Zona de Azar Germany – Could Covid-19 Present an Opportunity for Zeal Network?

Germany.-March  31, 2020 www.zonadeazar.com Having shifted its focus to Germany, a market where online lottery penetration is particularly low, the lottery brokerage business could potentially benefit from the crisis, reports Joanne Christie.

Zeal Network is not only well positioned to weather the coronavirus (Covid-19) outbreak, but early signs show the pandemic could even propel the company closer towards its goal of reaching a 50% online market share in Germany.

In a conference call on Thursday to discuss the company’s annual report for 2019, CEO Helmut Becker and CFO Jonas Mattsson were cautiously optimistic about the company’s ability to navigate a path through the crisis.

“Fortunately, it has so far not had a measurable negative impact on us,” said Becker.

Though in Spain Zeal subsidiary Venture24’s partner ONCE and also state lottery operator Sociedad Estatal Loterías y Apuestas del Estadostate have stopped selling lottery tickets due to the outbreak, Becker said he thought the risk of this happening in Germany was “very small”.

When pressed to explain this optimism, Mattsson said: “What gives us confidence is that we are in touch with the operators of these lotteries and we know that they are determined to keep operating these lotteries. They are setting up the draws with multiple redundancies, so that is redundant locations, redundant teams, redundant machines. That is true for the German state lotteries, it is also true for EuroJackpot.”

In fact, the crisis could see more German players migrate online. At present, online penetration in the lottery market is very low in Germany at just 14% in 2019, compared with 26% in the UK and 41% in Sweden in 2018.

But with the lockdown and store closures, more players could move online as retail sales fall.

“What we see is that there is a decrease of around 10-20% in billings sold offline in Germany and in other countries that have implemented similar anti-corona measures as Germany,” said Becker. “We see a risk that the lottery product may be less top of mind for our customers than in usual times. On the other hand, the online channel is even more attractive these days.”

Indeed, on March 20 in a statement on the impact of Covid-19 on its business, French lottery operator Française des Jeux (FDJ) flagged the possibility of a 50% reduction in retail sales, which it said could impact revenues by €55m per month. However, it said it continued to “post good results for its online lottery game”.

Becker said Zeal was currently seeing strong acquisition numbers at its Lotto24 and Tipp24 brands, but added that it was difficult to ascertain if these were related to the coronavirus or the high EuroJackpot – the jackpot was at almost €90m at the time of the results announcement.

Ramping up marketing
In any case, the company has been adjusting its marketing to take advantage of the situation, particularly by advertising on online news sites

“We are present in the relevant channels, for example, in the news sites where people inform themselves about the corona crisis, so we are visible there; basically they can see that they can continue to play the lottery from the comfort of home by using our brands,” said Mattsson. “We have always been flexible in terms of ramping up our marketing spend, taking advantage of these kinds of situations, and that is already what we are doing.”

And that increased marketing spend – a key plank of Zeal’s strategy going forward – is easier to justify under its new business model, said Becker. The company abandoned its lottery betting business last year to focus solely on brokerage after the acquisition of its former subsidiary Lotto24, moving its office to Germany at the same time.

“In a business where you spend once for customer acquisition and then monetise those customer cohorts for many years, the sustainability of that business model is critically important. We concluded that the future of the lottery betting business and therefore the future growth and monetisation opportunity was very much in doubt.

“Now we are in a stable environment and can safely harvest the value of the customers that we acquire. Our aim is to earn back the upfront customer acquisition cost within the first two years or less of a customer lifetime, thus creating a strong customer lifetime value,” said Becker.

Since switching its business model, Mattsson said its cost per lead has already been reduced by 7% due to it having access to more efficient marketing channels, social media and Google in particular.

He said marketing was an area where brokerage has a clear advantage over lottery betting. “The key issues that they have is that Lottoland and secondary lotteries have lost most of their marketing channels, almost all of their marketing channels, and that enforcement is even increasing and has increased over the last months and years. And that is enforcement on the secondary lottery providers but also on the marketing channels, the marketing companies themselves.”

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