EILERS: U.S. Lottery Tracker 4Q CY17

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1 U.S. Lottery Tracker ket Research February 13, 2018 Todd Eilers, Phil Bernard, EILERS: U.S. Lottery Tracker 4Q CY17 This quarterly report tracks total U.S. monthly retail lottery sales, the break down between Instant ticket and Draw-based games, multi-state jackpot trends, new vendor contracts announced, and vendor contracts expiring over the next two years. In addition, this report includes a special section on internet based lottery sales vs. traditional lottery sales. Disclaimer & Terms & Conditions of Use: Eilers & Krejcik Gaming, LLC is an independent research firm and is neither a registered broker dealer nor a registered investment advisor. No information contained in this report shall constitute as a recommendation or solicitation to buy or sell a security. Individuals receiving this report should consult with an investment advisor or registered representative before making an investment decision related to any information contained in this report. In addition, Eilers & Krejcik Gaming, LLC either does, or may seek to do business with any company mentioned in this report. This report was prepared for and distributed to clients of Eilers & Krejcik Gaming, LLC. If you are not the intended recipient and/or received this report in error, please delete this document and notify Eilers & Krejcik Gaming, LLC at teilers@ekgamingllc.com, or call This report is also protected by federal copyright law. Any unauthorized review, dissemination, or copying of this communication is strictly prohibited. By accessing, reading, storing, distributing and archiving this research report, you hereby agree, fully, and without dispute, to all terms and conditions outlined above.

2 Table of Contents Key Highlights... 3 Draw-Based Sales... 3 Multi-State Jackpot Activity... 5 Instant Ticket Sales... 6 ilottery Sales... 8 Scientific Games Summary IGT / GTECH Summary Intralot Summary Pollard Summary Lottery Contracts Announced Lottery Contracts Expiring Monthly & Qtrly Retail Sales Trends Monthly Retail Sales Trends SGMS Primary States Monthly Retail Sales Trends IGT Primary States Monthly Retail Sales Trends Intralot Primary States Monthly Retail Sales Trends Pollard Primary States Participating U.S. Lottery Jurisdictions Total Lottery Sales by Jurisdiction Note: We use the term Draw-Based in place of Online sales when referring to number-drawing games such as MegaMillions, Powerball or other state specific game of the sort. The reason is so that Online is not confused with Internet-based lottery sales. Eilers & Krejcik Gaming, LLC Page 2 of 19

3 Key Highlights In 2017, total U.S. lottery retail sales increased +1.4% y/y to $73.3 billion across the 45 U.S. jurisdictions we track in our report. Draw-Based sales for the year decreased -6.1% y/y to $26.5 billion following a strong 2016 driven by record multi-state jackpot sizes. Although down, we note CY17 Draw-Based sales were stronger than any year prior to CY16. Instant Ticket sales increased +6.1% y/y continuing a trend of stable single-digit growth which we believe has been supported by fundamental economic growth. Internet-based ilottery sales, though small in size relative to traditional lottery games, continues to be a promising pipeline for further growth increasing +30% y/y to $176 million and is likely to get a major boost with the impending launch of online lottery sales in Pennsylvania following the recent legislation. For the quarter, 4Q17 total U.S. Lottery sales increased +6.8% y/y but decreased -1.4% q/q to $18.9 billion. Instant Ticket sales increased +7.1% y/y and +4.9% q/q to $12.2 billion driven by an increasingly consumer friendly economic development. Draw- Based Sales for the qtr increased +6.2% y/y but decreased -11.5% q/q on stronger multi-state jackpot activity versus the prior year. Finally, we note Internet-based ilottery sales increased +30% y/y for the quarter to $48.8 million. Draw-Based Sales Draw-Based sales in 2017 decreased -6.0% y/y to $26.5b, following a record year for Draw-Based sales. We continue to believe multi-state jackpot activity drives the majority of Draw-Based sales growth. Average jackpot sizes across 2017 were -5% lower than in 2016 while there were 3 less jackpot drawings of over $250m, but this was not likely enough to drive a -6% decline in sales. The majority of the comparable decline can be traced to the first quarter in which the two largest jackpot drawings in history occurred during 1Q16. In January of 2016 there was an unsuccessful Powerball drawing for $950m followed by a winning jackpot drawing for $1.6 billion. As a result, Draw-Based Sales in 1Q16 were $2.5b higher than in 1Q17. Sales for the remainder of 2017 were actually +4% y/y higher than in Additionally, we note this was the first full year comparison following the adjustment to the Powerball game which decreased the odds of winning the final award in order to drive up jackpot sizes. Despite the moderate annual decline, we would say the Powerball adjustment has been successful. Draw-Based sales in 2017 were still ~10% higher or ~+$2.5b than average annual Draw-Based sales for the 7 years prior to It has done well enough that a similar change was made to the Mega Millions at the end of For the quarter, Draw-Based lottery sales increased +6.0% y/y but decreased -11.8% q/q to $6.5 billion in 4Q17. The annual results were driven by stronger multi-state game jackpot activity while lower average jackpot sizes drove the decline in Draw-Based lottery sales on a sequential basis. As mentioned above, significant multi-state jackpot activity was the primary driver for the annual increase in lottery sales. In 4Q17, the average jackpot size was +38% higher than in 4Q16 driven by decent jackpot drawing growth for both Powerball and Mega Millions. The vast majority of the upside growth in the period occurred during ember when both the Mega Millions and Powerball jackpots grew past $300m through the end of the year. As a result, ember sales of Draw-Based games in the U.S. grew by more than +20% y/y. The prior period actually featured a higher jackpot drawing - $421m Powerball in 4Q16 vs. $390m Powerball in this period. However, since both the Mega Millions and Powerball were simultaneously growing to over $300m jackpot drawings by the end of the year, it drove more sales. There were 8 jackpot drawings over $250m in this period compared with 5 in the prior period. We highlight a recent change in the Mega Millions as a driving force for the recent quarter s uptick in average jackpot sizes compared with the prior year. In late October 2017, the Mega Millions game was modified to drive higher jackpot sizes, increase the chance of smaller wins, and increase the ticket price. Chances of winning the large jackpot have increased to 1/303 million from 1/259 million and ticket prices doubled to $2. A similar modification was made to the Powerball game in late 2015 and it was instrumental in driving the highest jackpot drawings in history which helped push +15% y/y growth in total Draw-Based game sales in Despite the decline in CY17, total sales were still higher than any preceding year. On a sequential basis, Draw-Based Sales were impacted by a challenging period in the prior quarter which featured the 3 rd highest jackpot drawing in history and 2 nd largest awarded. Additionally, the prior quarter featured 13 total jackpot drawings over the size of $250m. Consequently, the average Jackpot size decreased -19% q/q in 4Q17 and resulted in decreased sequential quarterly Draw- Based lottery sales. Eilers & Krejcik Gaming, LLC Page 3 of 19

