The Lottery Corporation Limited (Lottery Corp, the Group, ASX: TLC) is a top 50 ASX-listed company and Australia’s largest lottery operator. The Group generates commission through the sale of Instant Scratch-Its, Powerball coupons, and Keno games through 3,800 lottery outlets and 3,400 Keno venues. Lottery Corp also has a growing digital retail channel. The Group’s brands include Oz Lotto, Powerball, and Keno. Lottery Corp has been listed on the ASX since 24 May 2022 following its demerger from Tabcorp.

Lottery sales exhibit defensive and resilient attributes

Lottery ticket sales are not strongly correlated with economic conditions such as high interest rates or a high cost of living environment. This is evidenced by Lottery Corp’s $500 million boost to turnover in the 2024 financial year during which interest rates reached 15-year highs. In what was a challenging year for most Australian businesses, Lottery Corp grew net profit after tax by 21 percent to $412 million and paid out 100 percent of earnings in fully franked dividends. The Group’s earnings resilience is drawn from the simple business model of low-spend, low-frequency and mass participation in a low-harm gambling product with an average weekly customer spend of $13.

Lottery Corp’s simple, low capital intensity, high cash flow generative business model enables the Group to adopt a target dividend payout ratio of between 80 and 100 percent of earnings. The Group paid out 100 percent of earnings in FY24.

Strong barriers to entry

Establishing a world-class, large-scale, pure-play lottery business requires licences and government approvals, and an extensive retail distribution network capable of servicing a large customer base, using a sophisticated customer data platform. Lottery Corp has a customer base of 4.75 million active registered customers who account for 59 percent of the Group’s lottery sales turnover. Moreover, 53 percent of the Australian adult population have purchased a lottery ticket in the past 12 months, which translates to an estimated 10 million players. Lottery Corp has 7200 points of distribution in attractive markets and 13 licences and approvals under a tightly regulated State-based licencing framework. Some licences extend out to 2072, and others to 2050.

Equally importantly as its State-based licences, Lottery Corp operates under a strong social licence to operate with wide community acceptance. This community acceptance is important given the corporate social responsibility obligations of large Australian businesses to the communities they serve. Lottery Corp returns more than 90 percent of an entry to players or the community, with winning players receiving 60 percent and the government over 30 percent. This is not the case with other lottery products operating within Australia. In FY24 Lottery Corp’s operations delivered $1.9 billion in lottery and Keno tax revenues to government and $725 million in commissions to retail business partners.

Positive outlook

Management have reported a pleasing start to the 2025 financial year and are equally confident of the long-term outlook for the Group. This positive outlook is supported by the Board’s long-term value creation target of total shareholder return in the top quartile of the companies in the S&P/ASX100 other than those in the Metals & Mining and Oil & Gas sectors.

In other developments that should boost revenue in the years ahead is Lottery Corp’s plan to implement a new customer data platform that will provide personalised communications at scale, building loyalty and engagement through more personalised experiences. This enhanced customer data platform will introduce Charitable Games products into the digital system, by allowing the lottery player to purchase a ‘Play For Purpose’ ticket to support a charity nominated by the lottery player.

Lottery Corp plans to digitise more of the sign-up experience for customers and retailers, making it easier for players to join the retail membership program using their digital device in store. Digitisation, including the transition from retail to digital, is likely to enhance margins over time.

The Group has recently launched a partnership with BWS to sell lottery tickets to broaden its sales reach and product accessibility. The partnership has commenced with a trial of various bottle shop stores.

These initiatives combined with lottery spending having grown steadily at 4.1 percent per annum over the past 20 years should underwrite consistent earnings and dividend growth over the long term.