Trends in Trends in e-COMMERCE e-COMMERCE

For State and Governmental For State and Governmental LotteriesLotteries

SMART-TECH 2010SMART-TECH 2010March 24, 2010March 24, 2010

Slide 2

THE LOTTERY and the INTERNETTHE LOTTERY and the INTERNET

• DESPITE FEDERAL ENFORCEMENT ACTIVITIES, OFFSHORE e-DESPITE FEDERAL ENFORCEMENT ACTIVITIES, OFFSHORE e-GAMING AND PRIVATE LOTTERY SERVICES HAS EXPANDED GAMING AND PRIVATE LOTTERY SERVICES HAS EXPANDED SIGNIFICANTLY 11% PER YEAR TO APPROX. $30SIGNIFICANTLY 11% PER YEAR TO APPROX. $30 BILLION IN BILLION IN 2010 2010

• US RESIDENTS ACCOUNT FOR OVER 40% OF e-GAMINGUS RESIDENTS ACCOUNT FOR OVER 40% OF e-GAMINGREVENUES; THESE ARE SALES (>$12 BLN) COULD BE REVENUES; THESE ARE SALES (>$12 BLN) COULD BE MONETIZED BY STATE LOTTERIESMONETIZED BY STATE LOTTERIES

• UIGEA AND PROSPECTIVE FEDERAL LEGISLATION REGULATINGUIGEA AND PROSPECTIVE FEDERAL LEGISLATION REGULATING

e-GAMING CREATES A UNIQUE OPPORTUNITY FOR e-GAMING CREATES A UNIQUE OPPORTUNITY FOR STATE STATE LOTTERIES TO RE-PATRIATE THESE CUSTOMERSLOTTERIES TO RE-PATRIATE THESE CUSTOMERS

Slide 3

Getting to Know Online GamblersGetting to Know Online Gamblers

0

5

10

15

20

25

30

35

18-29 30-39 40-49 50-59 >60

Percent

Slide 4

State and Governmental e-Commerce State and Governmental e-Commerce Success StoriesSuccess Stories

• Veikkaus (Finish National Lottery )Veikkaus (Finish National Lottery ) Approximately Approximately 22%22% of their sales comes from their e-commerce channel ‘OnNet’ (Lotto, of their sales comes from their e-commerce channel ‘OnNet’ (Lotto, Keno & Fixed Odds Betting); over 1 million registered customersKeno & Fixed Odds Betting); over 1 million registered customers

• Camelot (U.K. National Lottery)Camelot (U.K. National Lottery) >12% of their sales come from their e-commerce channel; low cost client acquisition rate >12% of their sales come from their e-commerce channel; low cost client acquisition rate & high retention rate; multi channel players are averaging > $ 600 per year & high retention rate; multi channel players are averaging > $ 600 per year

• The New York LotteryThe New York Lottery Launched e-subscription on their website; full launch in 2011 for all ‘numbers’ productsLaunched e-subscription on their website; full launch in 2011 for all ‘numbers’ products

Slide 5

TECHNOLOGY AND POLITICS …TODAYTECHNOLOGY AND POLITICS …TODAY

• Unlawful Internet Gambling Enforcement Act of 2006 Unlawful Internet Gambling Enforcement Act of 2006 (‘UIGEA’) provides substantive guidance for state (‘UIGEA’) provides substantive guidance for state lotteries to lotteries to operate on the internetoperate on the internet

• That being said, many would like to see some affirmative That being said, many would like to see some affirmative comment from the DOJ; there is a unique opportunity for comment from the DOJ; there is a unique opportunity for several states to align their interests to clarify the DOJ several states to align their interests to clarify the DOJ positionposition

• To the extent that e-gaming is regulate in prospective To the extent that e-gaming is regulate in prospective legislationlegislation, we believe that a significant majority of state , we believe that a significant majority of state lotteries will have a unique supervisory position for lotteries will have a unique supervisory position for intrastate e-gaming intrastate e-gaming (similar to what we see for VLT’s)(similar to what we see for VLT’s)

THE NEW PLAYER DEMOGRAPHIC THE NEW PLAYER DEMOGRAPHIC (AGES 18-30)(AGES 18-30)

Top Social Gaming SitesTop Social Gaming Sites

• ZyngaZynga• PlaydomPlaydom• MySpaceMySpace• Yahoo GamesYahoo Games

•

Top On-Line SkillTop On-Line Skill

Gaming SitesGaming Sites

• King.comKing.com• WorldWinnerWorldWinner• GameColony.comGameColony.com• Orange SharkOrange Shark

N.B. there are 9 million skill N.B. there are 9 million skill games played worldwide dailygames played worldwide daily

Slide 6

e-Gaming Activity in the U.S.e-Gaming Activity in the U.S.(Page Impressions or ‘HITS’)(Page Impressions or ‘HITS’)

