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Executive report

Data mining for

lottery systems

D ata minin g f or lott ery sy ste ms

Abstract
The challenges of creating and maintaining a lottery system that appeals to customers and
provides revenue for your states vital programs can be eased when data mining using SPSS
products. When data mining with SPSS, you use historical data and become empowered to
analyze and improve performance, survey and predict customer needs and report results to
a broad audience.

Introduction: history of the modern American lottery and the


challenges lottery systems face today
Lotteries in the United States date to colonial times. In fact, King James I of England used
proceeds from a lottery to help fund Jamestown, Virginia, the first British colony in America.
Since then, lotteries in the United States have played a number of roles. The modern American
lottery has its roots in a lottery created by New Hampshire in the mid-60s (after a 60-year
Supreme Court ban on lotteries). Other states soon followed and created their own lottery
programs. By 1971, lottery ticket sales in the United States passed $100 million. According to
the National Association of State and Provincial Lotteries (NASPL), 38 U.S. states, the District
of Columbia, Puerto Rico and the U.S. Virgin Islands all offer government-operated lotteries.
Yearly revenues are in excess of $38 billion nationally. Massachusetts and New York lead the
way with sales of over $3.7 billion and $3.6 billion, respectively (fiscal 2000). Today, with lottery
drawings announced nightly on local newscasts and stories about average Americans becoming
instant millionaires, the lottery is a backdrop to American life in the 21st Century. And,
because modern American lotteries fund vital programs for example, 14 states allocate
100 percent of their lottery profits for education creating profitable lotteries that interest
a variety of customers across your state is a must.
How does your department evaluate customer preferences to determine whats needed to
increase revenues? Would it help if your state lottery could predict the key features, color
schemes and other characteristics that appeal to the most people? How does your lottery
department include new players and maintain the interest of current players? What if your
department could use historical data to determine the region in which games have the most
success and what time period games experience the most profit? How does your department
communicate lottery data and results to the appropriate audiences? What if you had a method
in which you could easily and clearly report results to the right people?
Data mining with SPSS empowers you to combine your business knowledge about your lottery
system with analytical technologies that tap into your historical data so you can predict
the future. When data mining with SPSS, you become empowered to analyze and improve
performance, survey and predict customer needs and report results to a broad audience.

Data mining with SPSS


Data mining enables you to discover unseen patterns and relationships in large amounts
of data. Powerful analytical technologies quickly and thoroughly explore mountains of data,
isolating valuable, usable information the business intelligence that you need to improve
your lottery system. Data mining with SPSS gives you a reliable guide to the future of your lottery system, so you have the power to make the right decisions today. Data mining empowers
you to change the future of your lottery system, by delivering accurate predictions. For example,

Executive report

Data mining for lo tte ry sys tems

data mining tells you which game attributes are most likely to interest your customers. With
this view of the future, you increase your return on investment (ROI) by marketing the right
type of games to the right types of customers. Your decisions are based on sound business
intelligence, not on instinct or gut reactions. And those decisions deliver consistent results
that can help keep your lottery system profitable for years to come.
SPSS is the data mining leader, with over 30 years experience developing field-tested analytical
software. And, when data mining with SPSS, you can be assured your project is conducted
using proven data mining methodology. SPSS follows the CRoss-Industry Standard Process
for Data Mining (CRISP-DM). Created by industry experts, CRISP-DM provides step-by-step
guidelines, tasks and objectives for every stage of the data mining process.
When data mining your lottery system data with SPSS, you can:

Increase lottery revenues


Make better use of your marketing dollars
Identify the best, most profitable new games
Better understand your customers
Share information with decision makers, the public and your customers

This white paper describes how you can perform data mining with SPSS products to solve
these business problems. This white paper also features a product/application guide to show
which data mining products your lottery system can use to solve business problems and a
sample application story, describing how data mining can help you find answers to your tough
business questions.

Increase lottery revenues


Over time, once profitable lottery systems may experience lagging sales. Many factors can
contribute to this. For example, do economic conditions whether good or bad have any
relationship to lottery sales? Does your state lottery have higher profits at certain times of the
year? Perhaps your lottery system generates more revenue during the holiday season when
people buy lottery tickets to give as gifts.
Declining revenues after an initial period of growth is a common experience for lottery systems.
States that newly adopt a lottery system can expect to see a tremendous amount of revenue
growth during the first few weeks, months or even years. The amount of publicity and media
attention initially given to a new lottery system in a state generally is quite high. According
to David Gale, executive director of the North American Association of State and Provincial
Lotteries (NASPL), lottery sales will eventually experience a downward trend in revenues.
Factors that contribute to downward sales include initial excitement wearing off, jackpot
fatigue or simply boredom playing the same games. Most commonly, the novelty of the first
large jackpot for a state lotto drawing wanes and must be surpassed by a bigger jackpot in a
future drawing to generate the same level of interest. Eventually, people become unresponsive
to drawings that once generated a great deal of attention. Lottery statistics show that approximately 75 percent of customers play only when jackpots are larger than $15 million. And even if
your state lottery has strong returns, what can you do to ensure the system remains profitable?
When you mine your data and apply your business knowledge, you can predict what factors
increase and decrease revenue.

