It will not have escaped people in the sector that lottery has not ridden the same wave of innovation that much of the rest of gaming has in recent years.

Many modern lotteries are, in technological terms, built on the foundations of outdated and inflexible legacy platforms. While often serviceable in the eyes of an individual player, they can see operators run the risk of delivering an experience poorly tailored to the specific needs of different regional markets.

It is increasingly through the use of bespoke platform solutions that lottery operators will find success, with scalable technology that can be streamlined to perfectly line up with the demands of a brand’s particular target audience. This is especially true as the popularity of online lotteries grows on a global scale, particularly in emerging markets across Africa and Latin America.
We have found in our dealings in both regions that flexibility and building bespoke solutions in active dialogue with partners to be of paramount importance. It is only by working in close partnership and constant communication that a truly tailored lottery solution will be viable in the long term.

The regulatory landscape is constantly changing as markets emerge and regulate around the world. It will be operators with flexible platforms, capable of delivering on true speed to market that will be the ones to succeed in a marketplace that is showing no signs of slowing down. Partnering with a white label solution capable of handling everything on the regulatory end can be a solution for operators here, giving them the freedom to focus entirely on the brand and their market positioning.

The need for innovation in the lottery sector is placed into sharper focus by the increasingly crowded nature of the igaming industry at large. Lotteries are now competing for the attention of players with sportsbooks, online casinos and virtuals, all sectors that are falling over themselves to offer players the latest in gaming technology and innovative experiences. If the lottery sector is to compete, it must match this hunger for innovation.

The power of instant win

The buzz around instant win games has been building to a crescendo in recent years, and has become a consistent topic of discussion at industry conferences across the world. Operators are becoming more and more aware of the power of such games to enliven the traditional lottery experience offered on their sites.

For player’s after a quick burst of lottery-esque gameplay, instant win titles deliver. Combining a robust and bespoke platform offering with the most appealing instant win content can help to elevate an operator’s game play. The importance of these games in driving acquisition and retention for the modern lottery operator should not be understated.

The lottery market boasts significant potential, there to be tapped by operators in both established jurisdictions, such as the UK, and in emerging regions across Africa, Latin America and beyond. It is in embracing flexibility and new innovations like instant win games that they can harness this potential for their benefit.

Following from my previous post on Gibraltar’s UK challenge, the final judgement concluded, as I hinted, that Gibraltar and the UK should be treated legally as a single member state.

The European court rejected the Gibraltar authorities case saying that whilst it was not technically part of the UK, the court regarded that the dispute between Gibraltar and the UK was a situation confined to a single member state.

The result is that the special 1% tax rate paid by Gibraltar based companies will now be replaced by the UK’s 15% point of consumption Tax. This industry analyst believe will effect 80% of the customers of Gibraltarian companies.

It will be interesting to watch what happens next for Gibraltar’s operators in the light of this new regime which is further complicated with Brexit. Will opportunities be created for other premier offshore locations or will the UK’s desired result play out with a relocation to the UK. However, the industry is very important to Gibraltar and so it remains to be seen what incentives they may come back with. Certainly interesting times a head.

The global lottery market is expected to grow at a CAGR of 9.44% during the period 2017-2021 and yet it faces significant challenges.

One of the major challenges faced by operators in the lottery market is jackpot fatigue. Lottery is a game of chance and players know that they have limited chances of winning a jackpot.

Complementary entertainment is one solution, effectively making the jackpot only part of the lottery appeal, but innovation in this sector has more challenges than most. To explain why it is important to understand that the lottery industry is tightly regulated in order to protect public interest, ensure that the revenues collected are appropriately redistributed to players and the society for good causes. It is the operator and platform providers obligation is to ensure that the games are fair and transparent and are provided through the channels permitted by law. Taking into account that innovation flourishes in an unstructured and creative atmosphere this level of freedom difficult to achieve in an environment where regulation usually lags innovation. This poses a critical issue for the industry, though there are jurisdictions where regulators are more proactive than others. One such location in is Jersey (Channel Islands) which is one of the reasons we based our businesses there, the home state regulator, The Jersey Gambling Commission, demonstrate a proactive approach to innovation which enables businesses to quickly establish whether or not to pursue projects early in their development life cycle. This approach is appealing to innovators and those in fast moving markets, making the jurisdiction attractive not just to the lottery sector but to the egmaing the industry as a whole.

