in an open forum. After these discussions, Lottery
Senior Staff held subsequent meetings to create and formalize the strategic goals and
key initiatives to be undertaken during the next three years.
The results of the internal sessions outline the key directions and major efforts envisioned
over the next three years. These are detailed in Section 3.
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An overview of the Lottery’s Strategic Direction approach for FY 2013-14 through FY
2015-16 was presented to the Commission on April 25, 2013 along with the first fiscal
year’s Business Plan.
2010-2013 Strategic Plan
The Plan guiding those years focused the Lottery on several core business areas that
tended to concentrate on industry proven strategies and well-researched tactics. In
addition, with financial constraints and limited staff resources, this Plan had an emphasis
on efficiency and programs that would deliver a maximum return. Finally, to ensure that
the initiatives would be implemented effectively, a more disciplined approach to Project
Management was also initiated during this three-year period.
The initiatives implemented during these three years were generally very successful in
making in-roads against one or more of the Strategic Imperatives outlined in the Plan.
Some high level examples include:

Scratchers sales saw tremendous growth going from $1.66 billion in FY 2009-10 to
about $3 billion in FY 2012-13. Through the successful implementation of higher
prize payouts along with other product strategies, marketing initiatives and retail
improvements, Scratchers began to realize their “true potential”.

Draw Games – particularly the Jackpot Games – were turned around. The
double-digit declines in Super Lotto Plus sales were arrested, sales of MEGA
Millions increased as the result of changes in marketing strategies, and the
introduction of Powerball in California generated an enthusiastic response from
our players. Hot Spot saw a historical decline reversed with sales increasing from
product improvements.

Sales force resources were used to focus on activities that would most impact
revenue, such as merchandising and ensuring the proper mix of Scratchers games
were displayed at retail. In addition, these resources were concentrated on
servicing accounts that offered the most productivity.

A Performance Management culture at the Lottery has begun to be fostered. With
the advent of the Lottery’s Business Intelligence and Business Analytics system
(BIBA) and its deployment to field staff, sales goals and Key Performance
Indicators were used to help drive the business. The use of more rigorous Project
Management enabled the Lottery to prioritize initiatives that helped it achieve
strategic goals and provide a positive return on investment.

Completion of the first comprehensive review, reorganization and update of the
Lottery’s Regulations since the initiative creating the Lottery was adopted in 1984,
including a Code of Conduct for the Commission and Senior Management.

