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Lottery couriers are operating but remain unregulated in a number of states, a situation that brings with it challenges and opposition from retailers and other stakeholders, including legislators and gaming regulators.
With ongoing opposition to legalizing online sales of lottery tickets in many states, courier services have popped up in different jurisdictions where legislators are not aware that they are operating.
“If iLottery is passed by the state, the state can control them,” said May Scheve Reardon, vice president of global relations with Pollard Banknote and former director of the Missouri Lottery.
Lottery couriers are live and fully regulated in just two states, New Jersey and New York, where they are required to be registered and licensed. Currently, however, leading couriers are operating in a grey market in a further 18 states and the District of Columbia.
Only a minority of state regulators and attorney generals have issued formal opinions on lottery courtiers.
In June, the California Lottery warned its 23,000 retail partners not to sell to online lottery couriers and threatened not to pay their sales commissions if the winning ticket was sold online.
A report released earlier this month from the Sunset Advisory Commission chided the Texas Lottery Commission for allowing couriers to operate in the state. Texas law prohibits the sale and distribution of lottery tickets online; however, couriers get around the law by taking orders and buying tickets from licensed retail locations.
Active lottery couriers in the U.S. include Jackpocket, Lotto.com, Mido Lotto and The Lotter.
In February, DraftKings reached a deal with Jackpocket to buy out the lottery courier for $750m. Jackpocket offers its lottery courier services in 17 states, Puerto Rico and the District of Columbia.
Jackpocket became the first registered lottery courier service in the U.S. in 2019 when New Jersey authorized the market.
“In the states in which (lottery couriers) operate, they are generally limited to draw games, not scratchers,” said Michael Pollock, senior policy advisor with Spectrum Gaming Group. “I wonder if courier services are just a half step toward iLottery or are they going to be the vehicle that becomes iLottery.”
Kurt Freedlund, a former executive deputy director and general counsel for the Illinois Lottery who now works for Gaming Laboratories International (GLI), said he went after courier services when they operated in Illinois but admitted they also provide another digital outlet for lottery players.
Freedlund admitted that while he was executive deputy director and general counsel for the Illinois Lottery, the lottery issued cease-and-desist letters to couriers when officials found them operating in the state.
“You didn’t know anything about them, and they were putting your players at risk,” Freedlund said. “The last thing we want is a courier to take an order and it turns out to be a jackpot winner and they can’t pay it, or something happens. That’s the worst-case scenario for a lottery.”
Reardon joined Freedland, Pollock and Andy Arnold, a partner with Arnold & Associates in Kansas City, Missouri, for a discussion on the future of lotteries in the U.S. at the National Council of Legislators from Gaming States (NCLGS) summer meeting earlier this month in Pittsburgh.
Arnold said his firm did some consulting work for Jackpocket in Missouri, and “tried to fit that square peg into a round hole”.
“We have a statute that says you can’t be licensed as a retailer for lottery if you are primarily in the lottery business,” Arnold said. “Jackpocket came to Missouri filed an application as a games portal… then were denied a license. Then they tried to partner with a lottery retailer who is selling the tickets.”
Freeland reiterated that courier services are not selling tickets.
“They are taking an order and then they are purchasing the ticket the person wanted,” he added. “They are using a licensed lottery retailer to purchase that ticket.”
Future Of State Lotteries
Arnold told NCLGS attendees that when lottery sales began in Missouri in 1986, the lottery generated about $100m annually for education, and when Reardon left it was transferring $425m to the state’s education fund. Still, he stressed that iLottery is the future and the industry has to modernize.
“To just think you are going to be able to sell scratcher tickets and make $420m isn’t going to happen,” Arnold said. “You need to figure out how to do it.”
Reardon believes iLottery will be the norm nationwide in five years.
Currently, ten states and the District of Columbia offer lottery sales online, while limited online sales have been approved in Arizona but has yet to launch.
Massachusetts also authorized online lottery sales in a state budget law that was signed into law by Governor Maura Healey on Monday (July 29). The Massachusetts Lottery said in a statement it hopes to launch an iLottery platform in late 2025.
“Although the lottery is a very strong industry with $113.3bn in sales (across the U.S.), we do ultimately need to assist brick-and-mortar locations to go online,” Reardon said. “We fought our retailers (in Missouri) who argue that if you go online people will stop coming to our stores.”
Reardon stressed that in every jurisdiction retail sales have increased by double-digits following the introduction of online lottery ticket sales.
“We’ve got a long way to go considering we have 46 lottery states in the U.S.,” said Freedlund. “iLottery is coming. How fast, I don’t know but this perception that it is going to hurt the brick-and-mortar retailers will subside.”
