Online Lotteries in the U.S.

The widespread legalization of online gaming has not yet spread to online lotteries. This is surprising because an online lottery under the auspices of the state is the most direct way for the state to profit from expanded gaming. At this point, there are six states that have legalized online lotteries with several more states attempting to do so. However, there is not the groundswell to legalize online lotteries as there is for sports betting, although that is beginning to change. Currently, movement towards online lotteries is outpacing movement towards online casinos, although the two may now find themselves locked in a zero-sum game.

The Road to Online Lotteries

Prior to 2011, states shied away from online lotteries due to the legal interpretation that they were forbidden by the Wire Act. In 2011, New York and Illinois requested that the Justice Department opine on whether the Wire Act was limited to sports betting. Specifically, the states were seeking an opinion that selling lottery tickets online to customers in their state borders was not a violation of the Wire Act. The Justice Department responded with a legal opinion that stated that the Wire Act did not prohibit these proposed online lottery sales. Specifically, it stated that interstate transmissions of wire communications that were not connected with sporting events were not barred. In addition, because these sales occur within state borders, UIGEA is not read to prohibit them as well. Although there was no federal law explicitly on point, there was nothing prohibiting online lotteries either.

Because federal law that prohibits interstate sales or communications is not applicable in this instance, online lotteries became a matter of state law which states were free to decide. The only prohibition that would result from federal law is a ban on interstate online lottery sales. In other words, Ohio residents could not play the Michigan lottery online. Outside of that, states are free to enact their own regulatory regimes should they choose to legalize online lotteries. It is important to note that this lack of a federal prohibition applies to both online lottery games and well as online sales of lottery tickets.

Where can you Play Online Lotteries?

StateGames AvailableLegalization DateLink to Law
PennsylvaniaPoewrball and Mega Millions10/2017HB 271
MichiganPowerball, Mega Millions, Lotto 47, Fantasy 511/2014Operating under existing laws over 30 years old.
GeorgiaFantasy 5, Mega Millions, Powerball11/2012Georgia Gambling Law
IllinoisPowerball, Daily Lottery Games, Instant Games3/2012Illinois Lottery Law
New HampshireMega Millions and Powerball7/2017HB 517
KentuckyJackpot, Daily Draw Games, Instant Play4/2016Kentucky Statue 154A

There are currently six states that have online lottery games available. In addition, there are five states that permit online subscription services. The very first mover in this space was Illinois. The state’s online lottery is mostly limited to sales of lottery tickets to both daily and jackpot games.

Georgia soon followed Illinois into online lotteries, which was surprising given that Georgia was one of the later states to legalize a physical lottery. The legalization overcame opposition from anti-gambling forces in the state. Georgia allows both online sales of lottery tickets as well as the ability to play certain lottery games electronically. The state has sold a large volume of tickets electronically.

The state that has set the standard for online lottery success is Michigan. The state offers both the ability to purchase jackpot game tickets as well as electronic scratch-offs that are available exclusively online. Surprisingly enough, online lottery sales have been accretive to total state lottery revenue as opposed to siphoning off revenue from the physical lottery. In fact, less than 18 months after the online lottery was launched in Michigan, weekly sales topped $8 million. At the same time, the retail lottery continues to set sales records. Studies have shown that some players are more likely to play the lottery if they do not have to leave their home and make a trip to the store.

Kentucky was the fourth state to begin its own online lottery. It took the state three years after it approved online lotteries to actually begin operations. The state offers both the ability to purchase physical lottery tickets as well as online games. As will be detailed below, Kentucky offers a robust variety of online games.

Pennsylvania has recently offered an online lottery. Its lottery has attempted an ambitious menu of game offerings which has brought it into conflict with its casinos. It remains to be seen how the online lottery will fare in a state that has recently added poker, sports wagering and online casinos.

Future Online Lottery Legalization

There are several Northeastern states that are seeking to legalize online lotteries. First, New Hampshire joined the list of states that now have lotteries, legalizing the online lottery last summer. In addition to the purchase of lottery tickets, New Hampshire offers e-Instant games that can be played from a smartphone, tablet or desktop. In addition, there is a trio of Northeastern states that are in various phases of attempting to legalize an online lottery. These states are Massachusetts, Rhode Island and New Jersey.

As mentioned above, all of the states that have online lotteries allow for the purchase of jackpot drawings. In addition, states also sell daily lottery tickets. Keno has also proved to be a popular online offering since customers no longer are required to stand in a store waiting for the numbers to be drawn. State lotteries have also offered popular virtual scratch-off games. For example, Georgia offers a wide variety of Diggi Games broken down into a variety of price points and themes. Michigan also offers a diverse variety of games, with tickets that can be purchased for as cheap as a nickel. The low price entry points help spur the Michigan lottery’s enduring popularity.

Competition with Online Casinos

Lotteries must be careful to not get too creative in the type of games that they offer lest they run afoul of casinos operating in the state. For example, in Pennsylvania, the state lottery has attempted to offer iLottery interactive games. These games have a casino-like feel, and unlike other online lottery games, offer large jackpots. These jackpots can reach a quarter of a million dollars. These games are not the typical lottery or scratch-off games that other online lotteries have offered. Some of these games mimic casino games insofar as they are blackjack and roulette-type offerings.

Pennsylvania online casinos have viewed this as an encroachment on their turf. Pennsylvania online casinos pay high licensing fees to the state and are required to pay a steep tax rate. This gives the casinos an expectation that they will not have competition from the state to which they pay these licensing fees and taxes. In addition, online lotteries gain a competitive advantage over casinos since lotteries are open to players aged 18 years or older, as opposed to casinos, whose eligibility age is three years older.

Pennsylvania is the only state where the iLottery competes with online casinos and so far the two have had trouble co-existing. New Jersey is also another crowded gambling market that is considering online lotteries. There is speculation that online casinos may oppose the move given the experience in neighboring Pennsylvania. New Jersey has experimented with courier sales of lottery tickets, but that does not require new ticket purchases. Pennsylvania is likely to prove a cautionary tale for other states seeking to have both an online lottery and online casinos unless the online lottery promises to be limited in scope. While there is room for casinos and states to grow revenues, at some point the two start competing for the same slice of the pie. The one advantage that casinos have over lotteries is that many lotteries prohibit credit card sales while casino accounts can be funded with a credit card.

In some instances, the presence of a successful online lottery may mean that online casinos may not get a chance to operate in a state. For example, Michigan has little incentive to offer online casinos since its online lottery has been so successful. Allowing online casinos to operate in the state may mean that Michigan has to share revenues with casino operators that are its exclusive territory right now. Michigan can continue to expand its own lottery offerings to a program that resembles Pennsylvania’s iLottery without legalizing online casinos.

Who can Play?

As noted above, online lottery players can begin to play at 18 years of age. Sales of lottery tickets online are restricted to those that are physically present within the state. This is in order to not violate the Wire Act.

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Sam Shefrin is the founder of Lineups.com, Inc. Before Lineups, he started Daily Fantasy Cafe, Inc. in 2014. Armed with a passion for sports and every Atlanta team, his journey continues with the goal of making Lineups a premier sports analytics destination. He has been quoted on Forbes.com for industry insight and his websites featured on NBATV, Yahoo! Sports, Fantasy Pros, Bleacher Report and SB Nation.