A complete Lottery Operations Manual was prepared to document and revise, as
necessary, the Lottery’s operating policies and procedures for all major
responsibilities and functions of the Lottery.
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Corporate Social Responsibility
Although many of Corporate Social Responsibility practices had been in place in prior
years, the Lottery sought to formalize and strengthen its policies and commitment to
being a good corporate citizen as part of the strategic initiatives for 2010-2013.
Corporate Social Responsibility means being vigilant in protecting our consumers,
minimizing the company’s impact on the environment, helping local businesses and
communities in California, and being a leader in promoting Responsible Gaming to the
citizens of the state.
As the key initiative in this area for 2010-2013, the Lottery sought to become a national
leader in its commitment to Responsible Gaming by seeking
certification by the World Lottery Association (WLA). After the
Lottery conducted a self-assessment and submitted an extensive
application, an independent panel reviewed this application to
determine if the California State Lottery met certain standards in
its Responsible Gaming programs.
In August 2011, the Lottery received a Level Three Certification
from the WLA. This prestigious designation is given to lottery
organizations that have committed to making Responsible
Gaming an integral part of their daily operation by allocating
sufficient resources to support a number of specific programs
involving employees,
consumers, retailers and other
stakeholders. In the United States, there is no jurisdiction with a
certification higher than California and just one other lottery –
Kentucky - having a Level Three designation.
As part of its Responsible Gaming initiatives, the Lottery increased participation and
support of Problem Gambling Week, continued to support the efforts of the Office of
Problem Gambling, provided Public Service Announcements in six languages to promote
the 1-800-GAMBLER Hotline and instituted a monthly limit to the number of tickets that
players could submit into its 2nd Chance drawing programs called Scratchers Replay and
Fantasy 5 Bonus Bucks.
In terms of other Corporate Social Responsibility efforts over
the past three years, the Lottery has increased efforts to
ensure players are protected from any fraudulent efforts by
dishonest people. There are now more than 16,000 devices
in Lottery retailers that gives players the opportunity to verify
their own winning tickets. Our Security and Law Enforcement
Division has instituted a Retailer Code of Conduct and
conducts investigations to ensure that prize money is
awarded to the rightful winner. The Lottery has increased
attention to assure age verification is required and utilized for
all Lottery programs, including games played only for
entertainment on our website.
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The Lottery has enhanced communications with many stakeholders like retailers and
trade associations, as well as with lawmakers and peace officers. We have completed
surveys with retailers and Lottery employees to understand how we are doing as an
organization, what areas we can improve upon and how we could better communicate.
With an eye to the environment, the Lottery started the Scratchers Replay Program to
encourage players to register their non-winning tickets and recycle them rather than
throw them away. In addition, programs were put in place aimed at aggressive recycling
at Lottery offices and for decreasing its use of water and electricity, as well as reducing
CO2 emissions.
Jackpot Games
From the 2010-2013 Strategic Plan, the situation analysis showed how combined sales
from MEGA Millions and SuperLotto Plus in 2009 were lower than sales from just
SuperLotto Plus in 2004.
Like most
jurisdictions, California’s in-state lotto game
was suffering from competition with the multistate game. However, the SuperLotto Plus
game in California contributed a greater share
of total sales than any other in-state lotto
game in the nation, so making an incorrect
change to the product could risk a significant
amount of ticket sales.
The key elements in the Strategic Plan were to
determine whether to add Powerball to the
product portfolio and develop the best options
for changes to our in-state SuperLotto Plus game.
The two multi-state games, MEGA Millions and Powerball began cross-selling each
other’s game in January, 2010. After a few months of sales data from the other states,
plus research among Californians, an analysis showed that the potential net gain from
joining Powerball at that time would not be too large given the significant marketing costs
to launch a new game and the lack of a strong and unique brand image for MEGA
Millions. Instead, the Lottery invested
marketing dollars to strengthen the
MEGA
Millions
brand
and
help
differentiate it from SuperLotto Plus. That
strategy proved to be beneficial as MEGA
Millions sales grew by 20% in California,
while the combined sales of both multistate games in the other MEGA Millions
jurisdictions increased by just 8% after
one-year of the cross-sell effort.
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In 2011, the organization in charge of Powerball (MUSL) began testing a $2 version of
the game, and the game change was instituted in January, 2012. Research conducted in
California revealed that this $2 version would likely become a significant contributor to
sales and profits. This game would be differentiated from the other Jackpot Game
offerings in the state; and by this time, the MEGA Millions
brand had been strengthened so it could better withstand
cannibalization from a new game. The Powerball game
was introduced in California on April 8, 2013 and has
witnessed tremendous acceptance by Californians as
attested by its significant early sales.
In the early years of the prior three-year Plan, various game concepts to modify
SuperLotto Plus were developed and then tested with players. None of these options
proved to be an overwhelming success in terms of consumer response. Since this game
was still producing over $400 million per year and sales
were declining at a small rate, the Lottery did not make a
major change to the product. It was determined to be
risky to make a change and potentially deteriorate the
game even further. Instead, promotional efforts were
planned for the game. An additional 2nd Chance program
patterned after the successful Scratchers and Fantasy 5
programs is in development and will be launched early in
FY 2013-14.
With the introduction of Powerball, SuperLotto Plus sales are likely to fall further. As
such, this issue will need to be tackled as part of the new Strategic Direction plan. In
addition, MEGA Millions sales are expected to decline. The Lottery is working with the
other States in the MEGA Millions Consortium to identify opportunities to reinvigorate the
MEGA Millions product by making changes in the game before the end of 2013.
Other Draw Games
While this category of products includes Hot Spot, Daily 3, Daily 4, Daily Derby and
Fantasy 5, the initiatives in this area focused primarily on Hot Spot. Sales for the entire
category improved by 12% during FY 2011-12 compared to the prior year; the key drivers
of this gain were Hot Spot and Fantasy 5.
As part of the three-year Plan, a comprehensive analysis of the entire Hot Spot business
was conducted including the experience of other states with similar games, prize
offerings, promotions and retail activities. In addition, to enhance the Lottery’s
understanding of the player’s insights, marketing research studies were conducted.
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This analysis revealed that California’s Hot Spot game did not follow the industry best
practices in terms of prize payout, game offerings, monitor messages and the number of
social outlets selling this product. Player insight surveys indicated the importance of
keeping the game fresh and interesting to further engage players and enrich the playing
experience. The player insight surveys also revealed that many game features being
considered would be well received.
Taking advantage of the prize payout flexibility provided by the passage of Assembly Bill
142 (AB 142), the prize payout for California’s Hot Spot game was initially increased from
51% to 56%. This was followed just a bit later with
enhancements to the game so it would be more like
the product in other states - having all 10 Spots
available for play.
And, in October, 2012, the prize payout was increased
from 56% to 63%, bringing it more in line with the
average payout for the lottery industry. The sales
response has been quite positive to the added prizes.
All of these efforts proved very successful in reversing a 10-year decline in Hot Spot
sales. Sales in each of the past three years have grown with the largest gain in the most
recent year. Hot Spot’s initiatives over the past three years have increased sales by
approximately $40 million or
about 31%.
With a better product that
provides satisfied customers, the
next step in Hot Spot’s evolution
will be to increase the number of
retailers selling the game –
particularly in tradestyles where
people socialize. This initiative
will be part of the upcoming
three-year strategies.
Marketing strategies related to the retail environment
were beneficial to Fantasy 5 over the past three
years. Point of sale messaging via the ePOS
system and jackpot signs have helped boost
Fantasy 5 sales. For FY 2011-12, Fantasy 5 sales
were $166 million which is 16% higher from where
they were in FY 2009-10.
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Scratchers
The 2010-2013 Strategic Plan outlined many initiatives for Scratchers across areas
ranging from game design and planning to how the product was distributed and serviced
at the retail location.
An immediate problem was the fact that a significant number of retailers did not have the
best-selling Scratchers available for sale. Retailers had been slow to activate the new
games as they arrived because stale inventory was taking up prime space. Prior to the
2010-2013 Plan, the average number of Scratchers games in the market was around 50.
Slower selling games were causing congestion at retail as the average number of facings
per retailer was between 16 and 20.
The sheer number of available games
was frustrating the retailer and taking
time away from sales building activities
for both the retailer and Lottery Sales
Representatives.
After several months, the number of
Scratchers was reduced to 34 games
available in the marketplace. Because
of the reduction in the total number of
games available and the impact of
retailer training and targeted focus on
new game activation by sales representatives, more retailers began selling the new
games when they are first introduced resulting in significant sales increases. For
example, new game activations increased substantially so that more than 90% of
retailers are now selling the new games in the first week, as compared to only about 60%
doing so previously. And by concentrating on immediately activating new games when
delivered, first week sales of new games have increased by around $2.75 million each
month.
With higher prize payouts in California a reality after the passage of AB 142, sales growth
of the Scratchers product could follow industry best practices of strong sales from higher
price point games. In the past, there had been just periodic introductions of a $5 product.
Starting in Summer 2010, $5 game introductions were started so there would be multiple
facings of this price point to offer consumers a choice. In October, 2011, the first $10
Scratchers ticket went on sale.
To make this price point strategy work properly, game design and product planning for
Scratchers was modified to clearly differentiate the different price points, thereby
encouraging consumers to trade-up. Here, rules standardizing prize structures, including
the top prizes and overall odds, as well as game features, game themes and
merchandising callouts were developed for each price point.
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The dramatic sales increase for Scratchers, which grew more than $1.3 billion over these
three years, can be attributed to the rise in sales from the $5 and $10 price points. These
higher price point games
went from having just an
11% share of sales to
representing 58% of total
Scratchers sales in three
years. While this could
not have occurred without
the relief from prize
payout
restrictions
through AB 142, the
implementation of these
Scratchers
initiatives
were also essential to
fully realize the benefit of
higher prize payouts.
Another retail-based initiative that was essential in this Scratchers strategy was setting up
different classifications of accounts, so that retailers would receive service levels
commensurate with their sales. Previously, a retailer with sales above $6000 per week
received the same attention and support as a retailer with sales of $300 per week.
In 2010, retailers were divided into five groups, defined by their weekly Scratchers’ sales.
Now, retailers with high sales see their sales representative with greater frequency and
their Scratchers inventory is also analyzed by our Scratchers Inventory Management
Center specialists more often to assure they have the right amount and mix of Scratchers
games. There is no change to the support for a mid-range retailer. The bottom range
retailer is visited only at the end of a game, or once per month, and they phone into the
Scratchers Management Center when they need additional tickets. Also, these lowest
sellers have been shipped informational materials, including the Retailer Product Plan,
which identifies the best mix of Scratchers games and how they should be showcased.
In Store Visit
Inventory Review
Class A
$6001 +
Weekly
Weekly
Class B
$3001 to <$6001
Bi-Weekly
Weekly
Class C
$1251-$3000
Bi-Weekly
Bi-Weekly
Class D
$600.5-$1250
Monthly
Bi-Weekly
Class E
<$600.5
End Of Game Only
Retailer Phone In
Weekly meetings of all relevant parties in the development, distribution and sale of the
Scratchers product occur to review a game’s performance, identify issues that may be
impeding sales, and to make decisions on retail and product priorities. This has resulted
in better aligning actions taken in different parts of the organization so that each unit is
focused on the same key priorities.
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A full review of the Scratchers supply chain was initiated during this three-year period. A
number of initiatives, including a reduction in the time between creating an order and
delivery of tickets, and a streamlining of processing of ticket returns were implemented.
However, other elements involved with Scratchers ticket distribution will still need to be
addressed in the next Plan.
Advertising, Promotion and Player Communication
The key initiatives in this area involved the reintroduction of advertising for MEGA
Millions, including a return to a more jackpot-oriented strategy and more on-going ad
