Media Mix Modeling (econometrics) case study from BLA Global.

1. Lottery Gaming Corporations:
Tools for Maximizing Marketing Effectiveness
Marketing Optimisation Modeling
Case for Fiscal 2010
1

2. Destination
Help State Lottery maximize growth by providing insight
into how to most effectively spend their marketing dollars
across the marketing mix
2

3. Our Methodology
We will leverage marketing science and predictive
modeling for the purpose of understanding
marketing productivity in all its detail, by drilling
down into the media and marketing events for
individual games
3

4. Our Agenda: The Key Questions
1. How do media and marketing contribute to overall State Lottery Corp. revenues across
the total enterprise and by regions?
2. How has media and marketing impacted State Lottery Corp. revenue growth over the
past year?
3. Which media-game messages drive the most revenues?
4. Which POS promotional events drive the most revenue?
5. Which New-Instant Game Events drive the most revenue and which are likely to drive
the most gains in revenue going forward?
6. Which Core Promotion Events drive the most incremental revenue?
7. Are there significant interactions or “synergies” across the State Lottery Corp.
marketing mix? Which activities and events require the most coordination?
4

5. Our Agenda: The Key Questions
8. How has the recession impacted State Lottery Corp.’s business and what are the
direct and indirect effects?
9. What impact does available Jackpots for certain games have on State Lottery Corp.
revenues?
10.What impact does draw-station TV drawings have in driving State Lottery Corp.
revenues?
11.What has been the impact of Power-ball on total State Lottery Corp. revenues and
what is the optimal investment required going forward?
12.Given the insights from this exercise, what is the optimal mix of marketing
spending for State Lottery Corp. across games, regions and media? What is the
upside benefit for State Lottery Corp. in implementing an optimal spending plan?
5

6. Executive Summary
• Marketing spend has generated a strong and positive ROI over the past year
• Each marketing $ 1 spent = $4.49 in additional revenue
• Over the past six months in particular, revenue for the State Lottery Corp. has slowed considerably
and the fiscal year is likely to end with a -0.5% decline. The major factors explaining this
slowdown include the -38% decline in spending on instant games media and also the +2.1 point
increase in State unemployment.
• Draw Station TV exposure stimulates 4.4% of total State Lottery Corp. revenues, larger than any
single media group except Instant Games.
• There continues to be significant evidence of strong synergies across the State Lottery Corp.
marketing mix. In particular, the evidence grows even stronger that Instant Games media is a key
catalyst driving revenues across the entire product mix.
• Optimization of marketing spend, by moving dollars from less to more productive activities, can
drive an estimated +3% in revenues. This calls for increased investment in Instant Games, Megamillions media, In-store POS and Direct. It also means relative spending reductions in Market A
and Market F, with increases in all other markets.
• Evidence indicates that the State Lottery Corp. over-invested on the Power-ball launch. The
revenue returns for Power-ball media were sub-par. Our optimization solution calls for a
reduction in Power-ball media investment from $3.3MM to $1.8MM, and to reinvest that difference
in other media.
6

7. State Lottery Corp. Model Architecture
Note:
There are two new
additions to this version of
The State Lottery Corp.
model.
These include 1) using
Unemployment as a
macro-economic driver
and 2) the addition of the
value of draw station’s
equivalent media value.
$ Spend
Direct
Marketing
$ Spend
Instant Games
TV & Radio
$ Spend
Online Games
Media, TV & Radio
$ Spend
Multi-State Games
Media, Radio &
OOH
$ Spend
Educ/Brand &
Spons Media
TV & Radio
$ Value
Draw Station
Media $
Timing
By Week
7/1/06 –
6/26/10
7 Regions
Revenues
Weekly Total
State Lottery
Corp.
Revenues
Core Promos
By Event
Timing
Macro-Economic
Available Jackpot $
No. of active
Customers
By Week
New Game &
Instant Promos
State Unemployment rate
Jackpots
Outlets
Selling
Seasonality
7

8. 1.
How do media and marketing contribute
to overall State Lottery Corp. revenues and by region?
8

