Connecticut iLottery: What happened?

In 2021, the General Assembly and Gov. Ned Lamont approved a bill that allows online casino gaming for the Mashantucket and Pequot Tribes, sports betting for both the Tribes and the Connecticut Lottery Corporation (CLC), and online lottery games through CT Lottery.

The move was expected to bring Connecticut in line with many other states that had come around to legalizing online betting and gaming and increase revenues to the state. According to the fiscal note attached to the bill, Connecticut’s General Fund could expect $36.4 million in 2023, potentially rising to $74 million across all platforms by fiscal year 2026.

Almost immediately, the Tribes launched online casinos and sports betting through their nationally known powerhouse sports betting vendors Fan Duel and Draft Kings. In the month of January 2022 alone, the casinos sent $3.3 million to the state from online casino games and nearly another $1 million from sports betting.

CT Lottery’s foray into the world of online gaming and sports betting, however, didn’t go quite as planned. That same month, CT Lottery sent $60,000 to the state through sports betting through its less well-known vendor Rush Street. That partnership ended two years later in March of 2023 , following a “mutual parting of ways,” between Rush Street and CLC. CT Lottery then partnered with Fanatics in September of 2023.

And while CLC’s foray into sports betting may be outside their tried-and-true revenue source – namely the lottery tickets that have brought in more than $400 million to the state’s General Fund in each of the last couple of years – online lottery sales, known as iLottery, should have been a natural transition for the state’s quasi-public entity.

In submitted public testimony to the Public Safety and Security Committee, CT Lotto Board of Directors Chairman Robert T. Simmelkjaer II, and CT Lotto President Gregory Smith, wrote that iLottery and online Keno would bring Connecticut’s lottery system into the 21 ^st century, reach a new generation of lotto players, and allow the state’s lottery system “to continue meeting and exceeding its goals.”

However, more than three years since passage of the law, Connecticut’s iLottery system has yet to launch, meaning that despite estimates of $2-$3 million in the first two years and $19 million by 2026, iLottery has generated no revenue whatsoever.

The State of Connecticut was counting on iLottery revenues, according to the legislation, which established that iLottery had to set up an online lottery ticket sales fund and, starting in 2024, deposit $14 million into that fund which would be used to support “debt-free community college” that allows eligible students to attend community college ostensibly for free.

That also didn’t happen. Recognizing that there was no way iLottery would generate enough or potentially any revenue in fiscal year 2024 – which began in July of 2023 – the 2023 budget eliminated that provision , instead replacing it with an annual $15 million deposit into the debt-free community college account from the state’s General Fund.

Furthermore, the budget pushed back the anticipated revenue from iLottery to $2 million in 2025 and $3 million in 2026, far below the projected $19 million estimated in 2021.

Casino gaming and the CT Lottery have long been a cash cow for Connecticut’s coffers. Prior to the implementation of legalized online gambling, Foxwoods and Mohegan Sun sent $255.2 million to the state’s General Fund in 2019, while CT Lotto generated $370 million. Those numbers have only increased since the advent of legalized online gaming and gambling.

In essence, people were playing, whether it was online casino gaming or sports betting or lotto tickets. But they weren’t playing iLottery.

According to published reports, Connecticut was expected to finally roll out iLottery in fall of 2023 – that didn’t happen either, raising the question of what happened, and why has it taken so long to launch Connecticut’s iLottery system?

“I think it’s safe to say we’re disappointed in the way this has turned out, we would have liked to come to market sooner,” said Art Mongillo, manager of public affairs for CT Lotto. “It’s good to put a happy face on it and say we don’t mind the delays as long as the product is good, but we are a little disappointed in the fact that it is taking this long.”

Part of the delay was self-imposed by CLC.

When the legislation passed in 2021, CT Lottery was in the midst of reworking their entire lottery system with a new vendor – International Game Technology, Inc (IGT) – a multi-billion-dollar international company based out of London that operates lotteries, including online lotteries, throughout the world and in states like California, Michigan, New Jersey, New York, and Georgia. IGT’s products are even in use at Connecticut casinos.

IGT was selected through a competitive bid process in September of 2021 to install a new central system for CT Lottery. It was a 10-year contract with a possible three-year extension, and since IGT also offered iLottery platforms, the thinking was that it would make more sense to integrate Connecticut’s iLottery platform at the same time as the new central system.

In May of 2023, the same month IGT launched the new Aurora central system for CLC, CT Lottery and IGT inked another 8-year agreement for IGT to supply an iLottery platform and games with an expected launch date of October 2023. Under the terms of the contract, IGT is entitled to 12.94 percent of gross revenue from iLottery, meaning the delay is costing everyone money.

