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The big online lottery biz
Arti Sharma |
February 01, 2003
Is multi-millionaire Subhash Chandra about to strike it rich once again? It looks that way as millions of Indians queue up in the hope of making their fortunes at his Playwin online lottery counters.
Each week, Playwin sells over 17 million tickets and with bigger jackpots on offer, lottery fever is getting more frenzied than ever.
And it isn't only middle and working class Indians who've been hit by the online lottery bug. India's richest tycoons are dreaming of minting money and are leaping into the business faster than you can say bingo.
In December, the Ruia-promoted Essar group launched its Fortune online lottery in a modest way with 15 retail counters in Nagaland.
But the Essar group is hoping to take the country by storm quickly and by March it will be selling in three more states, West Bengal, Kerala and Karnataka. In its bid to be a big player in the lottery game, Essar is dipping deep into its pockets and will spend Rs 250 crore (Rs 2.50 billion) in short order. It plans to have 10,000 outlets by December.
It isn't the only one putting big bets on online lotteries. Other players like Lalit K Modi's Modi Enterprises, Venugopal Dhoot's Videocon group, P K Mittal's Ispat group and a clutch of regional players are all hoping to convert the Rs 50,000-crore (Rs 500 billion) paper lottery business into a large online lottery market.
"With the introduction of the online system, the Indian market will only expand," says Sanjay Das, chief executive officer, Playwin Infravest, the holding company running the online lottery for Chandra's Essel Group.
What's the reason for the latest bout of lottery fever? Most of the newcomers are betting India will go the same way as countries like Britain and the United States, where online lotteries have ousted all rivals and captured more than 80 per cent of the market in the last decade.
Britain's National Lottery, for instance, was launched in 1993 and is said to sell over 25 million tickets each week.
But it isn't only the lure of hi-technology that is attracting the new players. Till now the state lotteries have been controlled by businessmen who started small and made fortunes on the way. The newcomers are big corporate players who are betting that sophisticated marketing techniques combined with hardselling and an advertising blitzkrieg can expand the business.
Says Das: "The appeal is that it is a very large market and can be sold like any fast moving consumer product."
They are also hoping online lotteries will have a new sheen of respectability that will attract new customers. "Typically the business has been run by illegal channels. Now with online lotteries, there's transparency, credibility and scale," says Vikash Saraf, chief executive officer, Essar Teleholdings.
Take a look at Essar Teleholdings and how it forayed into online lotteries. It bought a 10 per cent stake in two-year-old, Delhi-based Computer Aided Information Research Services, a company set up by three promoters -- Anshu Balbir, Sapu Bhattacharya and Ashwini Khurana -- who had the licence to run the Nagaland government's online lottery.
Khurana was a star of the lottery world until seven years ago when he ran into legal difficulties and exited the business. The three businessmen are said to have approached Essar in September and persuaded the steel and shipping major to plunge into a new business.
Now Essar hopes to leverage the group's Hutchison Essar's 2.5 million mobile customer base in 10 states to market lottery tickets.
"We have experience in setting up distribution channels and marketing brands so that's really where we're coming from," says Saraf.'
But there's no question about which company has the first mover advantage. Playwin sells lottery tickets for three states -- Sikkim, Karanataka and Maharashtra. It launched into the business in March 2002 with only 300 terminals across 14 states where lotteries are permitted.
Today it has a network of 4,800 terminals in these 14 states. By end March it expects turnover to touch Rs 1,000 crore (Rs 10 billion).
What's more, it's stepping up expansion and plans to have 10,000 outlets in the next three months.
Das, who calls this a mass volume game, says, "We already had an existing base of assets with our presence in communications, satellite technology and VSAT connectivity. Setting up the infrastructure was extremely cost effective for us."
Playwin, which started with an initial investment of Rs 100 crore (Rs 1 billion), has since pumped in an extra Rs 350 crore (Rs 3.50 billion).
Others are watching the Playwin model intently. Two months ago, the Rs 4,731-crore (Rs 47.31 billion) Videocon group picked up a 20 per cent stake in Arunachal Pradesh Lottery which has the licence for the Arunachal Pradesh state government lottery.
Videocon says it's also bidding for the Haryana, Punjab and Tamil Nadu lotteries. The company's chairman and managing director, Venugopal Dhoot says he has invested in Arunachal Pradesh Lottery because he had ready cash available.
Videocon has made several loudly publicised attempts to diversify (like its effort to bid for Indian Airlines) but it has only made a few new moves.
One company that should have been rolling the dice and calling out the winning numbers already is Modi Enterprises which won the licence to run the Manipur state lottery for a 10-year period last year.
But its rollout, set for mid-2002, was stalled after the Essel Group went to court over the licence. The licence was finally terminated when the government changed.
However, in November 2002, the agreement was reworked and finally the Modi online lottery brand -- Sixo -- will be launched by May.
The company has already set up a unit to run the lottery called Integrated Technology Solutions and it has tied up with Stockholm-based EssNet for the equipment.
The group plans to spend Rs 400 crore (Rs 4 billion) in the first phase and aims to open 10,000 outlets in its first year.
Other players like steel giant Ispat have shown keenness to pick winning numbers by making ambitious bids for state lotteries.
In December 2001, Ispat bid for the Maharashtra state lottery but was pipped to the post by Essel which promised the state a guaranteed Rs 100 crore (Rs 1 billion) annually for the next 10 years.