This is important because traditional (physical) lotteries are being gradually replaced or augmented by other technologically advanced solutions which allow greater entertainment value and crucially create the opportunity to develop a personalised relationship. As such the interaction between lottery providers and players is slowly becoming multidimensional (omni channel), giving the players multiple options for providing entertainment driven by innovation. Innovation has always been considered a tool towards success this has never been more true than today as advances in technology provide a wealth of opportunity to differentiate and entertain thereby increasing the value of existing players and enticing new ones.

Mobile devices and social networks have created new trends and habits which change the way people communicate, are informed and influence purchasing choices, the lottery industry has to embrace this. As Virtual Reality matures this will have a major impact on the eGaming market as a whole but it has a particular place in the adjacent and growing complementary lottery games market.

Finally we are witnessing a trend of blurring the lines between games of chance and skill which is driven in part by the Millennial generations preference for games of skill. If the industry is to be successful it has to increase its appeal across the generation as well as access into new markets and target demographics.

Conclusion

The lottery industry operates under a tightly regulated environment, the industry has to evolve to maintain relevance in the new online world and enable a blended omni channel environment for players. The catalyst for this change requires new thinking in regulatory approaches and compliance to encourage and enable innovation. This trend has started, though there is significant scope for innovation and disruption with new player centric providers enabling new lottery experiences.

In 2014, the UK introduced a new tax regime for gaming duties under which all (foreign and domestic) providers of online gambling services are required to apply for a license and to pay a duty for all business placed with operators from UK customers. Under the previous regime, only service providers established in the UK were subject to gambling duties.

The Gibraltar Betting and Gaming Association (GBGA) is a trade association for gambling providers. Most of its members are Gibraltar based providers of remote gaming services and many have significant UK facing business. This new tax regime, if implemented as the UK intends could cause certain Gibraltar based operators to consider their domicile, at least for parts of their operations.

The GBGA challenged the new gambling duty regime before the UK courts, stating that it was contrary to the freedom to provide services as enshrined in article 56 of the Treaty on the Functioning of the EU (TFEU)

On 19 January 2017, Advocate General Szpunar of the Court of Justice of the European Union (ECJ) gave his Opinion in the case of Gibraltar Betting and Gaming Association Limited v. Commissioners for Her Majesty's Revenue and Customs, Her Majesty's Treasury

This is not a final ruling, just an opinion, but one that many suspect carries significant weight. The conclusions are not good for the GBGA.

A high level summary is as follows:

The AG began by noting that although it is clear that EU law applies to Gibraltar (article 355(3) of the TFEU), it is silent as to how the fundamental freedoms apply between the UK and Gibraltar.

After an overview of ECJ case law the AG considered that the TFEU uses the term "...nationals of Member States...". Article 355(3) of the TFEU does not grant Gibraltar itself the status of Member State. As such, the AG proposes, that the UK and Gibraltar can be nothing other than a single Member State for purposes of article 56 of the TFEU.

The AG proposes that whether or not the gambling duty represents a restriction on the freedom to provide services is hypothetical since they are a single Member State (and the freedom to provide services does not apply to purely internal situations). However, if the ECJ were to find that the UK and Gibraltar are not a single Member State, the AG, suggested that the regime charges tax in the same way for all providers of the defined gambling services, irrespective of where these providers are established.

The AG also rejected the GBGA's argument that the tax charged constitutes an extraterritorial tax (i.e. a tax on the profits of suppliers located outside the UK) and not a tax on consumption or consumers.

As to whether the tax constitutes a restriction on the (hypothetical) freedom to provide services, the AG proposes that it does not. In the first place, the tax is applied in exactly the same manner to both local and foreign providers of the gambling services. The argument that a tax may give rise to double taxation also fails: the ECJ has held consistently that double taxation is not prohibited by the fundamental freedoms.

Conclusion
The AG proposed that the ECJ answer the referred questions by deciding that: "The United Kingdom of Great Britain and Northern Ireland and Gibraltar are to be considered as a single Member State for the purposes of the application of Article 56 TFEU."

I started to reflect on Several ecosystems I have a working experience of, London, Brighton, Edinburgh, Glasgow, Cambridge, LA, Helsinki and how Jersey compares and what they might do next.

Ecosystems are by their nature are incredibly complex and difficult to get right, even the big boys get this wrong….

Small business is the backbone of our economy....President Barack Obama , August 17, 2010

New businesses are the lifeblood of a healthy economy....PM David Cameron , November 20, 2013

Both these two statements have something in common: they are both wrong or at best, misleading.  ( I pause to contemplate what Trump might say in 2017 and shiver). Small, businesses, new businesses, knowledge-based businesses are not the key to economic health. Yet despite this, stimulating growth via SMES or small business has been at the heart of economic and industrial policy throughout the world, only recently being upstaged by startups.  