4 With respect to the individual states, New York continues to lead the nation in Draw-Based Sales by a wide margin with $3.7b in sales for the year and $974m in sales for 4Q17. Florida and California come in at 2 nd and 3 rd generating $2.0b and $1.8b respectively for the year and $484.9m and $418.2m respectively for the qtr. The mix of the Top 5 states remains unchanged though Florida overtook California in both the year and the quarter. Furthermore, 89% of states experienced annual declines in Draw- Based sales for the year. Of the states that did experience Draw-Based growth, Connecticut reported the strongest gain at +2% y/y for CY17. Conversely, for the quarter 98% of reporting states experienced gains for the quarter with Idaho leading the pack at +23% y/y growth in Draw-Based sales in 4Q17. Below we show top grossing and fastest growing states for Draw-Based lottery sales: Annual Top 5 Draw-Based Sales Top 5 Draw-Based Sales YoY State, $s MMs CY 17 Sales State New York $3,725.1 Connecticut 2% Florida $1,966.5 New Hampshire 1% California $1,774.0 Ohio 0% Massachusets $1,607.5 Virginia 0% Ohio $1,519.3 South Carolina -1% Quarterly Top 5 Draw-Based Sales Top 5 Draw-Based Sales YoY State, $s MMs 4Q17 Sales State New York $907.6 Idaho 23% Florida $484.9 Iowa 17% California $418.2 Arizona 16% Massachusetts $411.7 New Hampshire 16% Ohio $371.7 Virginia 16% Looking ahead, we would anticipate a year of marginal to moderate growth driven by the adjustment recently made to the Mega Millions game. The first year following the adjustment to the Powerball game produced a year of significant sales growth roughly $4b more in sales versus the average year of Draw-Based sales in the 7 years prior to Although a similar adjustment has been made to the Mega Millions game, it would be unlikely for more than one +$1b jackpot drawing in a given year. However, it is reasonable to expect the average jackpot size to grow. Additionally, the price of the Mega Millions ticket has doubled, which should produce a multiplicative effect for the higher Mega Millions jackpot drawings which really throttle ticket sales. While the odds of jackpots growing past $1b has certainly grown, it is still a low probability event. As a result, we would anticipate low to mid single digit growth for the year ahead as a reasonable expectation with the potential for upside. Eilers & Krejcik Gaming, LLC Page 4 of 19

5 Sept '14 Sep '16 Sep '17 Jan '09 Apr '09 Oct '09 Apr '10 Oct '10 Apr '11 Oct '11 Apr '12 Oct '12 Apr '13 Oct '13 Apr '14 Oct '14 Apr '15 Oct '15 Apr '16 Oct '16 Apr '17 Oct '17 EILERS: U.S. Lottery Tracker 4Q17 February 13, 2018 Multi-State Jackpot Activity To help show the relationship between Multi-state Jackpot activity and total Draw-based lottery sales we provide the chart below which shows average monthly Jackpot sizes and total monthly Online lottery sales. Average Jackpot size is calculated by taking the simple average of Jackpot sizes for each drawing during the month. We have also identified exceptionally large Jackpots that were won. In viewing this graph the correlation between Draw-based lottery sales and Jackpot sizes are quite obvious and become even more pronounced when Jackpot sizes swing well beyond normal levels. For investors, we highlight GTECH (LTO.MI), Scientific Games (SGMS), and Intralot (INLOT.AT) as the three vendors providing Draw-based lottery systems in the U.S. market that generate fees based on a percentage of retail sales. In general, high jackpots drive strong incremental retail sales, which is typically very high margin revenue for the vendors. In the below chart we highlight both Draw-based lottery retail sales and the average jackpot size of the Powerball and MegaMillions multi-state lotteries. $5,000 $4,500 $3,500 $2,500 $1,500 $10,000 $9,000 $8,000 $7,000 $6,000 $5,000 Draw-based Sales vs. Avg. MM & PB Jackpots ($s in Millions) $656m MM $588m PB $591m PB Draw-based Sales $648m MM Avg Jackpt size $536m MM & $487m PB $564m PB $1.6b PB Source: and Eilers & Krejcik Gaming, LLC Qtrly Draw-based Sales vs. Avg. MM & PB Jackpots ($s in Millions) $656m MM $588m PB $591m PB $648m MM $564m PB $1.6b PB $759m PB $759m PB $260 $240 $220 $200 $180 $160 $140 $120 $100 $80 $60 $40 $20 $200 $180 $160 $140 $120 $100 $80 $60 $40 $20 Draw-based Sales Avg Jackpt size Source: and Eilers & Krejcik Gaming, LLC Eilers & Krejcik Gaming, LLC Page 5 of 19

