Going in for the skill
Skill or perceived skill games are springing up across the US gaming industry, as firms look to attract a younger demographic. Brad Allen analyses whether interactivity is the tool that finally gets millennials gambling.
Millennials arenât gambling like their parents. Itâs a truth the egaming industry has recognised for years now, with countless roundtables, seminars and think-tanks devoted to working out how to tap into this cash-rich demographic.
Caesars, for example, recently struck a deal with Gamblit Gaming to install 125 Gamblit products in its casinos in Nevada and a further 100 stations in other markets. The new machines will contain multiple themes and games, including match 3 and word matching games. Future releases will include âgamblifiedâ versions of video games like Catapult King and Into The Dead.
Gamblit marketing exec Darion Lowenstein says the skill-based games attracts new users by virtue of the achievements and ability to level up, to the point that âthe wagering proposition almost becomes kind of secondary to that experience.â
Itâs a similar story in the lottery industry, where youth participation is plummeting. In Ontario, Canada, OLG recently reported that just 7% of adults under 35 play the lottery at least once a week, compared to 45% of all adult Ontarians.
In Massachusetts, state senator Jennifer Flanagan recently wrote an op-ed calling for an online lottery platform, claiming: âYoung people have the lowest participation rates and these continue to decline. Simply put, millennials donât play the lottery and wonât any time soon.â
 Written in the stars
And like the casino industry, lotteries are looking to skill games â or at least perceived skill games â to attract the younger generation. In September, the Georgia state lottery â one of a handful in the US with the ability to offer online instant win games â announced the introduction of Star Match.
Star Match mirrors a traditional gem-matching game â think Candy Crush â where players earn stars for matching gems. Skilled players can earn up to 18 stars, while poor players get at least six stars. They can then scratch off the stars and try to match three dollar values for a prize. While the gem-matching part of the game gives the illusion of skill, a random number generator ultimately decides the pay-outs, making it completely random.
Despite that, the gameâs developer, LottoInteractive, believes the innovation will help attract a whole new strata of players to the lottery platform, including the elusive millennial generation who, it is expected, will be playing on their mobiles.
As Brian Ward, LottoInteractive CEO and founder, explains: âOur main focus is merging the $35bn mobile games business and the $300bn lottery business. Over 50% of American adults play the lottery and over 50% of the population plays mobile games, and we see no reason these shouldnât cross over.â
According to Ward, a new approach is needed to get millennials playing lottery online, with existing offerings simply not exciting them. âA lot of lotteries have gone online around the world in Europe, Asia and a handful in the US, but only 11% of the global lottery business is online and those platforms havenât moved the needle in terms of attracting new players,â he says.
âTheyâre still attracting traditional lottery players because they are still offering traditional lottery products, but just putting them online.
âThe idea with Star Match is to introduce levels of skill or perceived skill to attract people who play mobile games with the ability to make choices, and strategic decisions and have some influence at least on the entertainment aspect of the game, if not the outcome.â
Tellingly, LottoInteractive staff have backgrounds in mobile gaming companies like Zynga and EA rather than traditional gambling companies, and the firm has seven other âskill gamesâ in development based on poplar mobile game mechanisms, like puzzles and word manipulation.
 New wrinkles
While Georgia is the first state to introduce this kind of perceived skill instant win game in the US, the technology is not necessarily anything new in places like Europe. Camelot, for example, has been using perceived skill to attract punters to its online instant win games, with the sub-vertical growing 30% last year to £383.6m. Around 80% of that play took place on mobile, with return to player (RTP) rates between 65% and 75%, massively more favourable for operators than online slots, for example, which typically return around 90%.
And while instant win games on their own can be improved with perceived skill elements, their popularity goes through the roof when combined with genuine skill aspects, according to Helen Walton, co-founder of gaming supplier Gamevy.
âLonger session times, higher repeat play, better retention handles â [real skill games] wipe the floor with scratchcards, they really do,â she says.
Real skill games have yet to arrive in the US, in part due to licensing and regulatory questions, but providers have found other ways to convince players that their actions are impacting games.
Scientific Games provides what it calls âskill with revealâ games as second chance options for physical scratchcards bought from retail outlets. If the player doesnât win on the scratchcard, they can go online and play these second-chance games for various rewards, including actual cash and free draw entries. The skill element of the game may not impact pay-outs, but it does affect other rewards like leaderboard rankings or virtual coins to buy virtual items.