9. How did media and marketing contribute to overall State Lottery Corp.
revenues for F2010?
Marketing drives 17.1% of total State Lottery Corp. annual revenues, with Jackpots contributing an additional 3.6%.
Instant Game media and promotions contributed 7.3% of total revenues for F2010. Draw station media generated
4.0% of total revenues, with a value of $145MM retail dollars.
F2010 Annual State Lottery Corp. Games Revenue Decomposition
3.6%
2.0%
5.5%
0.4%
1.7%
79.3%
1.0%
1.4%
0.4%
Total Instant Games 7.3%
4.0%
0.5%
0.0%
Base
New.Game.Promos
Brnd/Educ/Spons.Media
Core.Promos
Jackpots
InstantGame.Promos
Draw.Stations
Direct
Multi-State Games Media
Instore.POS
Instant-Games.Media
Online.Games.Media
Core.Promos
9

10. How did media and marketing contribute to overall State Lottery Corp.
revenues by Week?
A strong sales lift from Instant Games promotions tends to occur every January. There has also been a visible
decline in Instant Games media contributions since January 2010
InstantGame.Promos
Core.Promos
New.Game.Promos
Sales Rev $
Instore.POS
Draw Stations
Brnd/Educ/Spons.Media
Online.Games.Media
Multi-State Games Media
Instant-Games.Media
Direct
Jackpots
5/1/2010
3/1/2010
1/1/2010
11/1/2009
9/1/2009
7/1/2009
5/1/2009
3/1/2009
1/1/2009
11/1/2008
9/1/2008
7/1/2008
5/1/2008
3/1/2008
1/1/2008
11/1/2007
9/1/2007
7/1/2007
5/1/2007
3/1/2007
1/1/2007
11/1/2006
9/1/2006
7/1/2006
Base
10

11. How do media and marketing contribute to revenues by
region?
Market C is the most marketing driven region, due mostly to the large impact of instant-games media.
However, if we include the impact of Draw Stations, Market A has the highest proportion of
incremental revenue.
F2010 Annual Revenue Decomposition by Market
100%
90%
InstantGame.Promos
Core.Promos
80%
New.Game.Promos
Instore.POS
70%
Draw.Stations
60%
Brnd/Educ/Spons.Media
50%
Online.Games.Media
40%
Instant-Games.Media
Multi-State Games Media
Direct
30%
Jackpots
Base
20%
10%
0%
Market A
Market B
Market C
Market D
Market E
Market F
Market G
11

12. 2.
How has media and marketing impacted
State Lottery Corp. revenue growth over the past year?
12

13. How has media and marketing impacted State Lottery Corp.
revenue growth?
Overall YOY found State Lottery Corp. revenues flat at -0.5%. Reductions in spending on Instant
Games media and the economy (unemployment) were the key drivers affecting the softer
performance.
Marketing Variance Impact. F2010 v. Year-Ago
Base Monmentum
Multi-State Games Media
FY2010 Variance.Impact $000
+3.5%
+1.5%
Jackpots
Draw Stations
+0.6%
+0.5%
+0.5%
+0.2%
+0.1%
No.Stores Selling
Online Games Media
Direct
Brand/Educ/Spons. Media
-0.1%
-0.2%
-0.2%
-0.4%
Core Promos
New-Games Promos
Instore POS
-1.2%
Instant Games Promos
-2.7%
-2.8%
Economy (Unemployment)
Instant Games Media
-$150,000
-$100,000
-$50,000
$0
$50,000
$100,000
$150,000
13

14. How has media and marketing impacted State Lottery Corp.
revenue growth across Regions?
63% of the revenue decline was concentrated in the Market A region. Market C showed the strongest performance at
+1.5%, with Market D the only other region with a small revenue increase.
Total GLC Revenue Variance F2010 v. YA
Base.Momentum
Market G
-1.7%
Market F
-1.6%
Market E
-1.7%
Jackpots
Direct
Instant-Games.Media
Multi-State Games Media
Online.Games.Media
Market D
Market C
Draw.Stations
Instore.POS
+1.5%
Market B
Market A
Brnd/Educ/Spons.Media
+0.3%
New.Game.Promos
Core.Promos
-0.4%
InstantGame.Promos
Stores.Selling
-
-6.00%
Economy (Unemployment)
-4.00%
-2.00%
0.00%
2.00%
4.00%
% of Total State Lottery Corp. Revenue Variance
6.00%
14

