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States prepare to raise money through Internet lotteries

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In 2013, Michigan officials announced that the state intends to launch an online lottery system called iLottery where bettors can purchase lotto tickets on the Internet. Governor Rick Snyder sought more than $3 million from the Michigan State Legislature to fund the gaming initiative.

In 2012, cash-strapped Illinois – which faces over $2 billion in unpaid bills to vendors in 2014 – became the first state in the United States to launch an online lottery system. However, passage of such legislation is expected to be much harder in Michigan.

Gov. Snyder and his staff are facing significant opposition in both the state House and Senate. Many members view Internet-based lottery as a precursor to more widespread licenses for online gambling and casinos.

Secondly, retailers in Michigan are lobbying against any bill that would legalize Internet-based lotteries due to fears that it will drive many stores out of business. Players who purchase lottery tickets at convenience stores often buy multiple items such as groceries and snacks.

Lottery purchases at bricks-and-mortal stores are also accompanied by impulse shopping. Thus, enabling gamblers to buy tickets online is being viewed by the retail industry as a move that will lead to lower overall sales.

In 2012, about 11,000 stores in Michigan were selling lottery tickets which generated $172 million from gambling-related revenue. That amount is derived from 6 percent commissions on total lotto sales in the state of $2.4 billion.

California, Delaware, and Mississippi are considering similar proposals to make lottery tickets available online. On the west coast, Engage:BDR recently launched an online lotto portal in California. Ted Dhanik, CEO of the marketing firm, said in an interview earlier this week that LottoGopher lets consumers “buy lotto tickets legally in California”.

Like Illinois, California is facing record budget deficits and state debt. California Lottery seems to be preparing its information systems for a move towards online sales. On Thursday, the agency announced that is hiring a project portfolio management firm to optimize its data management processes and IT systems.

In Michigan, Gov. Snyder wants to launch iLottery in early 2014. Michigan lottery officials estimate the iLottery could increase lottery profits by as much as $471 million in its first seven years.

Online purchase of lottery tickets is seeing strong growth in other countries, especially in Europe. In Ireland, Internet lottery sales jumped 43 percent in 2012. However, total lotto and scratch sales fell by 3.5 percent due to the challenging economic environment.

The U.S. congress is currently considering allowing states to tax online purchases which would provide local governments with additional access to tax revenue during a recessionary economy.

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