support for the Scratchers product line through quarterly campaigns. An econometric
model was also developed during this period and has been used in media planning to
ensure vehicles with the greatest return on investment (ROI) are maximized.
To increase MEGA Millions sales in 2010, the Lottery revised and aired the award
winning TV ads of 2006. The “Imagine What a Buck Can Do”
campaign featured two spots, “Snow” and “Softball,” that
emotionally connected viewers with players who shared their
winning experience with their families.
Jackpot Alerts were also brought back during times when the
amount reached key thresholds. Both the Brand and Jackpot
Alert advertising was focused in the Los Angeles and San
Francisco media markets, since these are the strongest
markets and show the most potential for generating sales. The
strategy proved successful. In just the first eight weeks, these
efforts produced $15 million in added sales. The advertising
tracking studies also showed how the ads had higher than
average recall among California adults. As a result of this
success, Jackpot Alerts continue to run in key markets when
the MEGA Millions jackpot reaches $70 million. In addition,
similar Jackpot Alerts will be used for the Powerball game.
The passage of AB 142 in April of 2010 provided the Lottery with prize payout flexibility
and thus a more exciting play experience for players. Initially, to support the higher prize
payout, integrated marketing campaigns featuring an array of Scratchers were developed
and implemented with the central message of “Scratchers now offers $50 million more in
prizes every month.”
Starting in 2011, the strategy to provide a spotlight on a
specific Scratchers game was reintroduced as part of the
effort to increase sales of higher price points like the $5
games.
Each of these campaigns focused on the key
selling benefit for the individual $5 Scratchers game
featured.
As with MEGA Millions, these marketing
campaigns were geographically targeted to ensure the advertising expenditure was
maximized. Initially ads ran in the Los Angeles and San Francisco media markets.
Based on the success, advertising was expanded to Sacramento and Fresno media
markets.
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The marketing efforts proved successful as sales increased at a greater rate in the
geographic areas having the advertising. For FY 2010-11 alone the incremental sales in
the advertised markets attributed to the campaigns was well over $50 million. In addition,
other awareness measures and playership of $5 games increased during this time
period.
In October 2011, the Lottery launched its first $10 game,
“$250 Million Cash Spectacular.” It was supported with
advertising in Los Angeles, San Francisco, Sacramento
and Fresno. For FY 2011-12, “$250 Million Cash
Spectacular” brought in $523 million in sales, shattering
the goal set for the game.
In April 2012, the Lottery
went to market with a
campaign named “Lady Luck”
to advertise a $5 Scratchers
game. This campaign was
an instant hit and the game
still ranks as the most
successful $5 Scratchers
game sold by the Lottery. Subsequently, the commercial for this $5 Scratchers game won
national awards for its cinematography and effectiveness.
In 2012, along with the launch of its new Public Website, the Lottery developed a formal
iStrategy Program that effectively utilizes the internet and digital media to establish,
increase and strengthen relationships with players. Due to limited advertising budgets, a
major goal of this plan is to extend the reach of advertised campaigns to consumers. In
addition, other goals include: driving traffic to retail, harvesting actionable data,
presenting a cohesive brand presence and influencing stakeholder perceptions. Since
that time, the Lottery has developed engaging user experiences which begin with paid
digital media to increase product awareness, established strong relationships by
converting visitors to registered players, and persuaded them to join the conversations on
the Lottery’s social networks. These experiences proved successful as the previous sales
figures attest, but also from the gains in the number of people following the Lottery on
Facebook from 30,000 fans to nearly 100,000 fans. And, the number of registered
players in the Lottery’s loyalty programs has increased by nearly 600,000 players.
ROI Analysis of Marketing Campaigns
The Lottery worked with the agency buying our media to assess the impact on sales from
marketing efforts. In May 2011, the agency presented its first econometric model. The
goal of the model is to assist the marketing team in making media related decisions that
generate the strongest sales response for our expenditures. Updates to the model are
done three times a year to further refinements.
The model looked specifically at MEGA Millions, Super Lotto Plus and Scratchers, since
these are the only products with paid advertising. The model showed a positive shortterm ROI for MEGA Millions and Scratchers advertising, but not for SuperLotto Plus.
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This resulted in dropping the ad support for the SuperLotto Plus game. The model also
quantified the impact from earned media through the press, as well as in-store marketing
support, such as the ePOS display and other owned media vehicles at retail. Both of
these proved to also be key drivers of Lottery sales.
Retail Projects
To grow sales through our retailer network, the initiatives in this area formed the basis for
developing more efficient and effective selling methods by fully engaging and motivating
the sales team and our retailers.
The largest program involved the development, piloting, and
statewide adoption of a new sales model. This new sales
approach known as “ex$ELL” involved training the Lottery’s
sales representatives on best practices for selling lottery
products at retail and identifying key priorities for every visit to
retailer locations. The main components of “ex$ELL” include:
Ideal In-store Placement, Ideal Sales Call, and Scratchers Activation Placement.
Ideal In-store Placement began with the
analysis of existing placement of point of sale,
Lottery brand equipment, and other Lottery
support items at retail.
The goal was to
determine the optimal placement to maximize
the visibility of Lottery products in every retailer
location. To get the full benefit from a sales
visit, the elements of an Ideal Sales Call were
defined. Included in this systematic approach
is pre-planning for the sales call, reviewing
retailer sales data, retailer clerk training,
execution of corrective actions and follow up.
Finally, to ensure retailers display the newest and bestselling games quicker and to fill
empty dispensers with the latest games immediately, a Scratchers Activation Placement
plan was created and implemented.
A variety of elements were tested in an extended pilot study during the first quarter of FY
2010-11. Based on the results of the pilot, the full potential of the program was estimated
to contribute up to $70 million a year in additional Scratchers
sales for the Lottery. The best elements from the pilot were
rolled out in a statewide effort. Early results from these
statewide efforts showed Scratchers sales growing by 2% or
about $41 million per year. The elements from the Scratchers
Activation and Placement initiative became an on-going effort.
The time it takes retailers to display new Scratchers games
has been reduced dramatically. More retailers are displaying
bestselling games and the number of empty dispensers has
also been reduced. All these have helped to increase Scratchers sales.
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A more impactful retailer visitation strategy was also developed. As a first step, the
Lottery undertook the task of segmenting the retailer base. The segmentation project
analyzed and ranked retailers by total Scratchers sales. Prior to this effort, all retailers in
the network had been supported equally, regardless of their sales contributions. The
retailer segmentation provided a road map for where the Lottery’s sales representatives
should focus their efforts. Levels of service and visit frequencies were tied to a retailer’s
potential for growing sales. This enabled the Lottery sales representative to spend more
time with retailers with the highest potential to grow sales. A pilot program was
completed in two district territories with results indicating this visitation strategy having a
potential to boost Scratchers sales. This strategy was then implemented across the
state.
In addition, the Lottery wants to build and
foster a culture that values performance and
accountability. It is important for the field
staff to know how sales are performing
against goals. Besides sales goals, Key
Performance Indicators (KPI) are also set
and monitored with respect to Scratchers
facings at retail. This information is available
through the Lottery’s new Business
Intelligence and Business Analytics system
which facilitates the communication of the
progress being made as well as helps the
sales representative to pin-point actions
needed to increase sales in their territories.
To further grow sales from newly recruited retailers, the process of activating new
accounts was streamlined. Now, the selling of the first ticket can be completed within 30
to 45 days from the initial application.
The Lottery saw the opportunity to expand sales even more and provide more stability to
the retailer network by increasing the number of chain accounts and managing them
more efficiently. For better coordination and communication, corporate agreements and
programs were reviewed and analyzed in order to formulate an effective approach to
recruit corporate chain accounts. Key Account Specialists and sales representatives with
expertise,
incorporated
the
“ex$ELL” best practices, such as
optimal point of sale placement,
timely Scratchers activation, and
display of the best mix of games
in their recruitment efforts. As a
result, the Rite-Aid chain was
recruited in FY 2011-12. The
Lottery is now working to expand
and is adding more Rite-Aid and
CVS Pharmacy stores as well.
This effort is scheduled to be completed in 2013.
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Multiple retailer promotions tied to performance were
also implemented with success.
In 2010, nine
retailers were awarded with the “Makeover Program.”
Throughout 2011 and 2012, incentives were awarded
to retailers who merchandised bestselling Scratchers
games quickly.
These incentives increased the
number of bestselling games available at retail to our
players and minimized out of stocks.
The Lottery values retailers’ views on our products and promotions. Increased efforts
were made to fully engage retailers and trade associations. Involving trade associations
is a bridge for the Lottery to gain support from retailers and create partnerships. In
addition to working with individual trade associations, the Lottery re-established the Retail
Advisory Boards in Northern and Southern California.
These Boards include
representatives from Key Accounts, independent retailers and trade association
members. For example, changes to the retailer incentive and compensation packages
were first discussed with the Retail Advisory Boards to ensure that the modifications
would still keep our retailers motivated to sell.
An earlier concept to gather first hand feedback directly from field sales staff (formerly
known as the Field Communications Committee) was renewed. A Sales Advisory
Committee composed of sales representatives, district managers, regional chiefs and
division managers was formed. One of the functions of this
committee is to review sales promotions and retailer
incentive programs before launch or implementation so
potential issues can be identified beforehand and everyone
“buys in” to a program prior to its implementation.
In early 2013, the Lottery revamped this Committee’s role
and established the Director’s Roundtable which pulls
together the top sales person in each of the nine District
Offices to provide the Lottery’s Senior Management
feedback on current and proposed initiatives, as well as input
on issues or concerns of staff. The Director’s Roundtable is
an effective forum to enable Senior Management to get a
better pulse on the field staff’s perspective on the Lottery’s
activities. This Roundtable will take place three times per
year going forward.
Page 15 of 48
Section 2 – Review of Lottery Business
To develop the key strategic direction for the next three years, an extensive analysis of
the Lottery’s business was conducted. This section is comprised of some of the key
excerpts from this analysis to show why the goals delineated in Section 3 were created.
Specifically, this Section discusses Lottery sales; provides an industry analysis; reviews
California Lottery playership; analyzes California Lottery retailers and examines some
special topics.
Lottery Sales
Lottery sales in FY 2011-12 were the highest in the 27-year history of the California
Lottery. At $4.37 billion, sales grew by over $1.3 billion since FY 2009-10 (representing
the first two years of the prior three-year Plan). This gain is the largest dollar increase in
any two-year period in the Lottery’s history – surpassing the $1.2 billion gain between FY
1986-87 and FY 1988-89. It should be noted that sales in FY 2011-12 were aided by a
world record $656 million MEGA Millions jackpot, and sales from a jackpot of this
magnitude cannot be presumed in future sales projections.
Over the history of the California Lottery, sales have generally grown over time –
although there are a few periods where sales were in the decline. In analyzing the
historical sales trends in California and other lottery states, it appears that sales growth
and decreases tend to be tied to changes, or the absence of improvements in a
jurisdiction’s products and marketing activities. While the general economic climate does
impact sales, it appears that these lottery decisions have a greater influence over the
sales trends.
Page 16 of 48
Trends in the dollars going to public education in California tend to follow the sales
pattern. As such, FY 2011-12 also marked the best year in Lottery proceeds to California
public schools with about $1.32 billion going to education. This represents an increase of
more than $230 million over the amount provided in FY 2009-10.
The two major game categories - Scratchers and Jackpot Games - have very different
patterns in terms of sales trends.
Implementation of new Scratchers strategies after Assembly Bill 142 (AB 142) removed
the prize payout restrictions on the Lottery began in May 2010 and were fully
incorporated during FY 2010-11. This allowed the presence of multiple $5 Scratchers
games in the marketplace. The first $10 game was introduced the following fiscal year in
October 2011. These actions resulted in Scratchers sales growing since FY 2009-10 by
nearly $1.1 billion, or an increase of 66%.
Scratchers sales declined over the first seven years of the Lottery but have generally
been on the rise since FY 1991-92. In general, the key drivers for the sales growth have
revolved around:

Increasing the number and variety of games (including periodic innovations in
equipment like Instant Ticket vending machines that allow certain types of retailers
to carry more Scratchers games)
Page 17 of 48

Periodic introductions of
higher price point products
($2 in 1993, followed later
by the $3 game, then $5
game in 2003 and finally
$10 game in 2012)

Adding a category of
“extended play” games like
Bingo
and
Crossword
(after legislative changes
made a bingo theme legal)

Boosting the prize payouts
in Scratchers games
While Scratchers sales have made all-time records in each of the past two fiscal years,
recent sales of the jackpot-driven games showed growth, but were still below the levels
seen in the early 2000’s and well below the record highs from FY 1988-89 and FY 198990, as shown in the chart below.
MEGA Millions sales have been growing due to changes in marketing strategies to help
differentiate the product from Super Lotto Plus and to take advantage of its larger
jackpots. The advertising strategy was to purchase media when meaningful jackpots
were reached (usually at the $70 million threshold), but only do so in the markets were
proven to be most responsive. In addition, March 2012 saw a world record jackpot of
$656 million for MEGA Millions. With this big jackpot and the strategies discussed above,
FY 2011-12 sales were 49% higher compared to sales from FY 2009-10.
The MEGA Millions game was introduced in June 2005. While Super Lotto Plus was
already starting to decline when MEGA Millions was launched, the addition of the multistate game improved sales in
the category for one year
before MEGA Millions started
seriously cannibalizing Super
Lotto Plus.
While MEGA
Millions
created
more
frequent “large” jackpots,
consumers
became
accustomed to this new level
of “big jackpots” and the sales
gains
soon
started
to
evaporate.
Page 18 of 48
Industry Analysis
This section provides an overview of lottery sales, a comparison of lottery retailers, and
provides a summary of the industry analysis.
Lottery Sales
For industry sales, the most recent annual information is from FY 2011-12. In that year,
California’s $4.37 billion in sales resulted in it becoming the fourth largest lottery in the
United States. The prior
fiscal year, California was
ranked in sixth place, and
from FY 2007-08 through FY
2009-10, California was the
seventh largest U.S. lottery.
The rise in California’s
ranking is due to our sales
growth outpacing those of
other jurisdictions. FY 201112 had sales that were 44%
higher than the amount in FY
2009-10. This was by far the
highest growth in the lottery
industry. In comparison, the
average lottery grew by
11.5% over this same time
period. Even for the most
recent year (FY 2011-12),
California was the fastest
growing lottery with a 27%
sales increase over the prior
year. The industry average
was 8% year over year growth.
Nearly all lotteries have seen
sales gains over the past year
and over the last two years, as
evidenced by the chart to the
right.
Although sales in California
grew at the fastest rate in the
nation, total sales on a per
capita basis are still below the
U.S. average. The Lottery industry uses sales per resident as a measure to compare
sales across jurisdictions by adjusting for the size of the state’s total population.
Page 19 of 48
Based on that calculation,
sales in California in FY
2011-12 were $116 per year
for every resident in the state
– placing us 27th out of 44
lotteries. The average lottery
had sales that equaled $162
per every resident. The
highest lottery on this
measure was Massachusetts
– selling $725 per year for
every man, woman and child
in the state. The 14 states
with the highest per capita
figures are all jurisdictions
either on the eastern
seaboard, or urban states of
the Midwest.
Using the per capita sales rates from other lotteries with a stronger performance, we can
see the potential for sales in California. However, in terms of a cautionary note for total
sales, many states in the East with strong per capita sales generate very high sales for
their Daily Numbers games (like Daily 3 and Daily 4). These games are not familiar in
the West and have much lower sales
in even big western states like Texas
Total Sales in
and California.
FY 2011-12
CA Using
Per Capita
Other PC
Based on the chart to the right, sales
Sales
(in millions)
in California would be about $6.1
$162
$6,107
billion if our per capita sales mirrored U. S. Median
Georgia
$391
$14,741
the average U. S. lottery. For total
sales, Texas is at the median figure. New York
$360
$13,572
If our per capita sales were among Pennsylvania
$273
$10,292
the
top
states
(excluding Florida
$233
$8,784
Massachusetts, sales in California Illinois
$208
$7,842
would be over $10 billion per year
Texas
$162
$6,107
based on the rates seen in Georgia,
Current CA
$116
$4,373
New York and Pennsylvania.
Just as for Total Lottery Sales, California’s growth in Scratchers sales to more than $2.75
billion in FY 2011-12 resulted in a move up to fourth place nationally for Instant Ticket
sales. Yet, on a per capita sales basis, there is still significant room to grow sales in
California. In FY 2011-12, Scratchers per capita sales were $73 per year in California
placing 26th out of 43 lotteries. In contrast, the median figure for a state was $93. And,
the best state (Massachusetts) had a rate nearly seven times higher than in California.
Page 20 of 48
Within the industry, the growth in lottery sales has come predominately from the Instant
Ticket category. And, the key driving force behind the sales growth for this product is the
increasing popularity from the higher price point games. As the price point increases, the
typical U.S. Lottery devotes a greater percentage of the dollars towards prizes. This is
the reason why higher price points have grown in popularity and sales.
Reviewing the top Instant Tickets sellers, the vast majority of these states had the $5
game as its dominant price point in FY 2011-12. And, most of these states tended to
have as many sales
coming from games
higher than $5 as
the amount from
games below the
$5 level.
While
California had a
solid 28% share of
sales coming from
$5 Scratchers in FY
2011-12, only 19%
of sales came from
games above $5
compared to a 53%
share of sales from
products below the
$5 price point.
Page 21 of 48
Looking specifically at the $20 game, just 4 of the 43 U.S. jurisdictions selling instant
tickets do not offer this price point. These states include California, Louisiana, Oklahoma
and South Carolina. Analyzing sales when larger states introduced their $20 game, we
find that sales across the whole instant ticket category grew an average of 12% two
quarters after this price point was introduced.
Retailers
For comparisons between jurisidictions, calculating the number of residents per lottery
retailer is done to measure the density of retailers in a particular state. On this measure,
California has one of the fewest number of locations selling lottery tickets for the
population of the state.
In FY 2010-11 (the
most recent data of this
type available), only
two other lotteries have
poorer density scores
than California. There
is one retailer selling
lottery tickets for every
1,781 residents in the
Golden State.
The
average lottery has one
retailer for every 1,452
residents in the state.
Page 22 of 48
In order for California to reach the U. S. average in terms of retailer density, between
4,000 and 5,000 new retailers in the state would have to be recruited.
In addition to the number of lottery retailers in the state and the calculated retailer
density, comparisons between the jurisdictions can be made in terms of the types of
stores that are selling lottery products.
While just under half of the retailers in California are convenience stores, most other
states have even a greater percentage of its retailer base in this trade channel. And,
other states with successful Keno-type games have a much greater presence in the Bar
and Restaurant channel than in California. The share of liquor stores as lottery retailers
varies greatly by state – probably due to differences in how the sale of liquor is regulated
in the jurisdiction.
RETAILER COMPOSITION BY KEY TRADE CHANNEL
FY 2010-11
Summary from Industry Analysis
The industry analysis reveals certain factors that need to be addressed by the California
State Lottery going forward. These inlcude:

Even with the tremendous sales gains California has recently achieved, there is
still room for further growth since our per capita sales are not at the industry
average.

For Scratchers to continue their growth, it will come from the higher price points.
Industry best practices include offering games from $1 to $20.