6 Instant Ticket Sales In 2017, Instant Ticket sales increased +6.1% y/y to ~$48b and was the 8 th consecutive year of Instant Ticket sales growth. While there are many factors that influence Instant Ticket sales, such as game type mix and marketing support, we attribute much of the growth in instant ticket sales to a continued macro-economic growth. The average unemployment rate in 2017 declined -10% y/y while wages increased +3% y/y. Additionally, average monthly Consumer Confidence was +18.5% y/y above the prior year. On the other hand, average gas prices increased +12% y/y in The combined impact produced resulted in net positive growth for consumer spending, which we believe helped fuel Instant Ticket sales. Interestingly, we highlight quarterly Instant Ticket sales growth had decelerated through 2016, but annual quarterly growth actually ramped up throughout It s difficult to say exactly what led to the re-energized growth through this year given the economy has generally improved throughout both periods. One could say the compound effect of continually declining unemployment and rising wages had a greater impact on 2017 consumer spending than in This is idea could be supported by the fact that Consumer Confidence grew at a faster rate through 2017 to 17 year highs by year s end. Although actual consumer discretionary income may not have increased at a faster rate in 2017, people may be feeling better about their financial standing on average following years of expansion. In turn, this is positively influencing their Instant Ticket purchasing behavior. For the quarter, Instant Ticket sales increased +7.0% y/y and +4.8% q/q to $12.2 billion finishing the year in a strong way with the highest quarter for Instant Ticket sales to date. Not only is the annual growth trend in Instant Ticket sales since 2009 continued, but it is the 3 rd consecutive quarter of mid-single digit annual growth. As with the full year figure, we believe growth has been supported by net-positive macro-economic development. The unemployment rate in the quarter declined -13% y/y while wages increased +2.4% y/y in 4Q17. Additionally, average Consumer Confidence readings in the quarter increased +18% y/y in the quarter and reached a 17 year high in November. On the other hand, average gas prices increased +12% y/y and have been increasing throughout the year. We believe the cumulative impact of these factors is positive for discretionary income growth and therefore positively impacts Instant Ticket sales. As can be seen in the charts below, there is a positive correlation between U.S. Consumer Confidence and Instant Ticket Sales as well as a negative correlation between Unemployment and Instant Ticket Sales. 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% '13 '13 Annual Change in Instant Ticket Sales vs. US Consumer Confidence Sep '13 '13 '14 '14 Sep '14 '14 '15 Total Instant Ticket Sales '15 Sep '15 '15 '16 Source: State Lotteries and Eilers & Krejcik Gaming, LLC '16 Sept '16 US Consumer Confidence '16 '17 '17 Sept '17 '17 Source: State Lotteries and Eilers & Krejcik Gaming, LLC Furthermore, we believe the increased offering of higher priced Instant Ticket games may be further supporting Instant Ticket sales growth. Per LaFleur s World Lottery Almanac, in FY09 states offered more $2 game themes than any other (29% of total) and 35% of the game themes were at a price point of $5 or higher. By FY15, 43% of total game themes offered across the nation were at or above the $5 price point. It s likely this strategy has resulted in higher average prices paid per ticket which has supported broad Instant Ticket sales growth along with economic development. For individual states, ~89% of reported states experienced annual increases in Instant Ticket sales for the full year as well as 4Q17. California continues to be the leader in Instant Ticket sales for the year and the quarter with $5.0 billion and $1.2 billion in CY17 and 4Q17, respectively. Floriday followed for the year with $4.4 billion in Instant Ticket sales and New York had the 2 nd strongest Instant Ticket sales in the quarter with $1.0 billion for 4Q17. The mix of states in the Top 5 remain the same for both the year and the quarter. In the quarter, New York overtook Florida as the second strongest Instant Ticket sales. Oklahoma had the highest y/y growth for both the year and the quarter with sales increasing +29% y/y and +66% y/y for CY17 and 4Q17 respectively. Oklahoma 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% -20.0% '13 '13 Sep '13 Annual Change in Instant Ticket Sales vs. Unemployment '13 '14 '14 Sep '14 '14 '15 '15 Total Instant Ticket Sales Sep '15 '15 '16 '16 US Unemployment Sept '16 '16 '17 '17 Sept '17 '17 Eilers & Krejcik Gaming, LLC Page 6 of 19

7 recently removed restrictions on Instant Ticket game payouts and released all new games featuring the higher payouts beginning with July Looking ahead, we anticipate further single-digit Instant Ticket growth driven by stable macro-economic development. However, we are cautiously optimistic with respect to the remaining runway of strong growth. We note, unemployment is at historically low levels and gas prices seem to be creeping up though consumer confidence remains very strong. Additionally, Instant Ticket sales has been on a multi-year run that is becoming increasingly challenging to grow upon. Below we show top grossing and fastest growing states for Instant Ticket lottery sales: Annual Top 5 Instant Ticket Sales Top 5 Instant Ticket Sales YoY State, $s MMs CY 17 Sales State California $5,017.6 Oklahoma 29% Florida $4,405.0 Michigan 18% New York $4,132.7 Arizona 17% Texas $4,126.1 yland 16% Massachusetts $3,515.4 California 14% Quarterly Top 5 Instant Ticket Sales Top 5 Instant Ticket Sales YoY State, $s MMs 4Q17 Sales State California $1,207.6 Oklahoma 66% New York $1,051.7 New Hampshire 16% Texas $1,065.0 Arizona 15% Florida $1,148.2 Arkansas 14% Massachusets $871.8 Indiana 12% Eilers & Krejcik Gaming, LLC Page 7 of 19