While IGT has rolled out a mobile app so lotto players can scan their tickets without going to a physical location and be alerted to winning numbers, the ability to actually purchase tickets and play CT Lotto games through a mobile device has yet to be launched.

“We initially planned to roll out the iLottery system and then we replaced our entire gaming system,” Mongillo said. “I think the thought at the time was if that went seamlessly maybe six to eight weeks later, we’d be able to plug iLottery in, plug the patch in, test the patch, then test the entire system integration to make sure everything works.”

“It’s a lot easier to say it than to execute,” Mongillo said. “All these steps take a lot of time, especially if we want to make sure that we meet regulatory requirements, and everything comes out accurately the first time.”

However, by February of 2024, iLottery was still behind schedule. According to CLC Board of Directors meeting minutes , CLC President Gregory Smith said “the launch for the iLottery platform is further delayed and that although IGT has known about the regulatory requirements for about a year, they are struggling to meet some of them. We do not have a projected new launch date at this time.”

The Department of Consumer Protection (DCP) has been tasked with regulating iLottery and all the other online gaming and wagering systems. While IGT had a platform that could, in theory, be plugged into CLC’s existing system, they had to make alterations to align with Connecticut’s stringent regulatory requirements. Small changes requested by DCP could set the launch date back by six to eight weeks when you factor in testing by both IGT and CLC.

The voluminous regulations, approved by the Attorney General in November 2021, and by the Regulation Review Committee in January 2022 with an 11-2 vote, include requirements like geo-fencing, to ensure only Connecticut residents are playing, independent testing of systems, encryption, licensing requirements, and account management among many other detailed technical requirements.

The attention to detail was understandable: the legalization of online gaming and gambling was controversial, and the state wanted to ensure the system was being properly run to not allow minors or people from out of state to participate and avoid the prospect of encouraging problem gambling and gaming as Connecticut sought to grow revenues through vices previously illegal. The legalized gambling legislation was passed the same year as Connecticut’s legalized retail cannabis law, which DCP was also tasked with regulating.

IGT has a base product which can essentially be plugged into the CLC system, but the company also has to make changes to accommodate different laws in each jurisdiction in which it operates. While the company, one of the two largest providers of lottery systems in the world, has established iLottery systems in other states, it appeared to be having trouble in Connecticut. Reached for comment, IGT directed Inside Investigator back to the CLC.

“DCP really has rigorous and rigid regulatory requirements when it comes to these things and I’m sure they have a desire, as much as we have a desire, to get this right the first time, to have no bugs in the system, to make sure nobody who is excluded from playing will be able to play, so they have to test for those scenarios, we have to test for those scenarios,” Mongillo continued.

And getting it right the first time is important. The new rollout of CLC’s new central system provided by IGT, did have some issues.

According to CT Insider , “technical glitches” caused both winners and losers of CT Lotto games to receive “confusing messages.” That, combined with some other issues that resulted in only 38 of 168 self-serve lotto kiosks being operational as of December 2023, led to DCP opening an investigation into IGT with the possibility of recouping lost revenue and issuing non-performance penalties.

Kaitlyn Krasselt, spokesperson for DCP, said that while there is no investigation into iLottery specifically, IGT is “undergoing licensing and online gaming platform review, which is a lengthy process,” and that IGT “is new to iGaming in Connecticut and has needed to become familiar with Connecticut regulations related to iGaming.”

Holly Cheeseman, R-East Lyme, ranking member on the Finance, Revenue and Bonding Committee that had the final say over Connecticut’s legalized gambling law, says CT Lottery’s technology issues seem “endemic.”

“It’s not as though Connecticut lottery hasn’t had issues over the past couple years. There appear to be a number of issues there particularly when it comes to rolling out new technology and new systems that seem somewhat endemic,” Cheeseman said. “I know DCP has set some high standards, I personally don’t have a problem with that. I think if we’re going to roll out a system like iLottery, we have to make sure that it is not only secure but those who are not legally entitled to access it, like minors, are protected.”

“On the other hand, it’s not as if they didn’t know up front what the requirements were, so why it’s taking so long is anybody’s guess,” Cheeseman continued. “Not knowing the specifics of what other states demand in terms of system security, verification, and all those things, it’s difficult to say. DCP has always been in charge of these things, and it seems odd that this rollout, given the long history of IGT, should be presenting so many problems.”

Mongillo believes that in addition to complying with Connecticut’s regulatory laws, there have been miscommunications or a lack of communication between IGT and DCP, which also contributed to the delay.

“There have been some issues in communication between the both of them,” Mongillo said. “With the regulatory nature of things and the lack of communication at times, add in a few delays such as the replacement of our gaming system, this is pretty par for the course. We don’t want to rush a product to market that’s going to be flawed, so we’re taking our time and it seems like everybody else is, too.”