Other states also have more retailers for their population than in California. At
least 4,000 new locations are needed here to be at the industry average for retailer
density.
Page 23 of 48
California Lottery Playership
In FY 2011-12, just under half of all
California
adults
(47%)
can
be
considered Lottery players – having
purchased a ticket within the past 12
months. This equates to over 13 million
Californians. In addition, about another
one in five California adults have played
a Lottery game in the past, but not in the
last 12 months; that is 5 million former
Lottery players. This leaves 35% of
California adults having never bought a
Lottery ticket.
Although the percentage of past year
players grew a bit in FY 2011-12 (probably due to the record breaking MEGA Millions
jackpot), this figure is still significantly lower than the levels of lottery play found ten and
fifteen years ago.
Lottery Playership – Since FY 2008-09
Back then, about 60%
of all California adults
purchased a lottery
ticket at least once a
year. These long-term
declines have occurred
for both Scratchers and
Super Lotto Plus.
To understand where our strategic opportunities to grow playership lie, lottery behavior
for different demographic segments was analyzed.
Among Whites, there is a much higher incidence of former players compared to other
Californians. Former players are people who have played in the past, but not in the last
12 months. While these individuals have tried the product, there could be specific
reasons why they no longer participate.
Both 18 – 34 year olds and women have higher percentages that have never played the
Lottery before. For these segments, methods to generate first time trial of Lottery games
would be important.
Page 24 of 48
Playership & Trial of California Lottery Games
FY 2012-13 Q1/Q2
To re-attract former players and to motivate trial among those who have never played a
lottery game, a better understanding of the reasons why these people do not play is
needed.
Based on consumer research, it appears that many Californians do not have a clear
image of the Lottery beyond the games it offers for sale. About one-third of adults have
neutral opinions towards the California State Lottery as an organization. These people
hold neither positive nor negative feelings about the Lottery overall. Just like with other
brands, the Lottery’s image among consumers is highly correlated with usage of the
product. Those having a positive overall image are much more likely to be Lottery
players than those holding a neutral or negative opinion.
Page 25 of 48
If adults who do not have a positive image of the Lottery change their perceptions to be
more favorable, they may become more open to playing Lottery games. To be
successful in this endeavor, a better understanding of what key variables would most
likely create a change in an individual’s perception towards the Lottery is needed.
A study conducted in 2012 among Lottery players and non-players in California helped to
identify the top issues that act as a barrier to playing more frequently or playing at all. A
number of these issues could also impact the perceptions about the Lottery in general.
For both Scratchers and Jackpot Games, uncertainty about whether the Lottery provides
money to public education and/or how schools benefit from the Lottery is voiced as a
concern by about 20% - 25% of infrequent players and non-players. Particularly for
Scratchers, another of the other most frequently mentioned barriers is never hearing
about winners.
Prior research revealed that only a very small percentage of the public is aware of facts
such as the amount going to public education, or the share of sales devoted to prizes in
Lottery games. In a 2003 study, less than 10% of Lottery players or educators
volunteered that about one-third of sales went to education. And, in a 2012 survey, the
average adult felt that just 33% of the Lottery dollar went towards prizes in the game.
These two issues – having winners from the games and delivering profits for the public
good – are central to a Lottery’s integrity. By clearly hearing messages on these points,
some Californians may move their opinions about the Lottery from a neutral or negative
position, to a more positive one.
Another Scratchers-specific barrier to play involves shopping for a ticket to buy. People
find choosing from the large selection of games to be difficult and unpleasant. They often
feel too much time pressure to look for a ticket while others are waiting behind them in
line. The Lottery needs to find ways to provide more information to the potential player
and make this experience easier and less of a burden.
Page 26 of 48
California Lottery Retailers
Even with the addition of more than 2,000 lottery retailers in California over the past
decade, this 11% increase in locations has just kept pace with California’s population
growth. The density of retailers in California (i.e. the number of residents per location
selling lottery) is essentially unchanged over the past 10 years.
Currently in California, nearly half of the lottery retailers are from the “convenience store”
channel. This not only includes 7-Eleven and Circle K, but also gas stations with
convenience stores like Arco AM/PM, as well as locations that are just gas stations.
Liquor stores make-up just over a fifth of the network. When combined, supermarkets
and grocery stores comprise 20% of our retailers. These two channels differ based on
the number of check-out lanes in their stores, with supermarkets having 5 or more lanes.
Liquor stores are big producers for the California Lottery. While they comprise 21% of
the retailers, they account for about 26% of all ticket sales. On the other hand, the
Supermarket / Grocery channel account for a smaller share of the sales volume (16%)
than their share of outlets in California (19%) – meaning there is an opportunity to
improve sales in this channel.
Page 27 of 48
A relatively small percentage of the California Lottery network accounts for the majority of
the sales. The top 20% of our best-selling locations contribute about half of the total
revenue. For Scratchers, the top retailers account for a slightly greater share of the
sales. And, for Hot Spot, the distribution is even more skewed towards the top
performing locations. Because sales are disproportionately distributed among retailers,
the Lottery needs to consider customizing the service levels provided to the stores so that
more staff resources are devoted to high volume accounts and those who show this
potential.
Page 28 of 48
Special Topics
This section discusses several special topics, including seasonality in sales; $5
Scratchers player base; age and gender composition of Scratchers and Jackpot Games
players; average spending per player; MEGA Millions; and Hot Spot.
Seasonality in Sales
Sales for a product typically decline slightly during the summer unless there is some
major activity to promote purchases. For example, in three of the last four summers,
Scratchers sales have declined
between 5% and 6% from the
prior quarter. The summer of
2010 was an exception as the
Lottery
was
significantly
growing the number of $5
games being sold at retailers as
a result of the passage of AB
142. The growth of $5 games
helped to overcome the typical
seasonal decline.
This seasonal drop in sales is
also evident in a game like
Daily 3, which generally has
very stable sales from week to week. Over the past few summers, this game had sales
decline between 3% and 6% during the summer compared to the spring quarter.
$5 Scratchers Player Base
A key reason for the recent growth in $5 game sales is the increase in the size of the $5
game player base. Nearly half of all Scratchers players now buy $5 games compared to
just 30% around a couple of years ago. Conversely, the percentage of people only
buying $1 and $2 games has dropped over this same time period.
Page 29 of 48
Age and Gender Composition of Scratchers and Jackpot Games Players
Earlier, younger adults and women were identified as providing opportunities for
increasing Lottery playership. This section
will explore a deeper understanding of how
age and gender impact Lottery play.
Segmenting age into six sub-groups reveals
that 35 – 64 year olds have the highest
Lottery participation levels of any age group.
About one-half of them have played a lottery
game in the past 12 months. On the other
hand, 18 – 24 year olds and those 65 and up
are less likely to be lottery players. The ten
percentage point difference is statistically
significant.
Reviewing our three key products, we
found that the 18 – 24 year olds are not
less likely to be Scratchers players than
35 – 64 year olds. However, there is a
strong age skew for both Jackpot
Games. The younger adults are much
less likely to play Super Lotto Plus or
MEGA Millions than those between 35
and 64 years of age. In qualitative
research,
the 18 – 24 year olds
perceived these games as for their
parents and grandparents and did not
relate as much to the “life-changing”
jackpots as the older generation.
Similarly, women have lower participation
rates than men for Super Lotto Plus and
MEGA Millions but have the same rate as
men when it comes to playing Scratchers
tickets.
Page 30 of 48
Average Spending per Player
In FY 2011-12, the average Lottery player purchased about $333 worth of products
during the year. This equates to each player spending about $6 per week, on average.
While Scratchers players have the highest spending amounts, Super Lotto Plus players
spend the least for any of the major games.
Using actual sales and the estimated number of adults playing each Lottery game from
the Tracking Study surveys, a calculation of the average annual amount spent per player
were made.
FY 2011-12
Past
Year
Play
CA Adult Population:
(Based on 2010 estimate)
Any Lottery Game
47%
Scratchers
26%
MEGA Millions
33%
Super Lotto Plus
36%
Hot Spot*
3%
Fantasy 5
7%
Daily 3*
3%
Daily 4*
2%
Daily Derby*
2%
# of
California
Adults
Sales
Annual
Sales per Weekly
Player Average
27,958,916
13,140,691 $4,371,513,000
7,269,318 $2,755,403,000
9,226,442 $720,075,000
10,065,210 $423,764,000
838,767 $131,057,000
1,957,124 $164,027,000
838,767 $135,318,000
559,178
$29,535,000
559,178
$12,334,000
$333
$379
$78
$42
$156
$84
$161
$53
$22
$6.40
$7.29
$1.50
$0.81
$3.00
$1.61
$3.10
$1.02
$0.42
*The estimated number of players for these games is relatively small making the
sales per player calculation subject to more variability
Page 31 of 48
MEGA Millions
The continuation of the Jackpot Alert advertising strategy for MEGA Millions was working
well when measured through the FY 2011-12 and was a primary reason for the growth in
sales of that product.
Hot Spot
Hot Spot
% Change from Prior FY
FY 05-06
FY 06-07
FY 07-08
FY 08-09
FY 09-10
FY 10-11
FY 11-12
$163,526,309
$143,182,870
-12%
$137,582,868
-4%
$126,361,926
-8%
$117,904,491
-7%
$130,472,138
11%
$131,056,819
0%
After many years of declining sales, a turnaround in Hot Spot recently occurred. With the
passage of AB 142, various promotions that boosted the prize payout in the game for just
several weeks were instituted starting in FY 2010-11 – resulting in a sales gain of 11%
over the prior fiscal year. When a permanent boost to the base game’s prize payout
occurred in October 2012, a 21% year over year increase in Hot Spot sales was
observed after just seven weeks.
Page 32 of 48
Section 3 – Lottery Goals
This section provides an overview of the Lottery’s Strategic Direction. It also presents key
themes to achieve the Lottery’s sales and profit targets. In addition, it describes the 10
strategic goals and supporting tactics that the Lottery has established for the FY 2013-14
through FY 2015-16 time period.
Overview of Strategic Direction
In order to craft the overall direction and the specific goals for the Lottery to achieve over
the next three years, some general guiding principles needed to be established. This
consisted of creating an overall vision for this three-year period and determining what
values the Lottery will hold as it tries to attain this vision and implement its corporate
Mission. Finally, the Lottery established financial benchmarks for measuring the success
of its endeavors. Each of these are briefly described below.

Vision Guiding the Development of the Three-Year Strategic Direction – During
the next three years, the California Lottery will strive to become one of the largest and
most profitable lotteries in the nation by maintaining the highest integrity in our games
and business practices, growing sales in a responsible manner, and having a
workforce that is well-prepared and united around its strategic goals.

Lottery Mission – To implement the public’s mandate to maximize supplemental
funding for public education through the responsible sale of lottery products.

Values
Integrity – is at the core of the Lottery’s business. Our words, actions and methods
must be consistent with, and mindful of, our values as we strive to implement the
various business strategies and initiatives outlined in this document.
Security – is essential not only in conducting the games and drawings, but also in
handling information from players, retailers, employees and business partners.
Honesty – in all of the Lottery’s interactions with players, stakeholders, retailers,
employees, or the general public, honesty must be maintained. To demonstrate our
honesty, the Lottery will follow the highest standards in transparency and
accountability.
Fairness – to all parties (including our beneficiary, public education) is critical as the
Lottery must make business decisions on a daily basis that can impact our
stakeholders.

Financial Measures for the Vision – The Lottery’s Vision in terms of financial
metrics is to attain record annual sales of at least $6 billion by FY 2015-16. The
annual contribution to California public schools will exceed the $1.5 billion mark by
that year and also be the largest amount in the history of the California State Lottery.
This will make us one of the largest and most profitable lotteries in the nation.
Page 33 of 48
Key Themes to Achieve Sales and Profit Targets
In order to achieve the significant growth in sales and profits over the next three years
and become one of the largest and most profitable lotteries in the nation, four key themes
emerge in our Strategic Direction. All goals and major initiatives will tie back to one or
more of these four essential elements.