8 ilottery Sales We continue to break out ilottery sales in our U.S. Lottery tracker. Note, we define the ilottery category as internet-based sales generated via a desktop or mobile device including direct purchases as well as monthly subscriptions. The ilottery markets are still in their infancy stage, and therefore do not currently contribute significant amounts to total lottery sales. However, we look for this category to gain more importance over the coming years. Currently, there are nine states that offer ilottery services: Georgia, Illinois, Kentucky, Michigan, New Hampshire, New York, North Carolina, North Dakota and Virginia. Additionally, we note Pennsylvania approved online lottery sales this past week, which will make it the 10 th state likely in For the year, ilottery sales increased +31% y/y to $178m in CY17. For the qtr, ilottery sales increased +35% y/y to $50m in 4Q17. Annual growth for the year and the quarter was driven by strong growth from Michigan, Kentucky, Georgia, and Virginia as well as broad growth across most ilottery jurisdictions. With respect to broad-based growth drivers for the year, the majority of the growth seems to be produced by the continued adoption of on-demand ilottery services. States with more liberal ilottery regulations, are experiencing significantly faster growth rates as well as higher overall sales than other jurisdictions. We note Michigan, Georgia, and Kentucky offer both Instant Ticket (escratchers) and Draw-Based games in an on-demand online format and Illinois offers just Draw-Based games (including Powerball and Mega Millions). The remaining jurisdictions offer Draw-Based games through a subscription service. Below we highlight the top five ilottery jurisdictions for the year and the quarter: Top 5 ilottery Top 5 ilottery State, $s MMs CY 17 Sales State, $s MMs 4Q17 Sales Michigan $81.7 Michigan $22.8 Georgia $36.2 Georgia $9.4 Illinois $27.7 Illinois $8.5 Kentucky $10.1 Kentucky $2.9 New York $9.3 New York $2.9 Looking ahead, the growth of internet-based lottery sales will likely be impacted by volatility in multi-state jackpot sizes from time to time, since draw-based games currently represent the majority of total internet-based lottery sales. However, growth in states such as Michigan, Kentucky and Georgia that offer more expansive forms of ilottery games, such as escratchers, should experience sales growth that will be less impacted by the boom and bust cycles of multi-state jackpot games. Expansive growth will rest on legislative approval of full-fledged ilottery, such as what exists in Michigan, in new jurisdictions. Michigan continues to be the breakout leader in ilottery sales in generating ~$82m and ~$23m in ilottery sales for the year and the quarter respectively, which represents roughly +46% y/y and +37% y/y growth for the year and the quarter respectively. Michigan launched ilottery services in August of 2014, and has been marketing the services aggressively with supplier Neo-Pollard. Furthermore, the state continues to launch new games and now offers a variety of both Draw-Based as well as Instant Ticket (escratcher) games. As a result, the state has had strong performance from the internet-based lottery services. We believe offering the most popular games of both Draw-Based and Instant Ticket games will be key to growing lottery sales. However, as is the case with many attempts at expanding legislation, there will be challenges. Minnesota initially launched ilottery services along with Georgia in Unfortunately, Minnesota Lottery was forced to shut all services down by September 2015 due to the lack of specific state approval and growing discontent among land-based lottery game suppliers. ilottery has also faced some opposition in Michigan from the Tribal casino community. One tribe, the Gun Lake Tribe of Pottawatomi Indians, stopped sending all revenue-sharing payments to the state citing the launch of ilottery violated the non-compete clause included in the Tribe s compact with the state. The Tribe and state resolved the issue by compromising on the amount owed to the state, though it remains a thorny issue. Despite these challenges, many states are still exploring ways to expand lottery services online as a means of generating additional tax revenue. Eilers & Krejcik Gaming, LLC Page 8 of 19

9 Kentucky Kentucky successfully launched an ilottery platform offering both Draw-Based and Instant Ticket sales in April It is the culmination of a multi-year planning and negotiation process that began in ch of 2013 when the Kentucky Lottery initially stated intentions to begin offering lottery products through the internet. In order to gain buy-in from land-based lottery retailers Kentucky offers the retailers 5% commission of any deposits consumers make to online lottery accounts in-store. Kentucky has also offered bonus cash to incentivize Kentucky players to make deposits to ilottery accounts in-person rather than online for the first six months. The extensive planning and partnerships Kentucky Lottery has developed throughout its network decreases the probability of blowback from expanding lottery services online in the state. Pennsylvania In Pennsylvania, a wide-sweeping gaming expansion bill, which includes internet-based lottery sales, passed both the House and Senate and was subsequently signed into law by the Governor this week. Facing pressure from consistent budget deficits, the state had been debating various forms of gaming expansion as a means of generating additional tax revenue for quite some time. Now the state will be expanding its commercial gaming offerings as well as expand into ilottery services. With respect to ilottery, the bill allows for both Draw-Based and Instant Ticket games to be offered online. Since the ink from the governor s pen is still drying, we do not have a lot of detailed information regarding the timing or game offerings. However, we expect ilottery to be operational soon - the state s Dept of Revenue has anticipated $10m will be generated for the Lottery Fund in fiscal year (ending e 18) from ilottery alone. With respect to Pennsylvania s ilottery revenue generating capabilities, we believe Pennsylvania is a significant opportunity and has the potential to have the largest ilottery sales within a few years. Given the early stage of market development ilottery results by state can vary significantly, so it is challenging to assume a standard sales per capita for ilottery. In this case, we consider three states that currently offer both Draw-Based and Instant Ticket games online for comparison: Georgia, Kentucky, and Michigan. As stated above, Michigan is the current poster child for ilottery development given its impressive sales growth which has been supported by broad product offerings and strong marketing support. As a result, Michigan s ilottery sales per capita are the strongest of the group by far, as can be seen in the chart to the right. Furthermore, Pennsylvania has a higher GDP and median income, but a potentially lower propensity to gamble as seen by its lower gambling spend per capita. Though this may be due to Michigan s increased availability of gaming options with both Commercial and Tribal casino offerings. Comparable Factors Kentucky Georgia Michigan Pennsylvania GDP ($ billions) $202 $533 $495 $740 GDP/cap $45,414 $50,743 $49,864 $57,813 Median Income $45,215 $51,244 $51,084 $55,702 Gambling spend/cap $14 n/a $288 $251 Given the increased discretionary income available in Pennsylvania along with its higher population of nearly 13m people, there is no reason why Pennsylvania should eventually be the ilottery leader assuming eventual regulations allow for both draw-based and instant ticket sales and down enforce any unreasonable restrictions. However, we also believe there will be a bit of a learning curve. We note Michigan is in its 3 rd year of operating while Georgia has been offering ilottery services for nearly 5 years. Additionally, there will be competing online gaming products such as online poker, slots, table games and daily fantasy sports. Therefore, in the first year we estimate ilottery services in Pennsylvania could produce nearly $40m in sales. This assumes roughly ~$3 ilottery spend per person with the state launching both Draw-Based and Instant Ticket games online supported by significant marketing spend. CY17 Michigan ilottery Sales 81,587,753 Population 9,935,000 ilottery Sales/cap $8.21 Georgia ilottery Sales 36,211,969 Population 10,500,000 ilottery Sales/cap $3.45 Kentucky ilottery Sales 10,127,880 Population 4,437,000 ilottery Sales/cap $2.28 Eilers & Krejcik Gaming, LLC Page 9 of 19

