| Summary: | 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. === Master of Arts === Lotteries date back to ancient times. They originated out of necessity for the primary reason we use them today - leaders need money to fund public works and programs. Often, voluntary taxes like lotteries are a more politically effective way to raise funds than mandatory taxes. Modern lotteries in the United States reemerged as a legitimate state funding source in the mid-1960s. In 2020, 45 states had lotteries. My findings show lotteries continue to see growth in sales, many to benefit public education. Yet some seek to innovate the method of delivery by allowing lottery purchases over the internet. When this is permitted, how does the ability to purchase lottery over the internet impact traditional lottery sales at retail store locations? This thesis analyzed sales data from the six states that permit internet sales to show that internet sales increased lottery profits, retail sales, and total sales. However, after implementing internet sales, two of the four states with at least three years of internet sales experienced sales growth that was slower than before internet sales were permitted. This may mean some revenue displacement occured when the additional delivery method was implemented. It is rational for lotteries to want to increase sales and respond to rising customer demands in this digital age. However, legislators who may be interested in growing lottery sales as a way to combat other fiscal stress should consider whether any cannibalization may occur by permitting additional lottery delivery methods.
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