Products – increasing sales not only in the Scratchers category but also with
Jackpot Games and other Lottery products

Players – building the playership of Lottery products so more California adults
participate in our games

Retailers – growing the network of Lottery retailers and concentrating our best
service to our most productive retailers and those with the greatest potential

Infrastructure – improving the Lottery’s infrastructure to increase its capacity to
handle more sales, retailers and projects, to create a more efficient and effective
operation, and to cultivate an internal culture that is more collaborative and
performance-driven.
Page 34 of 48
Overview of the Ten Strategic Goals
The last three years have seen tremendous growth in Lottery sales going from just over
$3 billion to nearly $4.5 billion. As discussed earlier, the recent tremendous growth is
primarily attributed to the Scratchers Product Line.
It is anticipated that Scratchers sales will have risen by more than 80% over the past
three years. On the other hand, the best year for Draw Games was just 17% higher than
it was back in FY 2009-10. Growth in the other games outside of Scratchers is important
since Draw Games typically have greater profit margins and tend to drive customer traffic
into Lottery retailers, which is an important motivator for local merchants to become part
of our network.
In order to sustain further sales growth, the Lottery must increase the number of
Californians who participate in its games. As shown earlier, playership has been
relatively flat over the past few years and is down significantly from the levels seen 10 to
15 years ago. Reliance on growing sales from just the same number of players is less
likely to be successful; in addition, it does not promote responsible play. In many cases,
perceptions about the Lottery must be enhanced in order to increase the size of the
player base.
The need for more Lottery locations is critical for our continued sales growth. As seen
earlier, California has significantly fewer retailers for its population size compared to other
lottery jurisdictions. In order to have the penetration level of the average state, California
would need to add between 4,000 and 5,000 retail locations. But, prior to increasing the
size of the retail base by nearly 20%, the Lottery must improve the way it services its
existing locations in order to efficiently handle this larger network.
Although the Lottery is a multi-billion dollar company in terms of sales, much of its
infrastructure is outdated with many of its processes relying on manual activities or very
limited use of enabling technologies.
In the late 1990’s and continuing for over a
decade, the Lottery devoted a significant portion of its administrative budget to fund
higher Scratchers prize payouts. While this move increased sales and therefore profits to
education, an insufficient amount of funds were left to properly maintain the non-sales
generating internal infrastructure. This is why there are many internal areas that are
outdated and currently unable to efficiently handle the increased demand from
dramatically growing sales. The Lottery must now update and modernize its internal
functioning systems in order to increase its capacity and improve its efficiency.
Within our Strategic Direction, there is a mix of elements. Some measures provide
immediate sales gains, while others are an investment in long-term growth. In other
words, these long-term programs may not impact sales greatly in the first year, but are
necessary to achieve the type of significant growth desired over the next three years. In
addition, while many of the initiatives are based on tried and true strategies and in many
cases are from industry best practices, there are some elements in this document that
are more novel and pose a little more risk, but have the potential for great rewards.
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Goal 1. Continue Scratchers Enhancements
Scratchers will continue to be the foundation for California State Lottery revenue growth
over the next three years. Throughout the lottery industry, this product category has
been the driver of sales gains. In California, strategies that take advantage of the prize
payout flexibility afforded the Lottery with the passage of AB 142 can continue to be
employed. Much has already been accomplished, but there are still some refinements
and new initiatives that will follow the best practices used in other jurisdictions when they
increased the prize payout several years ago.
With over 40 new Scratchers tickets being introduced each year, this product line can
offer more frequent innovations to capture consumer interest. New features in the area
of prizes and winners, game playstyle, theme, ticket graphics, or other extensions can be
developed to create product excitement in the marketplace.
Following industry best practices and taking advantage
of the prize payout relief, the next three years will see
the continued sales growth from higher price point
games. The $5 games have become the most popular
price point. To meet this player demand, a wider array
of $5 and $10 games will be offered. And, retailers will
display more facings of these price points to
accommodate this greater variety in games.
Building on the success of the $5 and $10 games, the
introduction of a $20 Scratchers ticket is planned for Fall
2013. Currently, California is among the four states not
offering a $20 game for sale out of the 43 lotteries
selling instant tickets in the nation. A sales analysis of
the lotteries in larger states showed how the introduction
of this price point grew sales in the overall Instant Ticket
category by 12% after six months. Extensive consumer
research among Californians was also conducted to
ascertain player interest in a $20 game and to
determine which concept had the greatest appeal.
Nearly three million Scratchers players have already
signed up as participants in the Lottery’s 2nd Chance
Program. This demonstrates the popularity of giving
players a second chance with their Scratchers tickets
and reinforces that “every ticket has value”. Building on
that success, the Lottery will offer players even greater
value with the development of a Player Rewards Program. Just as with other products
and services, customers will be able to earn points from Lottery purchases and use those
credits for various promotional prizes they can select.
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For further sales gains in the Scratchers product line and to increase the number of
people playing these games, changes in how the tickets are displayed and merchandised
at retail may be needed. Currently, non-players are confused by the array of tickets and
the task of shopping for a ticket is a barrier to sales because it is considered too difficult
and time consuming. To make shopping easier and faster, the Lottery will begin
exploring ways to better organize and display the tickets so the shopper can find a game
to buy in a manner that is quicker and less of a burden.
Goal 2. Optimize the Draw Game Product Mix
The first step in the process to grow sales amongst the Draw Games was taken at the
end of FY 2012-13 with California’s entrance into the Powerball game. But, additions or
even modifications to existing Draw Games can’t be as sporadic as in the past. The
Lottery needs to generate growth outside of Scratchers, since these games are very
profitable.
Currently, there are three categories within the Draw Game Product mix: Jackpot Games
(Super Lotto Plus, MEGA Millions and Powerball), Daily Games (Daily 3, Daily 4, Fantasy
5 and Daily Derby) and Monitor Games (Hot Spot).
Top priority in this area is to improve the Super Lotto Plus
game. It has suffered from the competition of the larger
MEGA Millions and Powerball games. An enhancement to this
product to increase
the
frequency
of
purchase is needed to
stabilize and then grow this game. In addition,
since the addition of Powerball will also impact
the sale of MEGA Millions tickets, the Lottery will
continue to work with the consortium of MEGA
Millions states to update and reinvigorate this
game before the end of 2013.
The development of new games (both traditional Draw and additional games to
compliment Hot Spot) requires some market research to map consumer perceptions of
the games, to better understand the key ways they
differentiate the products, and to learn which game
elements they truly seek. Some of the prior new games did
not provide tremendous sales growth to the overall Draw
Games category because the new product primarily shifted
sales away from the existing ones. This may have been
due to past game designs being created without having
these types of player insights. After a proposed research
study is conducted, new games or modifications to existing
products can be designed to better suit the needs of consumers.
Currently, a second chance game element only exists in Fantasy 5 among the Draw
Games. Given the popularity of the Scratchers Replay Program and the expansion into a
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Player Rewards Program, the direction for Draw Games over the next three years will be
to develop added-value features for some of these products.
Super Lotto Plus will be the next Draw Game offering a second chance component
similar to the current Scratchers and Fantasy 5 Programs. This will be launched in the
first half of FY 2013-14 as one of the initiatives to strengthen that game in light of
competition from Powerball.
With the product enhancement of higher prize payouts, the Hot Spot game has shown
strong sales growth. However, this product category is still underperforming relative to
other lottery jurisdictions. One key difference is the fewer number of California retailers in
social venues. Now, with higher sales from a stronger product, the Lottery can go out
and successfully recruit new locations suited for this game. Another key component will
be to develop and then implement an extension of Hot Spot, or a new monitor based
game in this three-year window.
Goal 3. Grow Playership of Lottery Games
To maximize the growth of ticket sales in a responsible manner, the overall long-term
goal is to increase the number of lottery players. The Lottery would like to have the vast
majority of California adults spend a few dollars on lottery tickets from time to time. While
there are currently about 13 million Californians participating in the Lottery with an
average expenditure of six dollars per week, the goal would be to increase the number of
players by a few million.
For the player base to expand in size, the Lottery needs strategies and tactics across
three areas:

Retaining the existing Lottery participants
(about 13 million California adults)

Re-engaging former customers so that they
re-sample the product (over 5 million
California adults)

