Ontario’s third party BOT market has been very challenged in recent years, with significant declines in sales year-over-year. BOTs in Ontario bingo halls are experiencing more success these days with new products but that’s beyond the scope of this article. Not surprisingly, there are a lot of factors contributing to the third party decline. One factor, however, has been the relatively low profit margins associated with BOTs. While the 50-cent ticket continues to be very popular with players and is still the industry’s mainstay, its financial sustainability has been in real doubt. The bulk of the revenues go back out in prizes, which means that rising industry costs, government fees, the HST, etc. put real pressure on the remainder. With the lack of revenues for marketing and promotion and declining sales and revenues, there is hardly enough profit in a 50-cent ticket for the commercial sector to make a reasonable return on investment, let alone to think about growth strategies.
That’s where the new rules come in by creating four new product opportunities that translate in potentially very significant revenue stream opportunities. Here are the highlights:
Merchandise prizes are now allowed. These are in addition to the existing prize options of cash and free tickets. The Manufacturer’s Suggested Retail Price (MSRP) of any merchandise items is to be used for the purpose of calculating the approved prize board. For example, a supplier could negotiate a wholesale price for a selection of prizes to be added to the prize board of a particular ticket type but would use the MSRP to calculate and promote that prize board. The gap between the wholesale price and the MSRP creates the potential for new revenues.
Promotional ticket branding is now allowed. It will be possible to “sell” space on BOTs as a new source of revenue. This is another opportunity to negotiate new revenue streams from retailers and/or retail product companies.
Sponsored prizing is now allowed. An enterprising organization can negotiate the provision of free merchandise prizes in exchange for promotional considerations. Again, the prizes can be included in the approved prize board at the MSRP.
Promotional couponing is now allowed. The new rules allow for BOTS to have promotions of additional value attached to them. For example, this could mean that the non-winning tickets in a box could be used as promotional coupons. If the coupon is a discount on another product, the value of the ticket would not have to be included in the approved prize board. This presents an opportunity to negotiate new revenue streams with both retailers and product companies.
Finally, there’s the issue of who gets the financial benefits. The AGCO has taken an approach that limits their involvement in regulating commercial arrangements and also acknowledges how essential new investment is for the future of this sector. Under the new rules, a manufacturer, supplier, or retailer that sets up any of these arrangements has to disclose that fact, including the dollar value, to the charity but is not required to share the revenue. That said, the charity can always seek to negotiate a reduced sales commission or revenue sharing.
In addition to these new revenues streams, there is also some very positive streamlining that may not seem like much to those outside the industry, but for insiders, will make it much easier to mix and match products at the point of sale and also significantly reduce the time and cost of administration. Key changes include:
Single Licensing. The AGCO removed the requirement that each different ticket type sold at a retail location be sold under a separate licence. This means only one licence that accommodates multiple ticket types will be required, as a result giving charities, suppliers, and retailers much more flexibility to change the product mix as needed.
Longer licence periods. Municipalities now have permission to issue licences for up to 5 years at a time, instead of 1 year. The AGCO’s expectation is that this will be based on a risk assessment.
Carry-Over of Partially Sold Deals of BOT. A partially sold box of BOTs can now be carried over to the next licence period, thereby providing a longer period, if necessary, for that box to sell out and eliminating the costly exercise of collapsing partial boxes at the end of a licence period.
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As noted at the outset, all of these changes took effect as of July 1st, 2010. At this point, the sector is waiting to see who in the industry will be first to explore these new product and revenue opportunities. There is also the possibility that the new rules will attract gaming companies not currently active in Ontario and/or non-gaming companies whose expertise is merchandising and promotions. Either way, the AGCO deserves kudos for creative thinking and for opening a very big and much needed door.
Sam Goodwin is a Toronto-based consultant in gaming and regulatory policy who has worked extensively with the AGCO, Ontario Lottery & Gaming, other provincial lottery and gaming corporations and regulators, and the charitable gaming industry.
By Sam Goodwin, Toronto-based consultant in gaming and regulatory policy