10 The Pennsylvania Department of Revenue s current estimates assume the ilottery would have generated $86.3m for the fiscal year (ending in e) if launched on October 1, 2017 (9 months of operation), which assumes an ilottery spend per cap for a full year of nearly $9. While we believe this is a bit optimistic for the first year, we find it very reasonable for Pennsylvania to be generating over $100m in ilottery sales by year 3 and continue growing. $140 $120 $100 $80 $60 $40 $20 Pennsylvania ilottery 3rd Year Estimate ($ in millions) $5/cap $7/cap Bear Base Bull Source: Eilers & Krejcik Gaming, LLC est s New Hampshire At the end of e, New Hampshire legislators officially cleared the way for the introduction of full-fledged ilottery sales. Currently, New Hampshire offers internet lottery subscriptions in which the account can be managed online. Beginning with the fiscal year, New Hampshire lottery will be offering on-demand Draw-Based and Instant Ticket games through an internet portal. We note the state had plans on launching such games in 2010 before efforts were stymied by legislators prior to the rollout. Once launched, New Hampshire will be the 6 th state to offer on-demand ilottery, assuming Pennsylvania has launched prior to July Virginia In Virginia, the state lottery announced an agreement with NeoPollard (Pollard s interactive lottery Joint Venture with NeoGames) to manage the state s esubscription digital solution and platform that will include the management of Draw-based game subscriptions and may eventually include interactive Instant Ticket games as well. However, a bill legalizing comprehensive ilottery did not make it through a House subcommittee last year. Rhode Island More recently, House Representative of Rhode Island Charlene Lima has introduced House Bill 7437 to approve the sale of lottery games, both Draw-Based and Instant, online in order to drive additional revenue for the state. Rhode Island s pension liabilities are stacking up and the program is currently under-funded. Rep. Lima believes online lottery could drive an additional $13m in revenue to the state per year. The bill must be reviewed by a commission and then approved by the House, Senate, and Governor before being enacted. We believe the recent passage of online Instant Ticket sales in New Hampshire as well as the success of online lottery games in states mentioned above could be effectively used to convince the legislature to pass the bill. The bill was just introduced January 31, 2018, so we await further news before factoring Rhode Island ilottery into our estimates. In terms of impact, given Rhode Island s gaming spend per capita is very high we find it reasonable to assume the state could generate strong ilottery sales per capita. However, given the small population of ~1m people, we find it reasonable to assume the state could generate nearly $5m in its first full year and would climb from there. Additionally, the Massachusetts government has also been considering ilottery over the past few years. A provision of a Senate bill which would allow ilottery sales failed in the House in In 2017, an online lottery proposal was brought before the Senate again and was unsuccessful. A special commission formed by the state legislature is expected to report on the impact of igaming, fantasy sports and egaming legislation on the state. Although the report does not include lottery games, it seems the overall sentiment for internet expansion of gaming is improving, which is positive for ilottery. Additionally, both SciGames and IGT have expanded internet-based lottery services in states that do not allow purchases or subscriptions online by launching information applications on mobile platforms. $9/cap Eilers & Krejcik Gaming, LLC Page 10 of 19

11 EILERS: U.S. Lottery Tracker 4Q17 February 13, 2018 Finally, we see ilottery as a major area of growth for the Lottery industry, though expansion will continue to face headwinds from established land-based gaming interests combined with a lengthy legislative approval processes in some cases. Considering this is an expansion into a relatively unexplored distribution channel for the lottery industry, it will be extremely important for states to include all stakeholders in the discussion and negotiation of launching ilottery platforms. Ultimately, we find the adoption of internet-based sales to be an inevitable evolution in lottery. Longer term, we believe ilottery sales could conceivably represent 5-10% of total lottery sales in the U.S, or ~$3.0 - $6.0 billion in retail sales assuming the majority of states participate and offer both instant tickets and draw based lotto games. Going forward, we believe the ilottery category is poised to exceed $210 million in CY18. $20 $18 $16 $14 $12 $10 $8 $6 $4 $2 Total Monthly U.S. Internet Lottery Retail Sales - $s in Millions Internet-Based Sales Source: State Lottery Agencies, Eilers & Krejcik Gaming, LLC Scientific Games Summary Source: State Lottery Agencies, Eilers & Krejcik Gaming, LLC We believe tracking U.S. retail sales is important for investors in Scientific Games (SGMS), as well as GTECH (IGT), Intralot (INLOT.AT), and Pollard Banknote Ltd (PBL-T), as retail sales performance is strongly correlated to both Instant Ticket and Drawbased lottery systems sales. Vendors are paid as a percentage of retail sales for all domestic Draw-based lottery contracts and we estimate roughly half of Instant Ticket contracts are paid as a percentage of retail sales vs. price per thousand (PPK) tickets. Scientific Games is highlighted in this report for market position and exposure to Instant Tickets in the U.S.; out of 45 U.S. jurisdictions tracked in our quarterly report, Scientific Games is the primary supplier for 33 of the markets and is also the Draw- Based system provider for 9 of the states tracked. We note, SciGames Arizona contract to be the Draw-Based system provider in Arizona, replacing IGT, took effect during 3Q16. Additionally, SciGames North Carolina contract to be the primary supplier of the states Instant Tickets under a cooperative services agreement, replacing IGT, took effect during 2Q17. For Scientific Games primary contracted states, CY17 Instant Ticket retail sales were up +5.7% y/y to $43.7 billion while Draw- Based retail sales were down -6.4% y/y to $3.7 billion. For the quarter, 4Q CY17 Instant Ticket retail sales were up +6.8% y/y and +4.8% q/q to $11.1 billion and Draw-Based retail sales were up +3.2% y/y but down -11.6% q/q to.9 billion. Excluding North Carolina from the previous year, Instant Ticket retails sales were up +11.4% y/y. Total lottery sales in SciGames covered states grew +4.7% y/y for the year which was ahead of the national average due to SciGames exposure to Instant Tickets. For the quarter, total lottery sales in SciGames covered states grew +6.7% y/y which was in-line with the national average. IGT / GTECH Summary We also highlight IGT / GTECH in this report for the company s market leadership and exposure to Draw-Based sales in the U.S.; out of 45 jurisdictions tracked in our quarterly report, IGT is the Draw-Based systems provider for 25 states Number of U.S. States w/ ilotto Services by Quarter For IGT s primary contracted states, CY17 Draw-Based retail sales decreased -6.4% y/y to $20 billion. For the quarter, 4Q CY17 Draw-Based retail sales increased +6.8% y/y but decreased -11.6% q/q to $4.9 billion. Both the annual and quarterly Draw-Based sales were in-line with the national trend for Draw-Based lottery sales. Eilers & Krejcik Gaming, LLC Page 11 of 19