Generating new trial among those who
have never played the Lottery before (total
pool of never played is under 10 million
California adults)
As discussed in a prior section, Lottery playership has been relatively flat over the past
few years with the proportion of California adults who are Lottery players significantly
lower today than it was in 2001. Back then, about 6 in 10 adults were considered a
Lottery player.
A series of player retention initiatives will be part of the Strategic Direction to ensure our
existing player base is maintained. As mentioned in a prior goal’s discussion, new
games and/or game enhancements will occur throughout the three-year period to always
keep our products fresh and interesting to players.
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But, there will need to be more than just new games to ensure our customers continue to
be pleased and remain loyal Lottery players. New types of promotions and contests to
keep the current players engaged with the brand will be essential. And, some of these
may not be directly related to a game or purchasing a ticket but could involve more
interactive contests on-line, or more social or team-oriented competitions.
A large and vital area to retain existing players as well as potentially re-attract former
players will be additional ways to keep 2nd chance
promotions novel and exciting. The first initiative in this
area involves completing the upgrade to the existing 2nd
chance player registration system. This enhancement
was needed so the system could better handle the
greater transaction volume, allow other games to have
second chance opportunities, and improve the user
experience.
The next step in this area will be launching a type of Player Rewards initiative, which is a
natural extension from the Lottery’s current 2nd Chance Program.
Companies in a
multitude of industries use Rewards Programs to promote customer loyalty to the brand.
Much like airline miles, members in a Lottery club would accrue points based on their
purchase of games. It will add value to our products, encourage continuity of play, and
strengthen relationships with customers.
A natural off-shoot from a Rewards Program is the ability to directly communicate to
consumers. Using the player database from the Rewards Program, information and
exclusively created promotions can be sent to members based on their past purchase
behavior. Loyalty programs in other companies traditionally use this more customized
approach to marketing to club members which is also very cost effective.
To gain trial from those who have never played as well as re-attract former players, the
image of the Lottery as an organization and its products will need to be improved.
Research has shown that in many cases, these perceptions are acting as barriers to
participating in Lottery games.
As such, there are separate goals addressing these issues that are necessary to achieve
the long-term success of increasing the size of the player base. These will be discussed
in the next three sections. Without first achieving these goals, marketing programs
designed to generate interest and trial among these non-players will likely result with very
modest or limited gain in numbers.
If the Lottery can better understand the reasons why people play and why people do not
play, strategies to attract additional Lottery players can be developed. Additionally,
research will be utilized to help identify the segments in the population with the highest
potential to try Lottery games.
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Goal 4. Improve the Lottery’s Overall Image with Consumers and Stakeholders
Currently, about one-third of California adults have neither a positive or negative
perception about the Lottery. Although the largest share (about 40%) hold positive
feelings toward the California Lottery, this sizable neutral bloc pose a tremendous
opportunity to gain new players.
The data show that an individual’s perception about the Lottery strongly influences with
whether they buy tickets or not. So, if the Lottery can address areas in which consumers
tell us more information is needed, many of those holding neutral perceptions could shift
to having a positive feeling towards the Lottery and be more likely to play.
Different research studies have identified a number of these issues with consumers, and
various strategies will be employed to try and reduce these current barriers to play. The
most critical component will be communicating how the sales from Lottery tickets help
public education. Many consumers know little about the Lottery outside of the games it
sells and have no idea where the money goes. A tangible message about the Lottery’s
mission and how public schools benefit from it needs to
be developed and then communicated.
To further demonstrate our commitment to public
schools in California, the Lottery may need to find
additional ways of linking the organization with education
in the consumer’s mind. A potential example of such a
program would be to develop a statewide student art
competition.
Another barrier that if addressed could improve the Lottery’s
overall image involves winner awareness, particularly at the
retail or local level. Many Californians voice that they don’t
know anyone who has ever won the Lottery, or even hear
about winners from their local area. A number of tactics will
be explored to determine the most effective and cost efficient
ways of getting this information disseminated.
A perception by some Californians that lottery games are not
for people like themselves is based on their images of liquor stores and convenience
stores and their patrons. Believing that these are the only types of stores selling tickets,
these individuals don’t shop at such retailers, hold negative
impressions of these stores, and then have poor images of
the Lottery. By providing other images of the Lottery, some
of these perceptions can be modified. And, tactics such as
promoting our presence in other retail channels, exhibiting a
presence at certain community events, fairs and festivals,
possessing an appealing look at these events, and updating
the signs and equipment used at these locations will all work
to generate a more positive impression in the minds of those
having a neutral image of the Lottery.
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While various consumer tactics are occurring in the marketplace, other programs to
develop closer relationships with different stakeholders will also be in place. It is
important for the Lottery to convey information about our organization to these important
and influential individuals so they get a true understanding of what we do, who plays our
games, and how the public benefits from our activities.
Goal 5. Expand the Lottery’s Corporate Social Responsibility Program
As the Lottery offers more and varied products and promotions and provides even
greater accessibility with more retail distribution points, there is a corresponding need to
increase efforts of being a good corporate citizen particularly in the area of promoting
Responsible Gaming.
The overarching initiative associated with this goal is
seeking the Top Level Certification (Level 4) in
Responsible Gaming from the World Lottery
Association (WLA). Although the California Lottery
was granted a Level 3 Certification in August 2011, the
efforts we plan to introduce and expand upon to
achieve this higher level will further demonstrate our commitment to this important issue.
For this higher level of certification, the Lottery must demonstrate “continuous
improvement” in its Responsible Gaming programs through research and program
evaluation. Responsible Gaming needs to be fully integrated into the Lottery’s day-to-day
operations and part of its decision-making process.
The key programs under this goal are the elements needed to attain the higher
certification level. These include the development of on-going programs to train
employees and retailers; the establishment of any other needed research studies; and
the acquisition of an external independent assessment.
The increased efforts in Responsible Gaming will need to be completed early in the
three-year period since submission of the application for Level 4 Certification is targeted
for November 2014.
As these enhancements are put in place and their presence is communicated to
consumers and stakeholders, greater trust in the Lottery and an improved brand image
may result.
Goal 6. Maximize Return on Investment of Advertising & Promotion
The long-term goal over this three-year period will be to continue shifting the way the
Lottery advertises to California consumers. With limited advertising resources, mass
media vehicles will be used less to reach loyal players. Instead, this group will receive a
major portion of its information directly, via digital channels, from the Lottery through its
new Player Rewards Program as many do today with the 2nd Chance Program. In
addition, smartphone technology could allow this group to access Lottery information
when and where they want it. Maximizing the use of digital channels to communicate
with loyal players will enable the advertising budget to focus its attention to re-attract
former players and gain trial among those who have never played the Lottery.
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As an example of this overall approach, the marketing of the new $20 Scratchers game
will not rely on traditional advertising to generate awareness of this new product. Instead,
more limited advertising vehicles that can be aimed towards consumers most likely to
purchase this product will be used, along with direct communications to potential buyers
identified through our internal database of 2nd Chance participants and Jackpot Captains
(leaders of Lotto groups).
The world of digital communications, including the use of mobile devices, has been
rapidly changing, and the Lottery needs to stay up-to-date so we can communicate with
consumers, and they can get information when and where they want it. Ownership and
usage of smartphones and tablets have been skyrocketing. Among consumers utilizing
digital communications, nearly half possess a smartphone and nearly a quarter have a
tablet device. Under this strategic goal, the Lottery needs to first update and revise its
plan for digital communications, so that it is more comprehensive and encompasses
future advances in technology. This includes the Lottery website but also our social
networks, Facebook, Twitter, and e-mail/SMS channels. Depending on the revisions to
our digital communications plan, tactics such as developing a new app for smartphones
and/or developing a mobile version of the website could be undertaken over the next few
years.
Traditional advertising support (such as television, radio, outdoor and on-line ads) will
continue to be provided to Scratchers and the
Jackpot Games. However, the key audience
may shift over these three years as well as the
type of message
delivered as we
begin to use these
channels
to
communicate more
to
non-players.
Since Powerball has just been launched, there will need to be additional efforts in FY
2013-14 against the new game to build a strong and unique brand identity with California
consumers.
With the media analytics model becoming more robust over time, the Lottery will be able
to get more detailed insights to aid in its advertising planning. Through the econometric
model that was built for the Lottery, we can determine which media vehicles are most
efficient in generating sales. And, during this period, additional refinements will help us
pinpoint the optimum jackpot levels to begin special advertising efforts and the media
markets that provide the biggest bang for the advertising dollar.
Over these three years, part of the overall communications strategy will be to show how
every Lottery ticket has value. This includes the fun of playing, the chance of winning, a
second chance at winning through promotional efforts, and most importantly the impact
that buying a ticket has in the local community – for the public schools and the local
businesses.
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Goal 7. Expand the Network of Lottery Retailers
Relative to its population size, California has fewer retailers than all other U.S. lotteries
except two jurisdictions. For each location selling lottery tickets in California, there are
nearly 1,800 residents. This compares to a national average of one location for every
1,452 residents.
In order for California to reach the U.S. average in terms of retailer density, between
4,000 and 5,000 new retailers in the state will need to be recruited. Our growth product is
Scratchers, and these tickets tend to be an impulse purchase. The more retailers that
carry Lottery, the more visibility will be increased, thereby creating more opportunities for
the consumer to consider purchasing these games.
While the Lottery needs to expand the number of locations selling its product, it is also
essential to get a broader mix of trade channels as retailers. Currently, about two-thirds
of all Lottery locations are either Convenience Stores
(which include gas stations) or Liquor Stores. As such,
many players only think that lottery tickets are available
from these types of outlets and not in the stores that
make up most of their shopping trips.
Across all lotteries in the nation, the retailer mix is
dominated by convenience stores primarily because
that best fits the traditional model of how stores interact
with a lottery. In this arrangement, stores must
manage the inventory, sell the tickets, pay winners
under $599, and handle the accounting issues. In
return for this work, the store receives money based on
a designated percentage of their sales plus a
percentage of all winning tickets cashed at their
location.
In order to recruit new types of locations, it is likely that alternative models of what the
retailer does and how they are compensated will need to be used. The Lottery piloted a
new business model with the CVS Pharmacy chain where we were responsible for
managing the inventory of Scratchers ticket in the vending machine, but the store
