Interview at Public Gaming, March 2010

Government lotteries are moving into the Internet Gaming space in a number of interesting ways. Perhaps surprisingly, this discussion returns again and again to how government lotteries are positioned far better than anyone else to be the leader in this category.

George Zenzefilis: INTRALOT’s success is built on a very unique proposition that addresses the entire breadth and depth of the needs of the lotteries’ worldwide: Excellence in both products and services across all market verticals, combined with the proven ability to deliver through local deployments and partnering relationships across all continents, INTRALOT has successfully managed to become the one-stop-shop for the modern lottery. 

Governments around the world are actively looking now in regulating the Industry within their national boundaries, creating rules and regulations is a good and healthy step towards building the foundation that will enable the industry to really take off and grow. The approach that many are taking is to create rules that enable private operators to co-exist with traditional lotteries. These private operators are required to comply with terms and conditions that qualify them to be licensed to offer a new range of games with the Internet, and possibly with the mobile and television.

G. Zenzefilis: A notable example of such a progress is Italy. The Italian model is a landmark case for the gaming industry in Europe. Italy’s regulatory initiatives laid the foundation for operators to move forward and now there is significant growth and the creation of brand new markets. It’s not just growth in revenues, which has been certainly impressive, and revealed the dynamics of regulating the industry, especially when the initial offering was a subset (e.g tournament poker as the first step) of the full spectrum. There are new players and new markets that have great upside potential.

Now there’s France, Spain, Denmark, and others who will be moving quickly in the same direction, creating the regulatory frameworks that will serve as the foundation for growth. The interesting thing is that lotteries are in the best position to move into this space and become the dominant operator in the internet and interactive gaming space. Lotteries’ widespread and established retail networks give them a formidable advantage with a POS presence that nobody comes close to matching. Their understanding of problem gaming and the tools they have built to support responsible gaming give them a great advantage because regulators will require that all operators meet a high standard in that area. And the value of a trusted brand in the gaming industry will be even greater in the Internet and mobile space. Private operators are playing catch-up with lotteries in these and on so many competitive fronts.

We are excited about the potential for lotteries to dominate this space because our business has been built on the promise of helping lotteries and regulated operators optimize their potential in every way they can. Now we are extending that focus to the Internet space with the INTRALOT Interactive.

G. Zenzefilis: I think Italy has been a balanced attempt between opening up the markets  to more than one service provider and maintaining stability in the marketplace. There needs to be a regulatory framework that supports a marketplace that is stable and dynamic, able to grow, innovate and evolve, and accomplish this without getting out of equilibrium. Responsible gaming standards must be upheld, taxes must be collected, and a fair competitive environment be maintained. Competition is a healthy driver for operators to continually improve and for products and games to get better, but only if all competitors are held to the same standards and are set under the same taxation framework. We will all learn from the experience in Italy, but clearly things are moving in a good direction.

G. Zenzefilis: There is indeed debate over this issue. The answer involves both public policy and technological issues. From a technological/operational point of view, you do not need to have all infrastructure based in the consumption country. Processes related to auditing and safeguarding the transactions, or integrating to local authorities could certainly be efficiently implemented in a number of ways. Even so, we support that the national legislation always has to be respected. The member-state may have perfectly legitimate concerns that cause them to require servers to be located in their country. As long as regulatory requirements like this are applied equally to all operators and the EU Commission does not rule that they are restrictive of trade and commerce, then this can prove to be the base of a healthy competition in the country.

G. Zenzefilis: Absolutely. Lotteries have efficient and lean operational models that generate significant revenue with a large customer base. And their retail network already delivers the easily accessible POS that the customer now expects. They are in a great position to take the leadership role in the gaming industry that is emerging. Think about how dramatically the combination of internet gaming and multiple operators will have on this industry.

The lotteries have a tremendous upside potential to leverage their powerful brand recognition and distribution to attract new player groups, implement new products, and develop new markets with new media channels like Internet and mobile. Lottery organizations may feel threatened by the need to compete. But I think it will soon be apparent that lotteries will win in this new competitive gaming environment.

• Can you tell us about some more specific initiatives and objectives for INTRALOT Interactive?

G. Zenzefilis: We have been very active in delivering the next generation of gaming technology, for the e-Gaming space, by growing organically but also through selective partnerships, such as the most recently announced of CyberArts. We place significant emphasis on key issues, focused on the ability of our customers to have a Customer Centric approach, that incorporates a multiplicity of internally developed or externally developed gaming content. The terms of “flexibility” and “brandability” are key design parameters, used to represent respectively our ability to differentiate the products and services, in the local market, in short go-to-market time scales, and our ability to support multiple-brand business models.

In terms of our markets, we are continuing to focus on our existing regulated operations, such as in Italy, and enhancing our product offering, as new possibilities will come along. We are certainly focused on new regulatory initiatives, such as the long-awaited, France opportunity.

G. Zenzefilis: They are. Our view is that business success and long lasting Customer relationships are based on clear terms and conditions, and this principle is guiding our partnership decisions. The industry has been long debating about the “duality” of being at the same time a B2C and a B2B provider. Our view is that there needs to be a clear separation line between these models and certainly that their coexistence, within an organization, may create more issues than benefits.

The industry is expected to experience strong consolidation, which is already evident. This will create organizations that are larger in size and possibly more focused on the key business models (B2B and/or B2C). Certainly lotteries will play a role in this process, and we will experience partnerships at a project level (providing gaming services within a specific territory) but also equally well at a corporate transaction level.

G. Zenzefilis: They definitely are. Part of the obstruction has always been on the legal and political front. As the EU Commission clarifies its expectations of the member-states, and as US states feel the need for revenues and perceive the opportunity in Internet gaming, I think lotteries will all see the opportunity and need to be where their current (and certainly future) customer is and implement the games that their players want to play.

The exciting thing for lotteries is that the internet gaming space is becoming a national market and that is suits the lottery model best. Certainly competition will be present and in some cases, the lotteries may find themselves competing with technologically advanced organizations. However the “brand strength” and most important the element of “trust” that is inherent in the very nature of their structures, is a significant head start, which if combined with flexible technology (that will allow dynamic local customizations) and effective business process, can prove a key ingredient of success.