WSJ article....MUST READ (THIS IS NOT GOOD, DOWNRIGHT SCARY, if you ask me!
I like ELOT and it's future but this is not reasuring, I am out until something happens here IF at all??
Heard in New England:
Web Lottery
May Face
Long Odds
----
By Andrew Caffrey
The Wall Street Journal
You might not want to bet on eLottery just yet.
The Milford, Conn., company -- currently a subsidiary of Executone
Information Systems -- has been a hot Internet play, as investors saw a
jackpot in its strategy to sell lottery tickets in cyberspace. The company
wants to be a Web-based retailer of lottery games, or a "cyber-agent" -- it
wouldn't run lotteries, it would simply get a government license to sell
tickets, allowing bettors to play games or enter a drawing online. The
company would then collect a commission on each ticket sold.
Day traders peppered online chat rooms with predictions that eLottery
would soon win permission from an unnamed state to sell its tickets over
the Internet. A stock that barely nudged above $3 in the past year soared
to $12 last month before settling back to around $7.
The logic behind the frenzy: With so much commerce already moving to
the Internet, why not lottery tickets, too? With more than $40 billion bet on
lotteries in the U.S. and $120 billion world-wide, eLottery doesn't "have to
get 50% market share" for the venture to be a huge success, says Eric
Miller, co-manager of the Heartland Value fund, one of the company's
largest shareholders.
But don't count your winnings yet. Many U.S. state lotteries say they don't
expect to put their gambling games on the Internet anytime soon -- if at all
-- casting doubts over how quickly eLottery investors can reap their
winnings.
"I do not see a very extensive market for it," says George Andersen,
director of the Minnesota lottery and president of the North American
Association of State and Provincial Lotteries. The group, which represents
46 North American lotteries, polled its membership recently and didn't turn
up a single lottery interested in putting its games on the Internet.
"I just don't know of anybody who's on the verge, and we're a pretty close
society," Mr. Andersen adds.
Officials at 16 lotteries contacted by The Wall Street Journal said they had
no plans for Internet betting.
And even if states were interested in Internet lottery sales, gambling
analysts say, there are two big reasons not to take the plunge: an electorate
that regards expansion of gambling with unease, if not opposition; and a
proposed federal law that would restrict Internet gambling.
Beyond that, say some experts, if states take a chance and go ahead with
Internet ticket sales, eLottery would face a lot of competition from other
vendors as well as from state lottery agencies themselves, which could
choose to sell tickets online without a middleman.
eLottery officials counter that with so much retail commerce moving onto
the Internet, it will be "inevitable" that lottery tickets will, too. "In a decade,
it will be routine," says eLottery's soon-to-be Chairman Robert Berman,
who noted that the same predictions of doom were directed at parimutuel
betting, but now it's common to wager on horse and dog races from
remote locations.
How inevitable? A survey by research firm LaFleur's Lottery World of
around 300 lottery operators world-wide found 64% believe lotteries will
eventually sell tickets over the Internet.
Mr. Berman notes that many state lotteries are losing sales to other
gambling venues. Since lottery revenue funds so many essential state
activities, the pressure to replace those lost dollars will eventually surmount
concerns about expanding the lotteries' reach.
And eLottery officials minimize the role of potential competitors. The
biggest online gaming companies, they argue, are lottery vendors such as
the world's largest, Gtech Holdings, Greenwich, R.I. As a cyber-agent,
eLottery officials say, eLottery would simply be handling the retail-level
transaction, and so wouldn't be a direct competitor.
Right now, eLottery remains a subsidiary of Executone, a
computer-telephony and health-care-information company. The unit
operated a national Internet and telephone-based lottery for the Coeur
d'Alene Indian Tribe in Idaho. The tribe and eLottery, however, had to
shut down the lottery in December after a U.S. District Court judge ruled
the tribe wasn't exempt from federal and state laws that prohibit interstate
gambling.
With nearly $33 million invested in eLottery, Executone lost its venue to
showcase its spiffy lottery games. What's more, the company's old-line
computer business continued to lose money.
In late March, Executone announced it would sell the old businesses, get
an "e-commercy" kind of name and go whole-hog into the highflying world
of the Internet, with a new stock symbol, "ELOT."
In a conference call with investors last week, eLottery President Michael
Yacenda wouldn't specify whom the company was talking to, but said,
"We're moving the ball further." He then cautioned the investors to have
patience -- the deals, he said, were still a way off.
Under eLottery's system, customers would set up an account and, using
either a credit card or prepaid debit card, wager on various games from
their home computers or at kiosks set up in authorized locations. Winnings
would be automatically credited to their account. eLottery would receive a
commission, about 5%, on each sale. Capturing even a small percentage of
ticket sales could be a revenue bonanza.
eLottery says its technology can limit betting to residents of the state where
they would be licensed to sell tickets, thereby not running afoul of federal
laws prohibiting gaming across state lines.