continued to pay winning tickets. In this scenario, the store received a fixed monthly fee
plus a percentage of all winning tickets cashed at their location. This unique relationship,
new to the lottery industry, proved to show potential, and it has expanded. This new
business model could become even more profitable for the Lottery should other chains
that have locations in close proximity to the existing CVS stores using this model elect to
join up.
Another unique opportunity exists beyond traditional retail outlets, the Lottery must recruit
more social venues to sell its Hot Spot product. This game tends to sell much better in
locations where people sit down, socialize, and spend time such as bars, taverns, and
bowling centers. Since these characteristics are not typically seen in a convenience
store or a supermarket, Hot Spot sales are generally poor in these types of retailers.
With improvements to the Hot Spot product creating more consumer sales, the time is
right to try and recruit these types of locations.
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As an alternative to recruiting new types of retail locations, the Lottery could offer new
ways of purchasing tickets in trade channels that are traditionally part of the retail
network. For example, in gas stations, lottery sales currently occur inside the
convenience store portion of the location, and not outside where consumers are pumping
gas. In today’s society, fewer and fewer consumers go inside since they pay for their gas
at the pump. This results in some lost opportunities for the Lottery. Buying a Draw
Game ticket tends to be more often planned in advance than for a Scratchers purchase.
So, when there is a big jackpot, consumers want to find a convenient location to buy a
ticket.
In an approach being used at the Minnesota Lottery,
players would insert their debit card into the same device
used for their gas purchase then select the Draw Game
and amount they want to buy. For this transaction,
players cannot select their numbers - only Quick Pick is
allowed. They verify their age by inserting their driver’s
license. Then, the player’s numbers and draw are printed
on a receipt and sent to his/her mobile device. Once the
draw is held, prizes up to $599 are automatically
deposited into the player’s account connected to that debit
card and a message is sent.
A full feasibility analysis of this potential expansion will still need to be conducted before
the Lottery could implement it. This idea is in its earliest stage so a timeline on its
expected installation date is not yet set. However, this offers a potential way to expand
the sales points in the state in a way that is likely to be very appealing to those currently
not playing, as well as the 18 – 34 year old demographic that we need to reach.
A final consideration for the increase in the retailer base is the geographic setting for
these new retail locations. Based on the population per retailer calculations, the greatest
immediate need for recruitment is in the major metropolitan areas of Los Angeles and
San Francisco. Over the next five years or so, there will likely be a need in certain
portions of the Central Valley, since this part of the state is projected to have the highest
growth rates in California. The Lottery is currently planning several initiatives to better
identify and refine its listing of potential retailers and working to target them for
recruitment by our sales staff.
Goal 8. Optimize Support Provided to Lottery Retailers
In order to handle an increase of up to 5,000 additional locations over the next three
years, the Lottery must be able to service locations in an easier and more efficient
manner and provide top service to our best performing retailers
and those stores with the most potential.
A key component of servicing our retailers involves a sales call
from a Lottery District Sales Representative (DSR). A series of
initiatives are planned so these visitations are more efficiently
managed through segmenting retailers into classifications that
will determine how frequently sales calls are made, creating
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standardized checklists of activities that will take place during the visit, and developing a
new customer relationship management (CRM) tool that will contain all of the information
needed for a DSR to effectively handle their accounts. In addition, a separate unit will be
created for the staff and supervisors involved in servicing locations utilizing the new
business model (currently just CVS).
Retailers with low sales volumes are much less profitable for the Lottery. Yet, as stated
previously, there is a need to have a large network of locations selling our products. The
Lottery needs to determine how it can best service these lower volume accounts in a
more efficient manner. Some locations may be personally visited less often by our Sales
Representatives. For these retailers, the monthly product plan brochure could be mailed
to the locations, some communications sent to the retail location through the lottery
terminal, and other interactions done over the telephone with the Scratchers Inventory
Management Center.
And, as a long-term solution, we need to get
retailers other than chain accounts to retrieve
important lottery business information from a
password protected account within our retailer
website. Here product information, training videos,
sales figures, and financial data could be securely
disseminated to retailers on-line. To accomplish
this, much of the technological infrastructure for the
current retailer website will need to be modernized
as it uses less flexible, outdated technology.
The Lottery must ensure the pipeline of Scratchers ticket inventory from the Lottery to the
retailer is functioning smoothly in order to handle the growth in the retailer network. A
number of enhancements are being implemented during 2013, such as improving the
return process for excess or unsold inventory, and cutting the time between creation of
an order and receipt of those tickets at retail by one to two days. Additional areas of the
Supply Chain will be reviewed and modified to create continuous process improvements.
A key area where the Lottery supports its
retailers
is
with
promotional
and
merchandising opportunities. Prior retailer
promotional efforts have proven to be
successful in generating additional sales.
However, these were large statewide efforts
that require significant staff resources to
execute. In order to implement more retailer
promotions, a menu of “turnkey” promotions will be developed to be more flexible and
customizable. All elements needed to conduct this promotion will be provided in kits,
allowing the DSR to determine the appropriate time to run this promotion at a particular
location.
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As one example, a program is
being developed for FY 2013-14
that gives retailers incentives to
move their Scratchers game
displays from underneath the
counter where they are only
visible to the one customer at the
register making their purchase to
an on-counter display that all
shoppers could see.
With the prior gains and the
planned growth in sales plus the
expansion of the retailer network,
an initiative to monitor and manage the financial risk over the entire retailer life cycle is
essential. With the average retailer handling over $4,000 per week in cash transactions
for the Lottery, we are vulnerable to potentially high levels of bad debt. This strategic
initiative will first assess then re-engineer some of our processes to better manage our
exposure to financial risk. Through these projects, we will be able to select more
financially stable retailers into the network – thereby minimizing the number of accounts
who are later terminated, or go out of business.
Goal 9. Improve the Lottery’s Infrastructure
After years of deferring funding for projects to update, or in some cases, even properly
maintain the infrastructure, we find a situation where the Lottery’s internal operations in
many cases may not be able to efficiently handle the demands from its own growth.
While the bulk of the initiatives proposed for FY 2013-14 are of the sales building nature,
additional funding is now being devoted to these infrastructure projects. These much
needed improvements will allow the Lottery to run more efficiently and effectively and
give it more capacity to handle the dramatic growth in sales, retailers and new programs.
A need for a new Enterprise Resource Planning (ERP) system was identified in the 20102013 Strategic Plan. The existing financial and human resources systems are outdated
and require staff to perform many manual processes and workarounds to handle the
business needs. This creates a lack of timely information to better plan usage of our
resources, or to quickly implement changes to take advantage of new opportunities.
In 2010, during the early stages of the project, the Lottery determined to upgrade the
existing Epicor administrative system as the way to best address immediate needs. This
upgrade will be completed by the Fall of 2013. After staff has adapted to the new
functionality offered through this upgrade, an ERP Feasibility Study will begin during the
latter portion of FY 2013-14. And, this effort will identify a recommended strategy to
replace the Lottery’s current and outdated ERP system. With a procurement process
followed by an implementation effort, the overall project to bring a new ERP system to the
Lottery will take most of the next three years.
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In the interim, some smaller scale efforts at reducing certain manual processes will be
handled on a project by project basis. For example, automation of the travel expense
claim process through a new web-based application called CalATERS will be pursued as
it will save significant staff time. In addition, a project to redesign and automate some of
the human resources processes such as recruitment, hiring, performance management,
and training will be undertaken.
Enhancements to the Lottery’s Contact Center will be completed in the first year of this
three-year period to increase our customer service capacity by providing support to our
players seven days a week with better response times.
To increase efficiency and consistency in how the Lottery handles contracts, a unit will be
established to address those that are most critical to the organization. This unit will
provide transparency and consistency in managing these vendors, will track and monitor
key provisions in these contracts, and assess any penalties and/or incentives that are
part of the terms.
To further improve business operations and sales support, the Lottery will continue to
expand the Business Intelligence Business Analytics (BIBA) system. BIBA is already
available to the sales staff providing key information on product sales and other key
performance indicators. As more information is incorporated into BIBA and it is deployed
to a larger sector of the staff, the Lottery’s operations will become more effective.
At the heart of any lottery is its integrity and security. The Lottery’s strong commitment in
this area results in adopting the stringent industry standards established by the WLA. We
will be reviewing our processes and control measures to ensure they meet the WLA’s
Security Control Standard Certification requirements. The Lottery will then seek to
become the first lottery in the nation to obtain this certification from the WLA.
The Lottery also must look ahead by developing plans and conducting further reviews to
be in better position to ensure its future performance. These efforts will result in an
infrastructure that will be prepared to meet future business goals and have the potential
to reduce costs in the long run. As such, an enterprise-wide risk management program
will be developed to identify, assess and monitor potential issues or events that may keep
us from meeting our goals. An Information Technology Strategic Plan will ensure our
technology services are aligned and in support of the Lottery’s current and future
business needs. Similarly, a Facilities Master Plan will be created to build a long-term
vision of how that aspect of our infrastructure can meet our long-term goals.
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Goal 10. Build a “One Lottery” Culture within the Organization
In the past, the internal culture at the Lottery was characterized by “silos,” in which
individuals primarily focused on just their functional division within the company and did
not always understand, or take into consideration, the cross-divisional dependencies in
their work.
In order to successfully execute the Lottery’s Strategic Direction, it will be essential to
break down the barriers that impede cross-divisional teaming and cooperative
approaches to managing the Lottery’s work. This will be done by employing an approach
called Matrix Management. While staff will still reside within divisions organized as they
currently are, they will also work on cross-divisional project teams reporting to a different
project manager.
However, organizational culture is not changed easily or quickly. Fostering a “One
Lottery” Culture will require both tangible changes in processes and investments in
people and technology. It will also require aligning messages, actions and reward
structures in a consistent fashion.
There are several initiatives under this goal across various areas of the Lottery. There
will be the further development of project management skills, capabilities and culture
within the Lottery including a technical solution that will allow the Lottery to better handle
its many projects. And, there are staff training efforts along with succession planning
initiatives to support this goal.
Summary
The Lottery believes these ten goals are responsive to the Lottery’s vision and identify
the major areas that must be addressed for the Lottery to carry out its mission and
achieve $6 billion in total sales by FY 2015-16, while providing an annual contribution of
$1.5 billion to California public schools.
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