12 Intralot Summary Intralot is highlighted in this report as a formidable competitor in the Draw-Based lottery space. Out of the 45 jurisdictions tracked in our quarterly report, Intralot is the Draw-Based systems provider for 11 states. For Intralot s primary contracted states, CY17 Draw-Based retail sales were down -3.6% y/y to $2.8 billion, which was above the national trend for Draw-Based sales. For the quarter, 4Q CY17 Draw-Based retail sales were up +5.8% y/y but down -10.4% q/q to $681.0 million, which was in-line with the national trend for Draw-Based lottery sales. Pollard Summary Pollard is highlighted in this report as an emerging competitor in the Instant Ticket lottery space. Out of the 45 jurisdictions tracked in our quarterly report, Pollard is the Instant Ticket provider for 6 states. For Pollard s primary contracted states, CY17 Instant Ticket retail sales increased +11.0% y/y to $4.0 billion. For the quarter, 4Q CY17 Instant Ticket retail sales were up +10.2% y/y and +6.5% q/q to $1.0 billion. Both the annual and quarterly growth were stronger than the national trend for Instant Ticket sales. Eilers & Krejcik Gaming, LLC Page 12 of 19

13 Lottery Contracts Announced In the most recent quarter, we note Scientific Games, IGT, Pollard and Intralot were successful in either gaining approval on extensions of current contracts or signing new contracts both within the states and internationally. SciGames signed a new contract with the Kansas Lottery to provide Draw-Based Systems and Hardware, replacing IGT. The contract will exchange hands in July of next year. SciGames also continued its existing relationships with the Illinois and Oregon lotteries for comprehensive support and distribution for the state s Instant Ticket services. IGT extended its existing contract with the California lottery to provide Draw-Based Systems and Hardware and also signed a new contract with existing client Ohio Lottery to be a secondary Instant Ticket supplier. Additionally, IGT signed an extension to continue providing Instant Ticket product and support to Washington DC. Pollard signed a new contract with an existing client, the Missouri Lottery, to provide Pull-Tab games at fraternal organizations. This marks the transition away from a trial period that began in Intralot signed a new contract with the Illinois Lottery to provide its Draw-Based Systems and Hardware once Camelot takes over as the private lottery manager in January Finally, Everi signed an extension with the New York Lottery to continue providing the VLT Central System for an additional two years. Internationally, IGT, SciGames, and another firm extended a joint venture contract to provide Instant Tickets for the Lotterie Nazionali lottery in Italy. SciGames signed a new contract with the Atlantic Lottery Corp in Canada to expand its lottery services to include a full omni-channel ilottery platform across all of the provinces the ALC manages. Pollard extended an agreement with the Ontario Lottery Gaming Corp to continue supplying and supporting Break Open Ticket (BOT) machines to charitable organizations. Intralot signed a new contract with Greece lottery operator OPAP to provide support for digital lottery services. Finally, Novomatic signed a contract with the British Columbia Lottery Corporation to replace its legacy Draw-Based terminals. In the below table we highlight lottery contracts announced over the past year in both the domestic and international markets: Date Announced U.S. vs. Intl Jurisdiction Customer / Operator New Vendor Previous Vendor New/Existing Customer Type Start Date End Date 12/25/2017 U.S. Washington DC IGT (extension) IGT IGT Existing Instant Ticket '18 10/26/2017 U.S. Kansas Kansas Lottery SGMS IGT New Draw-Based Systems and Hardware Jul '18 Jul '28 10/2/2017 U.S. California California Lottery (extension) IGT IGT Existing Draw-Based Systems and Hardware Oct '19 Oct '26 9/25/2017 U.S. Illinois Illinois Lottery SGMS SGMS Existing Instant Ticket Jan '19 Jan '29 9/25/2017 U.S. Illinois Illinois Lottery Intralot IGT New Draw-Based Systems and Hardware Jan '19 Jan '29 9/25/2017 U.S. Illinois Illinois Lottery Camelot Northstar New Private Mgmt Contract Jan '19 Jan '29 9/14/2017 U.S. Missouri Missouri Lottery Pollard Pollard Existing Pull-Tab Dispensers Sept '20 9/12/2017 U.S. Ohio Ohio Lottery IGT IGT Existing Instant Ticket (2nd Provider) Sept '19 9/7/2017 U.S. Oregon Oregon Lottery (extension) SGMS SGMS Existing Instant Ticket 9/6/2017 U.S. Arkansas Arkansas Scholarship Lottery Intralot Intralot Existing Draw-Based Systems and Hardware Aug '19 Aug '26 8/15/2017 U.S. Ohio Ohio Lottery (extension) SGMS SGMS Existing Instant Ticket Jul '19 7/19/2017 U.S. Oregon Oregon Lottery (extension) Pollard Pollard Existing Instant Ticket '18 7/19/2017 U.S. Vermont Vermont Lottery (extension) Intralot Intralot Existing Draw-Based Systems and Hardware Jul '18 Jul '20 7/17/2017 U.S. Colorado Colorado Lottery SGMS SGMS Existing Instant Ticket Jul '23 7/17/2017 U.S. New York New York Lottery (extension) IGT IGT Existing Draw-Based Systems and Hardware Aug '17 Aug '20 7/28/2017 U.S. yland yland Lottery and Gaming Control Agency SGMS SGMS Existing Draw-Based Systems and Hardware May '18 May '26 6/27/2017 U.S. Ohio Ohio Lottery (extension) Intralot Intralot Existing Draw-Based Systems and Hardware Jul '19 6/26/2017 U.S. New Hampshire New Hapmshire Lottery SGMS SGMS Existing Instant Ticket Jul '21 6/22/2017 U.S. West Virginia West Virginia Lottery IGT IGT Existing Instant Ticket '21 6/22/2017 U.S. West Virginia West Virginia Lottery IGT IGT Existing Draw-Based Systems and Hardware '18 '25 6/14/2017 U.S. Michigan Michigan Lottery Pollard Pollard Existing Pull-Tab '22 3/27/2017 U.S. Arizona Arizona Lottery (extension) SGMS SGMS Existing Instant Ticket Jan '18 3/23/2017 U.S. Iowa Iowa Lottery (extension) SGMS SGMS Existing Instant Ticket Jan '18 3/23/2017 U.S. Iowa Iowa Lottery (extension) SGMS SGMS Existing Draw-Based Systems Jul '19 Jul '21 3/13/2017 U.S. Michigan Michigan Lottery Pollard Pollard Existing Instant Ticket Jan '20 2/28/2017 U.S. Idaho Idaho Lottery Intralot Intralot Existing Draw-Based Systems and Hardware Oct '17 Sept '27 2/14/2017 U.S. Missouri Missouri Lottery (extension) SGMS SGMS Existing Instant Ticket Jul '20 2/1/2017 U.S. Arizona Arizona Lottery (extension) Pollard Pollard Existing Instant Ticket (2nd Provider) Jan '18 1/5/2017 U.S. Idaho Idaho Lottery (extension) IGT IGT Existing Instant Ticket '19 1/4/2017 U.S. Idaho Idaho Lottery (extension) Pollard Pollard Existing Instant Ticket (2nd Provider) May '19 12/9/2017 Intl Canada Ontario Lottery and Gaming Corp (OLG) (extensi Pollard Pollard Existing Break Open Ticket Hardware and System Nov '19 12/7/2017 Intl Greece OPAP Intralot Intralot Existing Online Lottery Support Jul '18 Jul '21 12/7/2017 Intl Italy Lotterie Nazionali (extension) SGMS SGMS Existing Instant Ticket Sept '19 Sept '28 11/1/2017 Intl Canada British Columbia Lottery Corp. (BCLC) Novomatic New Draw-Based Hardware n/a n/a 11/1/2017 Intl Canada Atlantic Lottery SGMS SGMS Existing ilottery Platform Oct '17 Oct '22 10/18/2017 Intl Italy Lotterie Nazionali (extension) IGT IGT Existing Instant Ticket Nov '18 Nov '28 5/18/2017 Intl Canada Ontario Lottery and Gaming Corp (OLG) (extensi Pollard Pollard Existing Instant Ticket Aug '17 Aug '22 5/17/2017 Intl France La Française des Jeux (FDJ) (extension) Pollard Pollard Existing Instant Ticket May '20 4/5/2017 Intl Germany Lotterie-Treuhandgesellschaft mbh Hessen IGT IGT Existing Draw-Based Systems and Hardware Jan '18 Jan '25 3/28/2017 Intl Bulgaria Bulgaria National Lottery IGT n/a New Instant Ticket (2nd Provider) Apr '17 Apr '20 3/23/2017 Intl New Zealand New Zealand Lotteries Commission (Lotto NZ) IGT n/a New Remote Gaming Server and ilottery Conten May '22 3/13/2017 Intl Canada Western Canada Lottery Corp (WCLC) IGT IGT Existing Draw-Based Hardware n/a n/a 3/7/2017 Intl Norway Norsk Tipping Novomatic n/a New escratcher and igaming content '20 2/23/2027 Intl Norway Norsk Tipping SGMS n/a New igaming and escratcher Content '20 2/7/2017 Intl Norway Norsk Tipping IGT IGT Existing igaming and escratcher Content Feb '17 Feb '20 2/7/2017 Intl Norway Norsk Tipping (extension) IGT IGT Existing igaming Platform Feb '17 Feb '19 2/1/2017 Intl Greece OPAP Novomatic Novomatic New Draw-Based Systems and Hardware Jan '18 Jan '23 1/27/2017 Intl Estonia Eesti Loto Novomatic New aw-based Systems and Hardware and ilo Feb '17 Feb '24 1/18/2017 Intl Sweden Svenska Spel IGT IGT Existing VLT Central System and Hardware Jan '24 1/18/2017 Intl Colombia Coljuegos EICE IGT IGT Existing Draw-Based Systems and Hardware Apr '17 Apr '22 1/17/2017 Intl Switzerland Societe de la Loterie de la Suisee Romande IGT IGT Existing Draw-Based Systems and Hardware Jan '23 Source: State Lotteries, Scientific Games, IGT, Pollard, Intralot & Eilers & Krejcik Gaming, LLC Eilers & Krejcik Gaming, LLC Page 13 of 19