Cheeseman notes that a lot of additional responsibilities have been put on DCP over the past few years as Connecticut legalized recreational marijuana sales, online gaming, and a revamping of liquor regulations. “They’ve had a lot on their plate,” Cheeseman said.

With each new responsibility for DCP comes a cost for staffing resources that are sometimes made up for with fees associated with licensing. For legalized online sports betting and gambling, the OFA estimated DCP would require between $2.4 and 3.4 million, money that would potentially be made up for in licensing fees.

Connecticut’s legalized retail marijuana law, also passed in 2021 — also the subject of regulatory grumblings — was estimated to require an additional 25 staff members at DCP at a cost of $5.4 to $7.8 million, according to the fiscal note, which adds DCP can issue fines “resulting in potential revenue gain to the General Fund.”

In 2021, DCP was appropriated $13.8 million from the General Fund, roughly 55 percent of their total budget which includes federal funds. By 2023, the General Fund supplied $14.9 million, while federal and other restricted funds amounted to $18 million, and the department had an additional $2 million from the Sports Wagering Regulatory Fund, set up with the initial legalized gambling legislation. The overall budget of DCP went from $25 million in 2021 to $36.7 million in 2023.

Meanwhile, Connecticut lawmakers and Gov. Lamont had to make a recurring appropriation of $15 million per year to support its free community college initiative because the iLottery revenue was nonexistent.

“Three years ago, we instituted the free community college with the understanding that the iLottery money was going to pay for it, we’ve waited a while,” Cheeseman said. “iLottery has been in the works for a long time and it does seem odd that we still aren’t there.”

Despite a nearly three-year delay, Mongillo says CLC is in the final phase of testing and believes Connecticut iLottery will be up and running by late May, provided there are no further issues between IGT and DCP.

“Regardless of what IGT and DCP have to hammer out, on the back end CLC is still doing its testing, we’re in the final stage,” Mongillo said. “We want to make sure that it meets our standards, as well as regulatory requirements. We’ll test and then we’ll make sure that it fits in with the integrations with the entire lottery system. That’s why we think six weeks. We’re looking at maybe mid to late May.”

According to the latest April 11 meeting minutes of CLC’s board of directors, Smith indicated there were “a few more items that need to be completed between DCP and IGT prior to launch,” before the board moved into executive session to discuss, among other things, the iLottery update.

CLC’s issues with technology, expansion into sports wagering, and meeting regulatory demands are not limited to iLottery alone. As indicated before, a glitch in the new system caused some errors that spurred not only an investigation by DCP, but also possible legislation that would require third-party testing of all lottery games, something CLC president Smith said would be costly, time-consuming, and is already within the power of DCP.

“Some unfortunate, obscure programming errors occurred when our new lottery system was deployed that impacted a small quantity of lottery tickets,” Smith said in written testimony and in person before the Public Safety and Security Committee. “No quantity of ticket errors is tolerable and CLC always makes good on system errors that affect players. However, it is important to note that these errors would not have been tested for by any third party testing lab because they resulted from an extremely obscure series of events.”

“CLC also knows from experience that third party testing adds a significant cost, likely reaching hundreds of thousands of dollars annually if employed for all lottery system and game changes in the future,” Smith wrote.

And while CLC is authorized to offer sports wagering at 15 physical locations throughout the state, in addition to the online Fanatics platform, they are currently only operating in eleven, including the most recent opening in Bridgeport .

“Without a doubt, Draft Kings and FanDuel hold a lion’s share of the market, we’ve been making a little headway, we’re pleased with the product that’s been shown through Fanatics,” Mongillo said. “They bring a positive marketing aspect, it’s a known brand.”

But location partnerships, particularly when it comes to sports bars and restaurant venues, can be fickle. In 2022, CLC announced a partnership with Arooga’s Sports Bar in Shelton to offer sports betting, which included renovating the space to accommodate a sportsbook section with 15 kiosks. Two years later, in February of 2024, Arooga’s closed for good .

But sports betting was never going to be CLC’s bread and butter. With CLC sending more than $400 million to the state’s General Fund annually through the sale of lottery tickets, the expansion into online lottery games is likely a more natural and exclusive transition, with little worry about having to compete with the Tribal Nations for market share.

As CLC prepares to launch their iLottery platform, they will also have a change of leadership. CLC CEO Smith announced that he would retire from his $270,000 job at CLC at the end of 2024 with a 10 percent performance bonus, and CT Lotto has begun a search for a new CEO.

Meanwhile, there may just be a few regulatory hoops to jump through as IGT and DCP iron out the particulars to launch iLottery before the end of Smith’s tenure at CLC, but Mongillo says the final leg of this journey is largely out of their hands.

“IGT, them and DCP, the ball is really in their court right now,” Mongillo said.

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