Supplement versus Supplant:  A case study of the effect of internet lottery sales on traditional lottery sales

In 2012, the first state lottery began to sell its product over the internet. The additional digital delivery method represents a new era for a product that has been in the market for over three decades. Permitting a potentially competing delivery method for the same product presents an opportunity to examine the impact internet lottery sales have on traditional lottery sales. The thesis builds on work that explored what motivates policy makers to approve innovative policy solutions, such as a new internet delivery method for lottery sales, and how that decision impacts the overall viability of the existing product. By analyzing sales, profits, and growth rates, I sought to determine if market cannibalization or revenue displacement occurred when the new delivery method was added. My findings show that state lotteries experienced sales growth prior to internet sales. Prior to internet sales, only one state experienced flat gross domestic product growth in the year preceding internet sales, while the five others analyzed experienced declining GDP growth. This suggests that poor economic indicators may have led decision makes to approve a new policy for a product that otherwise was growing to address fiscal stress. After internet sales were introduced, profits and in-person lottery sales at retail locations were higher than before internet sales. Total lottery sales grew in all states that permitted internet sales; however, not all states saw sales growth grow as fast as before internet sales. This suggests that internet lottery sales have a positive impact but might dilute what could have been higher sales growth rates.