DOMAINDOMAIN MARKET SHAREMARKET SHARE

1. King.com 8.9 %1. King.com 8.9 %

2. WorldWinner2. WorldWinner 6.5 % 6.5 %

5. FreeSlots5. FreeSlots 3.1 % 3.1 %

6. DC Lottery6. DC Lottery 2.7 % 2.7 %

7. Lottery Post7. Lottery Post 2.7 % 2.7 %

10. New York Lottery10. New York Lottery 2.1 % 2.1 %

EGAMING REVIEW 1/2010EGAMING REVIEW 1/2010

Slide 7

e-COMMERCE e-COMMERCE SALES PROJECTIONSSALES PROJECTIONS

2009 Sales2009 Sales e-Commerce Salese-Commerce Sales

(000,000’s)(000,000’s) in Year 5in Year 5

California $ 2,994California $ 2,994 $ 450 MLN $ 450 MLN

Georgia $ 3,676Georgia $ 3,676 $ 275 MLN $ 275 MLN

Illinois $ 2,161Illinois $ 2,161 $ 245 MLN $ 245 MLN

New JerseyNew Jersey $ 2,575 $ 2,575 $ 290 MLN $ 290 MLN

New York $ 6.776New York $ 6.776 $ 760 MLN $ 760 MLN

Pennsylvania $ 3,050Pennsylvania $ 3,050 $ 345 MLN $ 345 MLN

La Fleur’s and eLOTTERY internal estimatesLa Fleur’s and eLOTTERY internal estimates

8

THE e-COMMERCE COMPETITIONTHE e-COMMERCE COMPETITION

Traditional ‘On-line’ VendorsTraditional ‘On-line’ Vendors

GTECH ---- G2 GTECH ---- G2 (formerly Boss Media and other rollups)(formerly Boss Media and other rollups)

SGMS ---- SciPlay SGMS ---- SciPlay (JV with Playtech) (JV with Playtech)

Intralot ---- CyberArts Intralot ---- CyberArts (35 % with control rights)(35 % with control rights)

New ‘Cutting Edge’ New ‘Cutting Edge’

BetwareBetware

eLOTTERYeLOTTERY

Harrah’s InteractiveHarrah’s Interactive

ManaccomManaccom

New Media LotteryNew Media Lottery

Walker Digital Walker Digital (Group Play )(Group Play )

Slide 9

Home/Office

Computer

‘On Line Provider’

WEB FarmBusiness System

E-Retailer Transaction System

Draw Games Databases

Email Server Game Server

Data exchange

TCP IP

Geo locator

Cable Company

Age filter

Residency

tvTV Cable Box

Cell Phone

Cell Phone Carrier

TCP IP

PC

Internet

Email Subscription

System

Players Developers

DBA'sSystem Operators

Management

No access to source codeKey roles password protected

Database encrypted

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Slide 12

e-Commerce Summarye-Commerce Summary

• DEMAND FOR AN e-COMMERCE CHANNEL IS AT AN ALL TIME DEMAND FOR AN e-COMMERCE CHANNEL IS AT AN ALL TIME HIGH HIGH FROM YOUR EXISTING PLAYER BASE FROM YOUR EXISTING PLAYER BASE ANDAND A A NEW DEMOGRAPHIC (THE NEW DEMOGRAPHIC (THE 18-30 AGE GROUPS)18-30 AGE GROUPS)

• OVER A 5 YEAR PERIOD, WE BELIEVE THAT AN e-COMMERCE OVER A 5 YEAR PERIOD, WE BELIEVE THAT AN e-COMMERCE CHANNEL CHANNEL CAN INCREASE LOTTERY SALES BY 15% AT CAN INCREASE LOTTERY SALES BY 15% AT NO COST TO YOU AND IN NO COST TO YOU AND IN A WAY THAT IS A WAY THAT IS COMPLEMENTARY TO YOUR TRADITIONAL SALES COMPLEMENTARY TO YOUR TRADITIONAL SALES CHANNELSCHANNELS

• STATE AND PROVINCIAL LOTTERIES SHOULD MAINTAIN BEST STATE AND PROVINCIAL LOTTERIES SHOULD MAINTAIN BEST OPERATING STANDARDS AND INTERNAL CONTROLS BY OPERATING STANDARDS AND INTERNAL CONTROLS BY SEPARATING THE WHOLESALER (i.e.‘ON-LINE SEPARATING THE WHOLESALER (i.e.‘ON-LINE PROVIDER) FROM PROVIDER) FROM THE e-RETAILER SALES THE e-RETAILER SALES FUNCTIONSFUNCTIONS

THE ‘GO-FORWARD’ DECISION MUST BE MADE BY THE LOTTERY

Slide 13

e-Commerce System is Covered by eLOTTERY’s e-Commerce System is Covered by eLOTTERY’s Patents & Intellectual PropertyPatents & Intellectual Property

• Patent # 6,322,446 (filed in 1999 )Patent # 6,322,446 (filed in 1999 )A system and method for operating on-A system and method for operating on-

line line statestate lottery games over the lottery games over the internetinternet

• Patent # 6,383,078 Patent # 6,383,078

A system and a method is provided for A system and a method is provided for facilitating on-line lottery games over facilitating on-line lottery games over

the the Internet which receives caller Internet which receives caller ID informationID information

• Patent # 6,869,358Patent # 6,869,358 Broadens prior intellectual property to include Broadens prior intellectual property to include

instant games instant games that are sold from the that are sold from the computer computer desktop and desktop and addsadds subscription subscription

servicesservices as an additional sales vehicle as an additional sales vehicle above and above and beyond a direct sale of beyond a direct sale of services on the internetservices on the internet

Received e-Commerce Patents in Canada, Australia and China and patents have been Received e-Commerce Patents in Canada, Australia and China and patents have been filed and are pending in India, Mexico & Europefiled and are pending in India, Mexico & Europe