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New Price, New Hope? An Examination of the Effects of Doubling the Ticket Price in UK Lotto

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Abstract

The UK Lotto game was introduced in November 1994 with a standard 6/49 format and an entry fee of £1 per ticket. After several years, revenue began to fall despite extensive publicity and a variety of inducements. By 2013, nominal weekly revenue was less than half the 1995 level. In October 2013, the operator doubled the price of a ticket to £2 and made a number of changes to the pay-out structure of smaller prizes. The intent of the changes was to reverse the long downward trend in game revenue by encouraging higher jackpots and offering more pay-out opportunities for each ticket. We use draw by draw revenue and other data to evaluate how players responded to these changes and find that, while ticket sales fell dramatically, total revenue rose following the changes. Primarily this appears to have been the consequence of increased frequency of rollovers (and therefore of more frequent high jackpot draws) rather than ticket price inelasticity. However, although there was a short-term gain in revenue, the changes did not arrest, and indeed seem to have accentuated, the long-run trend decrease in the revenue generated by the game.

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Notes

  1. In the case of UK Lotto, there is also a bonus number drawn from a separate pool of numbers. Matching this number and five of the six regular numbers also wins a prize.

  2. Proceeds from the each Lotto draw are now employed as follows: 45% paid out in prizes, 28% paid to the Good Causes, 12% to the Government, 5% in retailer commission, 5% for operating costs and profit to the operator; the remaining 5% is reserved for use to fund extra or enhanced prizes in future special promotional draws or scratchcards (http://lottery.merseyworld.com/Sales_index.html). The Good Causes: arts, charities, heritage, sports, health, education, and environment. Lottery revenues also partially funded the 2012 London Olympics. (http://www.lotterygoodcauses.org.uk/sites/default/files/Fact%20Sheet%20Oct%202014.pdf).

  3. See http://www.marketingweek.co.uk/news/camelot-prepares-biggest-ever-marketing-campaign/4008018.article for a discussion of the marketing campaign associated with the lottery changes.

  4. Camelot would presumably have felt safe in promising higher jackpots. So long as players still purchased more than half the number of tickets as before, revenue and therefore the amount allocated to the jackpot would increase. Further, the price increase would reduce the absolute number of entries to some extent and so players collectively would cover fewer number combinations in each draw. Consequently, with the jackpot won less often, there would be expected to be longer sequences of draws where the jackpot prize was successively carried over (‘rolled over’ in lottery parlance), allowing large prize pots to build up.

  5. See for example https://uk.finance.yahoo.com/news/is-the-new-2-pound-national-lottery-ticket-a-worse-bet-171015787.html.

  6. Jackpots are often above £50 m and occasionally above £100 m. The odds are much longer than the UK game, though, at 1:116,531,800 for winning the main prize.

  7. http://www.gamblingcommission.gov.uk/Gambling-data-analysis/Gambling-participation/Gambling-participation-data/Gambling-participation-survey-data.aspx.

  8. Subsequently we checked whether this made a material difference to our results. In fact, findings would have been broadly similar had we analysed data on all draws since 1997.

  9. The specification of stage 1 is therefore: JACKPOT = f(TREND, OCT2013 VARIABLES, ROLLOVER, ROLLOVERSQ).

  10. We also experimented with variables representing jackpot size in adjacent Euromillions draws but these were not significant and so are not included in our final specification. We also included a number of dummy variables to account for a number of one-off events that may impact lotto sales, including England’s participation in soccer World Cups, the 2012 Olympics, among others. Inclusion of these variables had no effect on our results.

  11. And indeed gain from greater revenue at an initial non-rollover draw delivering a higher jackpot for the draw: the observed point on the new demand curve will lie upwards and to the right compared with that at the same jackpot size.

  12. As reported in Table 2, we found evidence of higher-order serial correlation in the Saturday regression results. Reported t-statistics have been corrected using the Newey–West method.

  13. It is possible only to speculate about the reason. Any effect of Wednesday sales on sales of the draw three days later may be a habit effect but it may also reflect reinvestment of bottom-tier prizes won on Wednesday. After the product changes, the bottom prize, for matching three numbers, was £25 instead of £10. Individuals may be inclined to treat £10 as ‘house money’ to be thrown back into the game but view £25 as substantial enough to be worth cashing in, i.e. keeping for themselves.

  14. This finding is reinforced by the significant negative sign on the interaction term with jackpot size in Saturday results. The corresponding Wednesday value is also negative, but not quite significant.

  15. In addition to the attractiveness of larger jackpots, sales may also be boosted due to the fact that, post-price change, there are now fewer winners to share a jackpot. In the 210 drawing prior to the October 2013 price change, there were an average of 2.16 winners when the jackpot was won by at least one ticket. The figure for the 210 drawings after the price change is 1.78. This difference is significant at the 5% level.

  16. Citing a lack of viewers, the BBC in January 2017 ended the live broadcast of the Saturday evening Lotto drawing. Instead, the drawing is now live-streamed on its website. Televised Wednesday drawings ended in 2012. At its peak in the mid-1990 s, the televised drawings drew millions of viewers and often featured celebrities pushing the button to begin the number drawing process.

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Correspondence to O. David Gulley.

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Both Gulley and Forrest state that they have no conflict of interest.

Human and Animal Rights Statement

This article does not contain any studies with human participants or animals performed by any of the authors.

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We thank Delaney Steele, Arun Venugopal, and Gabrielle Williams for assistance with the data.

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Forrest, D., Gulley, O.D. New Price, New Hope? An Examination of the Effects of Doubling the Ticket Price in UK Lotto. J Gambl Stud 34, 39–53 (2018). https://doi.org/10.1007/s10899-017-9689-z

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