14 Lottery Contracts Expiring In this section, we will track lottery vendor contracts set to expire within the next two years. This section will include a summary of the jurisdiction, current primary vendor, secondary vendor if applicable and set date of expiration. We note contracts tend to be awarded to the previous vendor. However, we note two contracts awarded in CY17 changed hands including the Illinois drawbased systems contract which will be managed by Intralot starting next year and Kansas draw based lottery system contract which was won by SciGames. Below we highlight Instant Ticket lottery contracts set to expire in CY17, CY18 & CY19: Lottery Population Sales Operator Instant Ticket 2nd Instant Retail Sales CY17 Instant Instant # of Ext. Ext. End Jurisdiction (MM) Capita Primary Vendor Vendor Draw-Based VLT Pull Tabs Instant Total Start End Ext. yrs Date Connecticut 3,596,080 $347 - SGMS (PPK) GTK $518,270, $728,320,598.0 $1,246,591,083.0 Aug '07 Aug ' Aug '17 Delaware 925,749 $562 - SGMS(CSP) n/a $104,926,789.6 $345,424, $70,351,562.6 $520,702,352.1 Feb '15 Jan ' Jan '18 Florida 19,552,860 $326 - SGMS(CSP) GTK $1,966,489, $4,404,977,922.0 $6,371,467,825.0 Oct '08 Sept ' Sept '18 Idaho 1,612,136 $157 - IGT Pollard $57,012, $196,438,524.0 $253,450,894.0 ' '19 Iowa 3,090,416 $117 - SGMS(PPK) Pollard $111,541, $9,858,641.0 $241,306,610.0 $362,706,343.0 Jan ' Jan '19 Massachusetts 6,692,824 $765 - SGMS(PPK) Pollard / GTK $1,607,491, $3,515,362,737.0 $5,122,854,278.8 Oct '12 Oct ' Oct '17 New Mexico 2,085,287 $63 - GTK SGMS(PPK) $57,989, $74,196,374.0 $132,186, '18 New York 19,651,127 $502 - SGMS(PPK) Pollard / GTK $3,725,064,539.0 $2,012,558, $4,132,651,958.0 $9,870,275,124.0 Jul ' Jul '18 Oregon 4,000,000 $87 - SGMS(PPK) Pollard / GTK $221,949, $127,606,011.0 $349,555, '18 Pennsylvania 12,750,000 $321 Camelot SGMS (CSP) n/a $1,240,670, $2,857,220,388.0 $4,097,890,467.0 Aug '07 Aug ' Aug '17 Vermont 626,630 $203 - Pollard 0 $27,923, $99,272,014.0 $127,195,109.5 Jan ' Jan '19 Source: Eilers Research, LLC., State Revenue Reporting Agencies Below we highlight Draw-Based lottery contracts set to expire in CY17, CY18 & CY19: Lottery Population Sales Operator Draw-Based Draw-Based Retail Sales CY17 Draw-BasedDraw-Based # of Ext. Ext. End Jurisdiction (MM) Capita Vendor Terminals Draw-Based VLT Pull Tabs Instant Total Start End Ext. yrs Date Connecticut 3,596,080 $347 - SGMS 3,000 $518,270, $728,320,598.0 $1,246,591,083.0 May '08 May ' May '18 Delaware 925,749 $562 - SGMS 525 $104,926,789.6 $345,424, $70,351,562.6 $520,702,352.1 Feb '15 Feb ' Feb '18 Kansas 2,893,957 $201 - SGMS 1,900 $108,326,645.0 $312,668, $159,376,739.0 $580,371,981.0 Jul '08 ' '18 Montana 1,015,165 $55 - Intralot 773 $37,069, $18,353,152.0 $55,422,911.0 ' Pennsylvania 12,750,000 $321 Camelot SGMS 8,340 $1,240,670, $2,857,220,388.0 $4,097,890,467.0 Jan ' '18 South Carolina 4,774,839 $355 - Intralot 3,666 $476,107, $1,218,182,972.9 $1,694,290,425.3 Nov '08 Nov ' Nov '18 South Dakota 844,877 $313 - GTK 620 $26,432,022.0 $210,280, $27,475,515.0 $264,187,927.0 Aug '14 Aug ' Aug '19 Ontario (OLG) 13 - IGT 9, ' '18 * Intralot's Systems contract w/ Montana was initially set to expire on. 31, We believe the contract must have been extended and assume a new RFP has either been issued or will be issued soon. Source: State Lotteries, Scientific Games, GTECH, Pollard, Intralot & Eilers & Krejcik Gaming, LLC Below we highlight VLT lottery contracts set to expire in CY17, CY18 & CY19: Lottery Population Sales Operator VLT VLT Retail Sales CY17 VLT VLT # of Ext. Ext. End Jurisdiction (MM) Capita System Games Draw-Based VLT Pull Tabs Instant Total Start End Ext. yrs Date Delaware 925,749 $562 - SGMS 7,300 $104,926,789.6 $345,424, $70,351,562.6 $520,702,352.1 Feb '03 Feb ' Feb '18 Kansas 2,893,957 $201 - GTK 600 $108,326,645.0 $312,668, $159,376,739.0 $580,371,981.0 Nov '09 Nov '19 n/a n/a Nov '19 Maine 1,328,302 $208 - SGMS n/a $60,000, $216,073,749.0 $276,074,153.5 Jul '08 ' '18 New York 19,651,127 $502 - EVRI 19,000 $3,725,064,539.0 $2,012,558, $4,132,651,958.0 $9,870,275,124.0 ' '19 Source: State Lotteries, Scientific Games, GTECH, Pollard, Intralot & Eilers & Krejcik Gaming, LLC Eilers & Krejcik Gaming, LLC Page 14 of 19

