1. Technological Advancements in State Lottery Operations June 6, 2014 Presented by: Chris Robertson Director of Business Development NCLGS

2. AGENDA I.Three New Product Trends II.No Cannibalization Study

3. PLAY AT THE PUMP & ATMs

4. eSCRATCH

5. ELECTRONIC PULL-TAB DISPENSERS

6. NO CANNIBALIZATION Substitution Effect (Cannibalization) OR Supplementation Effect?

7. NO CANNIBALIZATION According to studies, no evidence to suggest that addition of new, lottery products, such as VLTs, in bars and clubs have a negative effect on Casino revenue. Research by Christian Marfels, professor of Economics at Dalhousie University in Nova Scotia, concludes “Simply stated the notion of substitution effect and gaming do not mix. There is simply no empirical evidence whatsoever to support such a claim. Rather, the introduction of VLT gaming to a jurisdiction with other forms of commercial gaming, including casino gaming, leads to more variety within the gaming industry.” An effect that Marfels called the “Supplementation Effect.”

8. NO CANNIBALIZATION SUPPLEMENTATION EFFECT = GROWING THE PIE

9. NO CANNIBALIZATION South Dakota 1990 – 1996; VLT revenue $46M/year to $175M/year Casino Revenue $14M/year to $45M/year Manitoba 1990 – 1996; VLT revenue $0M/year to $185M/year Casino revenue $5M/year to $101M/year Nova Scotia 1992 – 1997; VLT revenue $17M/year to $106M/year Casino revenue $0M/year to $71M/year

10. NO CANNIBALIZATION West Virginia 2000 – 2007; VLT revenue $0M/year to $397M/year Casino revenue $283M/year to $955M/year Iowa 2000 – 2007; MVM revenue introduced, then removed growing from $0M/year to $121M/year Casino revenue $899M/year to $1044M/year Note: Casino revenue the year the MVMs were removed had smaller growth rate than during years MVMs were introduced British Columbia 2003 – 2011; VLT revenue $0M/year to $170M/year Casino revenue $374M/year to $960M/year

11. NO CANNIBALIZATION “….the extension of the substitution effect of casino gaming to other forms of commercial gaming in general, and to VLT gaming in particular, in the sense of cannibalization of gaming revenues, is misguided. If anything, the one dollar spent on VLT gaming is simply one dollar more spent on gaming. Why? Because VLT and casino activities are two vastly different forms of commercial gaming. As a consequence, the substitution effect can be laid to rest, and it can be safely replaced by the supplementation effect.” Christian Marfels, PH.D, Casino Gaming and VLT Gaming: Substitution Effect or Supplementation Effect?, GAMING LAW REVIEW, Volume 1, Number 3, 1997

12. NO CANNIBALIZATION More lottery products grow the pie!