Attracting millennials a top priority for global lottery industry

Attracting millennials a top priority for global lottery industry

Monday, July 31, 2017 Posted by James Walker
James Oakes is helping to create lottery with added Zeal

In November 2016, online lottery specialist Zeal Network underlined its commitment to the sector by launching an investment group, Zeal Investments, to fund innovative lottery start-ups.

The group’s commitment to the sector is off to a strong start, as February saw Zeal invest £1 million in UK’s Free Postcode Lottery.

Now, as the group plans to announce its latest round of funding for 2017, caught up with James Oakes, director of Zeal Investments, who discussed the changing shape of the global lottery sector.

Totally Gaming: How did you find yourself at the helm of Zeal Network’s investment arm?

James Oakes: I started my career as an economist and developed a derivative trading system, which I worked on for about four years, eventually running my own small fund. During this time, my brother and I started thinking about lottery. One thing led to another and we came up with an idea, which we evolved into a business. That company was Geonomics, and this marked my entry into the industry.

Geonomics is a location-based lottery platform built on GoogleMaps. At our peak, we raised about £20 million in funds, had a market valuation of about £60 million and about 50 staff. We sold the company to Zeal Network at the end of last year, and that’s how I came to be involved with the investment fund.

TG: You invested £1 million in the Free Postcode Lottery (FPL) earlier this year. How is the venture faring?

JO: The FPL has got off to a really strong start. The company has added 50% to its user base since we invested just over six months ago, and we are looking at a possible internationalisation of the brand.

We are working closely with the FPL team. Our focus is on companies who have strategic relevance to Zeal, and we see ourselves as being a value-add investor, not just a financial investor.

TG: Zeal Investments’ aim is to provide finance and support to hungry digital lottery entrepreneurs. Do you feel investment in the sector has been somewhat lacking over recent years?

JO: Yes. Lottery is often seen as an antiquated industry. There are lots of complicated regulations and many hurdles to deal with that you don’t have in other enterprises. But, of course, that’s why there is an opportunity.

We haven’t had an Uber of lottery, or an Airbnb of lottery. I think this is because lottery is even more complicated than taxis or hotels, especially when it comes to trying to build a really big, scalable international business.

If you’re trying to come at it from a commercial perspective, you really have to think outside the box, and so I think that’s why lottery start-ups are still a niche – even though the industry itself is huge. Many smaller industries get a lot more attention from investors. The sector has no shortage of difficulties, but I think that’s why we do it.

TG: Zeal Investments is primarily focused on online lotteries. How would you assess the health of the online sector and what are the main challenges?

JO: Firstly, it’s staggering that, around the world, just 3% of lottery happens online. That’s a staggering statistic in 2017. There’s no reason anyone needs a physical ticket, and so there is obviously a ton of opportunity in converting offline players to online.

That being said, the biggest problem for the industry is the millennial generation and their reluctance to play lotteries. It’s not like they are playing offline and the challenge is how to get them online – they are just not playing.

In Germany, for example, they have the main state lottery game, Lotto 6aus49. If you go back seven years ago, there were twice the number of 20-30 year olds playing that product as there are now. In other words, the number of people in that age group playing the main lottery product in Germany has halved in just seven years. This is happening around the world.

We need to ask: what’s going to be the lottery for millennials? What’s it going to look like? How’s it going to be different? That’s a much bigger prize and a much more interesting question for an investor to tackle.

TG: How is Zeal investments looking to boost interest in lottery among younger players?

JO: Our research at Zeal Investment indicates that millennials are less interested in the mega cash jackpot and more interested in once-in-a-lifetime or money-can’t-buy experiences.

We are starting to see disruptive companies coming through offering products which have lottery-like characteristics, but instead of a £20 million jackpot, you can win a date with a celebrity or spend time with a famous musician.

Zeal recently completed another investment that looks to address these issues, and we will be able to reveal more information over the coming weeks.

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