In recent years, we have witnessed a significant global shift in attitudes towards entrepreneurship. This is reflected in the dramatic proliferation of start-up programs: Start-up…America, Chile, Russia, Britain, Weekend, etc.. Start-up has become the entrepreneurship buzzword.  There is hardly a country or city that is lacking a start-up program with scale up being the natural evolution of the successful start up on the journey to be the elusive unicorn.

Unfortunately, this is a very narrow view of entrepreneurship consisting primarily in the starting-up of an enterprise. Equating entrepreneurship with start-up is not wrong, it is just very incomplete. It is also problematic because it implies that the most difficult task of the entrepreneur is launching his or her venture. It also infers that this is just a numbers game and so the more start ups the greater the chances of a successful exit. Quantity over quality.

On reflection a balanced approach seems obvious and when you look at that from a jurisdiction point of view one should seek to create an environment that seeks to support and enable growth for all stages, existing, new, early, mid and late stage policy that is designed to kick start rapid growth regardless of age profile.

It is both important and interesting to reflect that high growth firms are the ones generating jobs, and these are from a small number of firms and yet they account for the majority of job creation. These firms are also on average older than you might expect, studies of show that their growth often occurs after several years of steady progress but then in sudden, largely unforeseeable spurts for reasons ranging from market shifts, buyouts, recapitalisation, new management and sometimes luck. Of course there are the exceptions such as Google but across all sectors this is simply not the case.

Jersey then has a delicate balancing act to play, we can learn a lot from the others, and despite often insisting we are different when we are not. We do not have to implement their programs in the same way, but we can and should learn from them. Scotland, for example has been particularly successful in providing a comprehensive mix of funding, support, mentoring and cross pollination of complementary business. They have combined this with universities housing super computing capability who are engaged with the commercial world and hence form a critical part of the Eco system. Coupled with with Scottish enterprise who provide an excellent service and the offer is intoxicating. Innovate Uk is equally proactive and successful, incentives for investors have been undeniably successful with SEIS and EIS being two of many, but funding is not the only ingredient. The UK's armoury includes access to talent coupled with a welcoming environment for skills based immigration, add to this an engaged business community which stimulates, mentors and provides real world interaction provides a compelling jurisdiction.

This did not happen over night and Jersey policy makers then should see themselves as nurturing, the architect of enabling platforms, these are not command and control these are much more about creating the right environment to encourage collaboration, more on that later. In small island economies it is even more important (in fact imperative) that private and public sector leaders are aligned, it is futile to go to market without, political alignment and the necessary commercial delivery mechanisms.

 If Jersey is to take a leap forward then it needs to foster, through policy and practice a complex entrepreneurship ecosystems in which high growth firms (existing or new) can take root and thrive.

This is not as easy as it sounds entrepreneurial ecosystems differ from traditional policy. Entrepreneurial ecosystems are complex, they comprise of many different stakeholders.  I  have seen people insist Jersey is treated as a product and others who refute that approach completely and recommend it is a service delivery business. This is difficult for governments, with a heterogeneous mix of the stakeholders and markets, industries and interests there is no one size fits all.

To complicate matters further there is a different order of elements and culture from traditional business norms. This is a complex, multi-level system where local interactions among individual ecosystem stakeholders on subjects that are not necessarily aligned to their paymasters but help the overall ecosystem. This type of interaction is anathema to command and control systems that government policy and traditional industries expect. An analogy with cloud computing and entrepreneurial ecosystem is that spare system-wide resources (Memory and CPU) are used to support other systems that enable a variety of projects in the hope that the effort is repaid forward at some point in time. In essence spare resources might help generate high-growth new ventures and as a result the ecosystem benefits as a whole. A rising tide lifting all boats.

How can we improve things? Instead of top-down, co ordinated bottom-up appears to work better. Engaging stakeholders and the wider world to see what would make an attractive environment and acting on that, not standing back, two way communication is vital. Instead of one big intervention, coordination of myriad local ones, undertaken by the stakeholders themselves. The biggest source of ecosystem inertia is insufficient stakeholder participation. As no one owns the ecosystem outcomes, it is too easy for all stakeholders just to wait for others to act and then reap the collective benefits. To overcome this problem, you need an ecosystem facilitation approach that builds sufficient commitment and mutual awareness among stakeholders. And even with sufficient commitment, you still need a backbone organisation to keep the momentum alive. In the eGaming environment it is common for a government or QUANGO to provide support in this way and welcome new inward investment.