âThe skill with reveal is an important sub-segment because you do need variety and it helps us engage with players on different channels,â says Michael Lightman, senior vice president for lottery at Scientific Games.
âMost lotteries around the US are looking at trying to do that and we think the innovation thatâs going on now is really great.â
Next steps
But that innovation is still stymied to an extent by regulation. While second chance skill games get round internet gaming restrictions by starting the transaction at a retail outlet and sending prizes via mail, it ultimately means that options are limited.
Skill games then, have a much brighter future in the three states where online instant win products are legal â Georgia, Kentucky and Michigan.
LottoInteractive says Kentucky is the next target for its games since the state lottery is on an IGT platform like Georgia. After that Michigan is probably the prize goal, given the resounding success of its online platform so far, with roughly 6% internet penetration in the first 18 months after launch.
âMichigan is doing fantastic numbers and their content is more innovative and their platform is excellent,â says Ward. âThatâs where the potential is. Elsewhere, less than 1% of US lottery revenue is generated online, so the transition has not been spectacular.â
Despite the slow start â especially compared to Europe, where lottery markets like the UK see up to 40% of revenue come online â Ward is optimistic that skill-based games can help catalyse the US lottery marketâs cyber evolution.
âOur US projections over the next five years are just shy of $14bn for the US instant win online market, while Lottobait sized it at $17.5bn,â he says.
âWe think these gamified products simply have to make up a significant proportion of that. Lottobait predicted that $5.8bn of that $17.5bn would come from brand new customers, with around 19 million new players, and it seems clear that the traditional lottery games wonât do this.
âFor a current lottery player, the convenience of a mobile app is probably enough to get you playing online, but for a younger generation, if theyâre not already buying lottery tickets or scratchcards in a gas station, theyâre not suddenly going to start buying them on their phone. Itâs for the same reason they donât play slots â itâs simply not interesting to them â so you need to change it up,â Ward explains.
Crossover appeal
And while Illinois could be another target in the longer term, pending the outcome of its RFP for a private operator, LottoInteractive could find another home for its games among the aforementioned online casino companies who are facing the same issues in attracting young gamblers.
Ward says he has been contacted by Caesars Interactive about getting a version of the game onto its New Jersey site CaesarsCasino.com.
âThey actually reached out to us because I guess they heard about the game,â says Ward. âThey wanted Star Match and a couple of other concepts we have. When we met they were very enthusiastic and encouraged us to meet with regulators in New Jersey which we did, and the Division of Gaming Enforcement (DGE) was also really excited about this, because itâs brand new content.â
Ward said regulators were particularly interested in using the game as a way to get gamblers back into the land-based casino, with real-world rewards potentially being handed out based on playerâs skill levels.
Ward did admit the talks were still at the âearly stageâ, with LottoInteractive still needing to get by the DGEâs notoriously rigorous licensing process and then get integrated into Caesarâs NYX gaming platform.
âItâs not very far along as yet because we have limited resources and weâre making good headway with lotteries,â he adds. âThe New Jersey market was pretty small when we started a year and a half ago and NYX has gone through a number of mergers and changes to their company, so it wasnât a top priority, but things are clearing up now and we are very interested.â
Caesars was relatively tight lipped about perceived skill games, not saying whether it was planning to use them as a bridge product to help cross-sell into âharderâ gaming products as is becoming popular in Europe, or how they would be situated onsite.
A Caesars Interactive spokesperson said: âWe are always looking for fresh, new and compelling content. Our users do show fatigue and the ability to engage or reengage them with any new alternatives is something we are always interested in.â
Perceived skill games then, may not be new to the lottery industry around the world, and even in the US, where second chance products are already being used to engage players. However their arrival on iLottery platforms brings a new simplicity to the format, with transactions able to take place entirely over the internet and potentially spiking engagement rates while bringing in a new set of younger, mobile-first customers.
LottoInteractive was unable to provide data on the early returns from Star Match in Georgia, preferring to wait a full 30 days from launch before reporting, although confirming it has done âreally wellâ, and there is cause for optimism in other sectors, with casino operators also looking to take advantage of the high margin products.
The only drawback, as is so often the case in the US, is the regulatory restrictions. But with Illinois looking towards a new online platform, and MA still eyeing iLottery legislation, a lot of Americans could be swiping, scratching and matching for real-money sooner than expected