15 Jan '09 May '09 Nov '09 May '10 Jan '09 May '09 Nov '09 May '10 Jan '09 May '09 Nov '09 May '10 EILERS: U.S. Lottery Tracker 4Q17 February 13, 2018 Monthly & Qtrly Retail Sales Trends In the following sections we provide charts highlighting monthly and quarterly retail sales and growth rates for all 45 participating U.S. lotteries starting from Jan 09 through 17. $9,000 $8,000 $7,000 $6,000 $5,000 Total Monthly U.S. Lottery Retail Sales, $s in Millions MM Jackpot $656m MM Jackpot $536m MM Jackpot $648m PB Jackpot $1.5b PB Jackpot $759m PB Jackpot $591m PB Jackpot $564m U.S. Lottery Retail Sales $5,000 $4,500 $3,500 $2,500 $1,500 $5,000 $4,500 $3,500 $2,500 $1,500 Total Monthly U.S. Instant Ticket Retail Sales, $s in Millions U.S. Lottery Instant Ticket Sales Total Monthly U.S. Draw-Based Lottery Sales, $s in Millions Largest MM Jackpot U.S. Draw-based Lottery Sales 1st and 2nd Largest PB Jackpot 4th Largest PB Jackpot 3rd Largest PB Jackpot % % % -5.00% $24,000 $20,000 $16,000 $12,000 $8,000 Total Qtrly U.S. Lottery Retail Sales, $s in Millions U.S. Lottery Retail Sales $14,000 $12,000 $10,000 $8,000 $6, $10,000 Total Qtrly U.S. Instant Ticket Retail Sales, $s in Millions U.S. Lottery Instant Ticket Sales $9,000 $8,000 $7,000 $6,000 $5,000 Total Qtrly U.S. Draw-Based Retail Sales, $s in Millions U.S. Lottery Draw-based Retail Sales % % -5.00% % 18.00% 16.00% 14.00% 12.00% % 6.00% 4.00% 2.00% Note: ch 3, 2012 $656 million Mega Millions jackpot awarded (largest in history), November 29, 2012 $587 million Powerball jackpot awarded, May 20, 2013 $591 million Powerball jackpot awarded, ember 19, 2013 $648 million Mega Millions jackpot awarded (2 nd largest in history), January 13, 2016 $1.6 billion Powerball jackpot awarded (largest in history), August 23, 2017 $759 million Powerball awarded (2 nd largest in history). Eilers & Krejcik Gaming, LLC Page 15 of 19