15. 3.
Which media-game messages drive the
most revenue?
15

16. Which media messages drive the most revenue?
State Lottery Corp. media generates $4.62 per dollar of expenditure. The top 5 Revenue generating media include Direct, Megamillions radio, Instant Games radio, Education TV and Mega-millions OOH. Sponsorship media and Online media tended to
generate low revenue per dollar of expenditure.
Power-ball media also tended to have low average revenue returns. With a media value of $6.6MM, Draw-Station returns are
very high at $24.54.
$24.54
$30
$25
$28.03
Incremental Revenue per Dollar Spend
$4.62
$4.04
$2.61
$2.07
$1.89
$1.43
$1.18
$1.14
$0.90
$0.60
$0.37
$0.34
$0.24
$0.19
$0.17
$0.17
$0
$0.07
$5
$0.02
$8.28
$8.10
$10
$5.58
$15
$11.03
$20
16

17. 4.
Which POS promotional events drive
the most revenue?
17

18. In-Store POS Marketing Contributions total 0.3% of
Annual Revenues
The New Games and Mega-millions POS events captured 77% of the
total revenue impact for FY2010. In-store POS contributed 0.3% to total
revenues.
Revenue Contribution Shares for In-Store POS by Game
1%
5%
0%
0%
1%
3%
5%
6%
47%
31%
InstoreRaffle
InstoreWeeklyWInFall
InstoreWFL
InstoreCash3
InstoreCash4
Instore
SitandWin
InstoreKeno
InstoreMegaMil
18

19. In-Store POS Incremental Revenue per Dollar
POS promotions, on average, generate over $16 in revenue per dollar
Spent. Mega-millions and New Games were the strongest events.
Instore POS: Incremental Revenue Per Dollar
$45
$40.37
$40
$35
$30
$25
$23.16
$20
$16.41
$15
$13.29
$11.45
$10
$5
$7.15
$4.39
$5.29
$5.38
$2.67
$0
19

20. 5.
Are there significant interactions or “synergies”
across the State Lottery Corp. marketing mix?
Which activities and events require the most
coordination?
20

21. Are there significant interactions or “synergies” across the State Lottery Corp.
marketing-mix? Which activities and events require the most coordination?
Synergies across the marketing mix have actually expanded over the past year. The large and significant synergies
continue to focus on instant games and clearly shows that instant games are key sales catalysts across the entire productmix. There are also significant synergies with Draw Stations.
Interactions or Synergies Across the Marketing Mix
% of Revenue
16.0%
Synergy from Coincident Execution
14.0%
Impact from Separate Executions
12.0%
10.0%
8.0%
6.0%
4.0%
Online Games Media & Draw
Stations
Online Games Media & Direct
Online Games Media & Core
Promotions
Online Games Media & POS
Promotions
Instant Games Media & Draw
Station
Instant Games Media & POS
Promotions
Instant Games Media &
Megamillion OOH
Instant Games Media & Direct
0.0%
Instant Games Media & New Game
Promos
2.0%
21

22. 6.
How has the recession impacted State Lottery Corp.’s
business and what are the direct and indirect effects?
22

23. How has the recession impacted State Lottery Corp.’s
business and what are the direct and indirect effects?
State’s unemployment has increased
+2.1 points in the past year and has
depressed State Lottery Corp. revenue
growth by -2.7%.
Sensitivity of State Lottery Corp. Annul Revenue to
State Unemployment Rate
Revenue Index
105
104
103
Impact of Economy on Media Productivity for GLC
102
101
16.0%
14.0%
Reven…
100
14.1%
11.4%
99
12.0%
98
10.0%
97
96
8.0%
4%
6.0%
6%
8%
10%
12%
14%
4.0%
2.0%
0.0%
Media Impact w/o Recession
Media Impact w Recession
One of the key “indirect” effects of
the economic recession is that it has
had a negative impact on media
productivity.
23

24. 7.
What impact does available Jackpots for
certain games have on State Lottery Corp. revenues?
24

25. What impact does available Jackpots for certain games have
on State Lottery Corp. revenues?
Total State Lottery Corp. Revenue Impact to Lottery
Jackpots
Sales Index
Over the past year, due primarily to
the introduction of Power-ball, State
consumers had a significantly greater
pool of large jackpots. This had a
+0.5% positive impact on revenue.
103
102
101
100
99
98
97
96
Jackpots Impact
$-
When compared to the large Jackpot
Multi-state games, jackpot increases
for the online games Fantasy 5 and
Cash 3 actually have a larger impact
on revenues per dollar of jackpot.
$20.0
$40.0
$60.0
$80.0
$100.0
Revenue Impact per Dollar of Jackpot
$54.79
$60
$50
$40
Jackpot.Megamillions
$30
Jackpot.Powerball
$20
Jackpot Cash3
$10
$0
JackpotFantasy 5
25
$0.84
$1.12
$1.45
Revenue Impact per $1 Jackpot