In entrepreneurial ecosystems, the best role for the policy-maker is an ecosystem orchestrator and a facilitator that facilitates the build-up of ecosystem momentum through deep stakeholder engagement. Engagement means listening supporting and communicating. Perhaps this illustration describes it better.

Finally QUANGO's can attempt to pick winners, where there is overlap on the venn diagram of capability, desirability and potential customer need. But I do not subscribe to the notion they can pick winners, they should encourage all comers, whilst focusing on market sectors generically with tailored messages, and delivering a sustained external marketing effort and reviewing the results and pivoting when feedback loops signpost new directions.

The challenge for Government and their QUANGO's is defining what business model(s) to adopt for innovation and to develop a framework for identifying opportunities. Strategies can have a mix of options the most obvious three are:

Focus narrowly The main drawback for a focused business is that it must rely on a single product, service, or customer segment, and it may omit key customer needs. It could be argued this is where Jersey is today with finance.

Search for commonalities across products In the late 1990s Amazon expanded from books into music, video, and games, all of which required the same logistics capabilities that books did. This allowed the company to cover the risk of failing to acquire enough share in any one of these categories with a potentially superior share in another. Commonality is more complex at a jurisdiction level but Jersey has some opportunity with agility in law making and regulation. In fact this is probably one of our most important assets.

Create a hedged portfolio Just as financial institutions try to create portfolios of investments that will hedge one anothers risks, jurisdictions can select an assortment of markets to reduce the overall riskiness of the economic model. Clearly, the approach works mainly for product and market combinations in which demand fluctuations are negatively correlated.

There is an emerging and vibrant egaming sector in Jersey, these business are primary industries that are digital exporters, they supply world class content to house hold names globally and in the case of Twelve40 thorough our lottery business our clients support good causes in countries well away from our shores. The industry is supported by the local law firms, corporate service providers and telecommunications providers.  This then, perhaps, is the start of a hedged portfolio which has significant potential for growth as well as supporting the local finance, telco and tech sector.

The evolution of traditional scratch cards into electronic scratch cards has come a long way since their first appearance some 14 years ago. Then, a ‘match 3' was considered state of the art. Today, the prize structures and jackpot levels remain key factors in choosing which games to play, but increasingly, importance is placed on developing engaging, memorable and more personalised content. These factors combine to evolve a players experience and entertainment, thereby encouraging repeat levels of play. Electronic scratch cards are no longer seen as purely an online complement to retail scratch cards, but rather as stand-alone games in their own right.

This evolution has not happened in isolation, gaming has seen a significant shift in the past ten years. It has become a social pastime, with players collaborating in common goals and celebrating their wins collectively. Microsoft and Sony are not successful just because of the quality of their games and the skill based environment they have created, but also because of the social engagement.

The evolution of electronic scratch cards has had positive knock on effects for the industry. Traditionally these games have appealed to lottery and bingo players, but as their complexity and entertainment levels have grown, segments dominated by slots and casino games have increasingly been diversifying and adding this game content. Games no longer mimic the retail experience. The trend of developing characters, brand association and stories have widened the audience and attracted interest in the younger generations.

An average online scratch card can last between 20 and 40 seconds. The content is designed to entertain and encourage replays which extends a player’s time on an operator site providing cross promotional opportunities. Games can also feature as bonus content for other games. This shift in style has two business advantages. For the traditional markets of lottery and bingo, it appeals to a younger audience who prefer skill based games, and for the sportsbook and casino operators it provides new content and monetisation opportunities.

Previously, platform providers were reluctant to invest valuable time or resources to integrate non-core electronic scratch titles due to the untested payback models. However, specialist content aggregations, such as Twelve40, have created specific licenced delivery platforms for this content. These specialist service providers enable platform providers and operators to quickly and seamlessly gain access to content through a simple API integration, saving months of work and eliminating risk. It is also possible to reskin existing games so that they are unrecognisable from the original, providing cost effect access to bespoke content whether for a specific tournament, event or market segment.

These specialist platforms are constantly developing new player mechanics, ensuring that their developers have access to the latest environments for their games and themes. By being focused on the sector, developer innovation is encouraged, with creative inspiration often driven from the changing requirements and demands of the client base, resulting in advanced social and engagement features and flexible payments.

As with any market, innovation is critical. Across the industry there is a definite move towards online play in this sector, mobile in particular. Whilst the main features of a game include the prize and the number of near wins that result in a positive experience, future success will depend on personalisation, rich content, social features and sharing. We are already seeing this trend drive significant revenue for our clients.