By requiring bettors to prepay, eLottery says it can prevent minors from
gambling. Its technology can also protect against problem gambling by
imposing betting limits. Unlike competitors, eLottery says, its contract with
the Indian lottery gives it the only system tested among bettors.
But eLottery's potential customers aren't buying it. State lottery officials --
including several who have met with eLottery executives -- say Internet
gaming is too fraught with political, practical and legal problems.
"I don't see us doing that for a while," says Steven Woodall, deputy
director of the Idaho State Lottery. Edward Stanek, Iowa's lottery
commissioner and an inventor of Powerball, the multistate lottery game,
adds, "We have no plans."
The big barrier is concern about extending gambling into the home -- and
with it the problems gambling can bring -- and that much of the electorate
opposes legalized gambling in all but the most restricted forms. Many
lottery directors say they wouldn't venture into cyberspace without seeking
approval from state legislatures first, a process that invites lengthy delays if
not outright rejection.
"The political heat will be so hot," says Anthony Cooper, who runs
Washington, D.C.'s lottery, that "the first lottery director who starts selling
lottery tickets over the Internet will be on the unemployment line."
Then there may be other practical problems. For instance, in Texas it is
illegal to purchase a lottery ticket in a place that serves alcohol. Lottery
officials there say that would probably rule out Internet access from the
home, since they couldn't ensure that the bettor isn't under the influence.
In Minnesota, all transactions related to the wager -- the payment and
placing of the bet, for example -- have to take place at a single location,
which officials there say would rule out remote-access wagering. Many
other states prohibit credit-card purchases of lottery tickets.
Because of such prohibitions, eLottery officials say they are concentrating
on "several" states that have the fewest rules and political obstacles to
Internet gaming. Mr. Yacenda says the company needs only one or two
states as customers for the venture to be profitable.
To get around rules prohibiting sales by credit card, eLottery officials say,
bettors would use debit cards or purchase prepaid cards at a store, and
use them like a calling card when logging on from their computer.
Even so, eLottery is likely to face competition. Several lottery officials say
they have heard from many companies offering to put their games on the
Internet. And if they were so inclined, they'd likely contract with numerous
electronic vendors, much as they now use many different retail outlets to
sell tickets.
Or they would do it themselves, by hiring software developers or other
game companies for a fixed amount to design lottery games for sale over
their own Web sites, and then not have to share sales commissions.
In any case, eLottery soon may find its potential market radically reduced
under a major Internet gambling bill before Congress. As part of a bill to
outlaw gambling on the Internet, Arizona Senator John Kyl would restrict
electronic sales of lottery-tickets to places that are "open to the general
public."
Senator Kyl's office says that would rule out using a personal computer in
a bettor's home, undermining one of eLottery's big draws.
Company officials acknowledge they face a tough sell. "Everybody's afraid
to say, 'We'll be first,'" says Mr. Berman.
While declining to identify which states the company is talking to, Mr.
Yacenda adds, "Even if they were interested, they're going to say they're
not" for fear of negative publicity.
In terms of competition, eLottery officials say they're confident they have a
leg up on other providers. But eLottery's Securities and Exchange
Commission filings sound a more cautious note. In an April 29 filing,
eLottery said its competitors "have substantially more capital, and therefore
broader-based resources to apply to technology and marketing than
eLottery."
Officials at eLottery say it's standard for companies to make their securities
filings as cautious as possible in identifying risk.
As for competition from states themselves, eLottery counters that many
states have restrictions preventing lotteries from directly selling tickets to
the public.
eLottery officials do admit that the provisions in Sen. Kyl's bill would
severely restrict business but note the legislation is a long way from
passing.
Still, despite the obstacles, the stock has fans. Mr. Miller, the Heartland
Value Fund manager, says a long-term play on eLottery is reasonable. As
of February, the fund owned 9.3 million shares, or 18% of the company's
common stock, though it has since cut its holdings by about a third.
Mr. Miller believes the lure of the Internet will be too much for lottery
operators to ignore, although he admits that "it's very hard to hazard a
guess" when they will start paying attention.
Indeed, Charles Strutt, executive director of the Multi-State Lottery
Association, which runs Powerball and other games for 21 U.S. lotteries,
says, "I think we've got one member I've talked with who's interested, and
may look into it in the very near future." (Mr. Strutt declined to identify the
lottery.)
"This is a speculative venture," Mr. Miller says. But at $7, eLottery is "still
worth the risk." |