26. 8.
What impact does Draw Station TV
drawings have in driving State Lottery Corp. revenues?
26

27. What impact does Draw Station TV drawings have in
driving State Lottery Corp. revenues?
In F2010, the State Lottery Corp. received Draw Station TV exposure with an equivalent on-time value
of about $6.6MM. This exposure generated retail sales of over $161MM. Market A and Market F had
the greatest impact from these events.
7.0%
6.5%
6.3%
6.0%
5.0%
4.4%
4.0%
3.3%
2.9%
3.0%
1.9%
1.6%
2.0%
1.0%
0.0%
27
Draw.Station Rev Contribution
Total GLC
Region G
Region F
Region E
Region D
Region C
Region B
Region A
0.0%

28. 9.
What has been the impact of Power-ball on total revenues and
what is theoptimal investment going forward?
28

29. What has been the impact of Power-ball on total State Lottery Corp.
revenues and what is the optimal investment required going forward?
Power-ball has had about a +2.5% overall sales lift on State Lottery Corp. revenues. The good news is
that this incremental impact has been growing over time. However, for the past 6 months, this impact has
not been sufficient to offset the negative impact from spending reductions on other games, particularly
instant games.
140
100
80
60
40
20
GLC Rev$ W/O Powerball
Powerball Lift
6/26/2010
6/12/2010
5/29/2010
5/15/2010
5/1/2010
4/17/2010
4/3/2010
3/20/2010
3/6/2010
2/20/2010
2/6/2010
1/23/2010
1/9/2010
12/26/2009
12/12/2009
11/28/2009
11/14/2009
10/31/2009
10/17/2009
10/3/2009
9/19/2009
-
9/5/2009
Sales Index
120
29

30. What has been the impact of Power-ball on total State Lottery
Corp. revenues and what is the optimal investment required going
forward?
Media Revenue per Dollar Spend
As shown on the top chart, Powerball media performance to date has
been somewhat sub-par.
$5.00
$4.61
$4.00
Powerball TV
Powerball Radio
Powerball OOH
Based on where Power-ball media
generates its highest revenue returns,
current spending of $3.3MM should
be reduced back to about $1.8MM
$3.00
All other GLC Media Avg.
$2.00
$1.89
$1.43
$1.00
$0.60
$0.00
State Lottery Corp. Revenue and Power-ball media spend
100.40
2.50
State Lottery Corp Rev. Index
Rev per Expenditure
100.30
2.00
100.20
100.10
1.50
100.00
GLC Revenues
99.90
1.00
Revenue per $
Current Spend
99.80
30
99.70
0.50
99.60
99.50
-
1
2
3
4
5
6
7
Power-ball Spend $MM

31. 10.
What is the optimal mix of marketing spending for State
Lottery Corp. across games, regions and media? What is the
upside benefit for State Lottery Corp. in implementing an
optimal spending plan?
31

32. What is the Optimal Marketing Spending across Games?
Our optimization indicates growth of +3%, and involves higher relative spend on instant games media, POS,
Multi-State games (Mega-millions) and direct marketing.
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Instore POS
Brand/Educ/Sponsorship Media
Online Games Media
Multi-State Games Media
Direct
Instant Games Media
Revenue
Contribution
Current Spend
Optimal Spend
Instore POS
56,127,458
1,595,115
3,078,000
Brand/Educ/Sponsorship
Media
11,840,546
5,238,046
5,053,760
Online Games Media
20,585,269
11,564,829
4,874,495
Multi-State Games Media
170,934,009
9,880,967
10,771,097
Direct
125,921,765
1,254,502
2,419,397
Instant Games Media
302,827,982
12,053,292
15,390,000
32

33. What is the Optimal Marketing Spending by Region?
On a region basis, this same solution calls for relative spending reductions in Market A and Market F, with
increases in all other markets.
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Market G
Market F
Market E
Market D
Market C
Market B
Market A
Revenue Contribution
Current Spend
Optimal Spend
Market G
$75,375,781
$2,756,744
$3,933,000
Market F
$47,202,436
$3,781,267
$2,538,671
Market E
$32,710,019
$921,184
$1,375,307
Market D
$55,688,517
$1,061,122
$2,025,999
Market C
$106,689,244
$2,352,979
$3,535,073
Market B
$32,055,315
$1,990,626
$2,528,700
Market A
$473,314,982
$28,722,829
$25,650,000
33