Ashok Khinvasara, director, business development, Ispat, says it has put its plan on the backburner for the moment but is keeping its options open and will keep an eye on any future bidding.
"We would be interested in a state which is similar to Maharashtra in terms of size and government," he says.
Each aspiring lottery giant has its own advantages in the new game. Zee's television network is invaluable and enables the group to launch a low-priced saturation ad campaign across 14 channels. It ensures it gets maximum publicity by re-jigging prime time programming for its 10 live draws each week.
It even interrupts the Thursday mega-movie for the winning draws. Similarly, Essar plans to use its mobile phone company's marketing network.
Even the Modi Group reckons it has a network that can reach out across the country.
Lalit Modi, who is masterminding the company's foray into lotteries, hopes to utilise the distribution networks controlled by the group's cigarette company, Godfrey Philips' and Modicare.
Bsides that he hopes to utilise TV channels Hallmark and Fashion TV that are marketed by the group.
Says Modi Entertainment, CEO, Shreekant Gupte, "We decided to get into this more than a year ago. Today governments are looking favourably at the business and corporatising it will only mean revenue for them."
Gupte has a point there. Reserve Bank of India figures show in 2001-02 state governments earned Rs 3,896 crore (Rs 38.96 billion) from ordinary lotteries.
That figure isn't as high as it could be considering the size of the market and it suggests a lot of money is leaking out of the system. The online system isn't foolproof but governments are likely to gain.
"The online model tends towards corporate governance," says Gupte. Each company has worked out different revenue models to win the favour of state governments. Essel, for instance, is working on a guaranteed returns model.
However, Essar is working on a different revenue plan. Instead of an assured return, the Nagaland government will pay Essar a 25 per cent commission on sales that will cover operating costs.
The key players say the prize kitty is divided in the ratio of 50:20:30 where 50 per cent goes towards the prize, 20 per cent to the government and the rest to the promoter.
Saraf says expected operating margins will only be around 4 per cent to 5 per cent.
Playwin's Das reckons operating margins are much lower. So while Essar is expecting to break even in six months to a year, Essel's conservative estimate is that break even will take two years.
Even so, it's not going to be an easy game to play. There are also regional players like the Coimbatore-based Santiago Martin, one of the two players to dominate the paper lottery business. Another large player in paper lotteries, M K Subba, is also a contender.
But the state governments have now tilted the scales in favour of bigger players by stipulating applicants should have a minimum turnover and net worth.
Technology is, of course, key to all these enterprises -- and it isn't cheap. Essel has tied up with US-based International Lottery and Totalizator System to import terminals that each cost Rs 2.5 lakh (Rs 250,000).
That means it has spent about Rs 120 crore (Rs 1.20 billion) for its 4,800 terminals. Similarly, Essar has tied up with French company Editec and spent similar amounts.
But the new, aspiring lottery giants are planning to change the nature of the game in more ways than one. Till now buying lottery tickets was very much a working class habit. The new players now have drawn the middle class as well.
Says Saraf: "The major differentiator will be the product offering in terms of the prize ratio, more winners, better and deeper distribution."
Like Essel which has the lotto and the thunderball games, Essar too plans to start with those and then move on to other product offerings like† keno, (a type of number game), bingo and other interactive games.
Saraf argues even if Playwin does have first mover advantages, it doesn't eventually matter. "We've seen how they have sorted out regulation and ironed out initial issues, and that has been a learning experience for us. Once we get the relevant critical size, it hardly matters who came first or second," he says.
Both Das and Saraf expect to see the market expand with more players coming in. Eventually, they anticipate a shakeout. But in the meantime, the betting game has just begun. And who will win the jackpot is anyone's guess.
Hitting the jackpot
It started amidst a terrific controversy about the state being involved in running lotteries. But Britain's 10-year-old National Lottery has been a hit with the punters from the first time the winning numbers were announced.
Back in 1994 more than 22 million people turned on their TV sets to watch the show where the first winning numbers were picked. And today around 25 million tickets are sold each week.
Today the National Lottery, run by the Camelot Group has become a model for online lotteries around the world. It went online in 1994 retailing out of 10,000 outlets. By the end of the first year, the lottery had raised £1 billion, which was used on a range of projects approved by the British Parliament. By February 1998, the National Lottery had created 500 millionaires.
Camelot faced stiff competition two years ago when its contract to run the lottery expired. Richard Branson, the publicity conscious Virgin Group boss made an aggressive bid for the lottery and even Bill Gates of Microsoft showed an interest in it. Branson promised the government higher returns but there were doubts about his figures and whether he would really be able to raise so much. Camelot's licence was finally renewed.
Today Camelot has a team of 950 people. Lottery tickets are available at newsagents in almost every corner of Britain. Camelot itself is a privately held company wholly owned by Cadbury Schweppes, Royal Mail Enterprises, De La Rue Holdings, Fujitsu Services and Thales Electronics, which each share a 20 per cent stake in the company.
After its licence was renewed Camelot installed a new information technology system, which took 12 months and cost £90 million. The project involved Compaq Computer, G-Tech and Deloitte & Touche.
Camelot has even bigger plans for the future. It wants to offer the National Lottery on the Internet and on mobile phones and interactive television, Besides that it also wants to launch instant win games.
Last year, Camelot's profit after tax amounted to £41.3 million as compared to £33.7 million in the previous year.