34. What is the Optimal Marketing Spend Analysis
across the Media-Mix?
Likewise, this solution also calls for higher investments in radio, OOH, direct and POS, with reductions in
TV advertising.
100%
90%
80%
70%
POS
60%
Direct
50%
Print
40%
OOH
30%
20%
Radio
10%
TV
0%
Revenue Contribution
Current Spend
Optimal Spend
POS
105,050,803
1,595,115
3,078,000
Direct
146,554,731
1,254,502
2,419,397
Print
1,412,426
$95,083
$202,389
OOH
228,436,901
$4,875,328
$8,584,867
Radio
178,650,466
$9,158,625
$10,832,852
TV
152,411,295
$24,608,097
$16,469,248
34

35. Summary & Recommendations
(1) State Lottery Corp.’s marketing spend of about $24 million generates very high positive returns of $4.49
per dollar spent. Clearly, marketing is a positive revenue generating investment for the State Lottery
Corp..
(2) Over the past six months in particular, revenue for the State Lottery Corp. has slowed considerably and
the fiscal year is likely to end with about a -0.5% decline. The major factors explaining this slowdown
include the -38% decline in spending on instant games media and also the +2.1 point increase in State
unemployment.
(3) For the past six months, Power-ball has had a +2.5% net impact on State Lottery Corp. revenues.
Unfortunately, this gain has not been sufficient to offset the impact of reductions in spending on other
games, particularly instant games. Our analysis also indicates that the State Lottery Corp.’s $3.3MM
marketing investment in Power-ball was somewhat excessive and we believe that reductions to about
$1.8MM going forward are warranted, along with reinvestment in other games, particularly instant
games.
(4) By identifying less productive marketing activities and moving funds away from these to more
productive ones, State Lottery Corp. has a tremendous opportunity to drive as much as +3 percent
higher growth, all without increasing total marketing budgets.
35

36. 11.
Appendix
36

37. State Unemployment
State’s unemployment has been above 10 percent for 13 straight months.
This has clearly had some depressing impact on overall State Lottery Corp. revenues.
12
10
8
6
Unemployment
4
2
0
37

38. State Lottery Corp. Index of Sales and Marketing-Spend
Per Capita by Region
Spending in Market F and Market A are both out of proportion to their per-capita sales. Our spending
optimization calls for reductions in relative spending in these markets and clearly recognizes that investment
should be more focused in higher per-capita markets.
Index
250
200
Index of Sales Per Capaita
Index of Mktg Spend Per Capita
150
100
50
-
38

39. The original basis of the spend guidelines: Incremental
returns per dollar of investment
Incremental $ per $ Spend
Direct, In-store POS, Instant
Games and Multi-State games
represent the State Lottery Corp.’s
best incremental investment, while
expected returns from Online media
and Brand/Educ./ Sponsorship are
significantly lower.
Total Avg
POS Instore
Brand/Educ/Sponsorship Media
Online Games
This formed the framework of the
original spend recommendation.
Incrementsl $ per $ Spend
Multi-State Games Media
Instant Games
Direct
$-
$10.00
$20.00
$30.00
39

40. The original basis of the spend guidelines: Incremental
returns per dollar of investment
Incremental $ per $ Spend
Market D, Market C and Market E
as the most attractive markets for
incremental investment. By
contrast, Market F and Market A
were found to be the least favorable
markets.
This formed the framework of the
original spend recommendation.
Total Avg
Market G
Market F
Market E
Market D
Market C
Incremental $ per $ Spend
Market B
Market A
$-
$10.00
$20.00
$30.00
40

41. Actual and Modeled State Lottery Corp. Revenues
$90,000,000
R2=99.1%, Holdout R2=99.5%, MAPE = +/- 0.8%
$80,000,000
$70,000,000
$60,000,000
$50,000,000
Model
$40,000,000
Actual
$30,000,000
$20,000,000
$10,000,000
$0
41

42. Follow-Up and Contact
Michael Wolfe, Principal
Bottom-Line Analytics Global
770.485.0270 (o)
678.314.8446 (m)
mjw@bottomlineanalytics.com
www.bottomlineanalytics.com
Masood Akhtar, Analytics, EMEA
Bottom-Line Analytics Global
44 7970 789 663 (m)
ma@bottomlineanalytics.com
www.bottomlineanalytics.com
42