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Data mining for lo tte ry systems

Performing analysis in SPSS Trends or DecisionTime/WhatIf?, as part of your data mining


solution, can give you valuable insights for more strategic marketing plans that lead to increased
revenues. SPSS Trends gives you an easy-to-use graphical interface to analyze historical information and predict future events using time-series analysis. DecisionTime is the best way to
quickly create powerful forecasts using SPSS proven, heavy-duty analytics the kind
spreadsheets dont offer. While WhatIf? empowers you find the answers to tough questions,
such as How will changing the odds of the lottery affect our customers purchasing patterns?
Both SPSS Trends and DecisionTime/WhatIf? include interventions and events in modeling.
Interventions and events are outside occurrences that may affect the series youre forecasting.
Examples of interventions and events include an increase in the number of numbers drawn,
unexpected events that previously affected sales, or even a change in consumer confidence.
Clementine, AnswerTree and SPSS also can help you predict factors that may increase sales or
alter customers buying patterns. For example, you could use Capri for Clementine to determine
the sequence of events in a persons decision to purchase a lottery ticket or the sequence of
events your system needs to take for marketing profitable games. Perhaps you would like to
examine the predicted sequence of events that occur when you change your lotterys odds
and how this change is likely to affect profits.

Make better use of your marketing dollars


Many lottery systems face the challenge of reaching the most potential players with as little
marketing dollars as possible. According to the NASPL, in 1996, North American lotteries spent
$400 million (USD) on advertising and received $34 billion in sales. Advertising expenditures
accounted for 1.17 percent of total revenue. By contrast, restaurant owners spent 3.2 percent
of their revenues on advertising, beverage manufacturers 7.5 percent, cosmetics companies
8.8 percent, and candy makers 12.7 percent. Advertising accounts for less of the cost of a lottery
ticket than virtually any other consumer product. With a large percentage of revenues usually
mandated for various causes, the percentage of revenues allocated toward advertising is
unlikely to increase. You can achieve better returns on your marketing investment by mining
historical sales data, survey data from the public and survey data from retailers. Data mining
gives you the insight needed to make better use of your limited marketing dollars so you can
more accurately reach people likely to buy tickets, ensure customers play the lottery on a
regular basis, identify regions most likely to embrace a particular game and so forth.

Identify the best, most profitable new games


What if you could know the key features that are most likely to interest customers in playing new
lottery games? What if you could predict the customer group most likely to purchase tickets?
What if you knew what kind of game themes appeal to the most customers? Generally, lottery
systems create new games based on results from surveys taken in focus groups, games solicited
or requested by the public directly to the lottery department or games solicited by ticket
vendors. Take your new game research further to confidently develop plans based on both your
business knowledge and historical data to market games that are more likely to result in
higher profits when you data mine with SPSS. SPSS can give you the tools needed to conduct
your own survey research and apply data mining to the responses (see the Better understand
your customers section in this paper for more information about survey research). Using
Clementine, AnswerTree, SPSS or any combination of these products, you can analyze your
survey data or historical data for better game development that leads to higher revenue.

Executive report

Dat a mining for lottery systems

Lottery systems are increasingly challenged to create games that appeal across many regions
in your state. Your state may have a crossword-themed scratch-off game thats very successful
in certain areas of your state but is an average seller in other areas. Perhaps changing the
color combinations such as silver/blue instead of red/purple for this scratch-off game
in the average-selling areas will increase your revenue in those places. Data mining can help
you predict the color combinations that will be more successful in specific regions of your
state. It can also help you answer a number of other questions when developing new games
or redesigning existing games, including:

Are certain shapes more appealing than others?


Do certain font styles produce more profitable scratch-off games than others?
Are certain retailers, such as convenience stores or large grocery stores, more likely
to successfully market and sell tickets?

Better understand your customers


Like many lottery systems, your state may outsource demographic studies to an independent
research firm. Surveys may seek answers to these types of questions:

How often do you play lottery games?


Do you wait for lottery jackpots to reach a certain amount before playing?
Would you be more likely to the play the Word Jumble scratch-off game or the
Basketball Champs scratch-off game?
Do you prefer higher payoffs or better odds of winning?

These studies are crucial in determining your lottery systems marketing practices, new rules
and games. However, independent research firms lack the expert knowledge your organization
has about how you run your state lottery (such as, state lottery rules), your customers and
your retailers. Using a combination of SPSS products to collect survey research data, analyze
them and deploy them to the proper audiences, your lottery system could bring research inhouse and use a combination of data collection software and data mining software to better
understand your customers.
Use products in the SPSS Data Entry family to bring the power of surveys to your state lottery
department without the need for programming or Web publishing knowledge. Your staff can
create surveys that you can deploy to focus groups and other survey respondents (such as your
retailers) on the Web, paper, phone or through personal interviews. You can also deploy surveys
on kiosks in supermarkets or convenience stores without needing an Internet connection. This
means your department can easily reach your potential respondents in a variety of formats.
Feature-rich design tools and a library of proven sample questions, which you can adapt to meet
your lottery systems needs, help you write questionnaires that encourage complete answers
and minimize data entry errors. When you use the SPSS Data Entry Enterprise Server, survey
responses are saved in SPSS file format for instant analysis in SPSS. These data can also be
read directly by Clementine and Answer Tree.
Using SPSS Data Entry products, your staff can design a form that allows a survey respondent to
enter the ZIP code in which they live. SPSS Data Entry Enterprise Server can automatically
calculate the geographical Area for the respondent and then display questions you want to
ask people living in that particular area.

Executive report

D ata minin g f or lott ery sy ste ms

If your lottery system has difficulty finding focus groups that reach residents from across your
state, deploy your surveys on the Web to allow for more complete coverage of every region. With
Web-deployed surveys you have access to a greater and more diverse sample of the population.
Also, Web-deployed surveys are also more cost effective in the long term because your organization doesnt have the added expense of paper and postage that apply to mailed surveys or
long-distance charges associated with phone surveys.
Using data collection software in-house and then using data mining to analyze the data from
surveys means the people who know the most about your lottery system are the people
analyzing survey data. This gives your department more intimate knowledge about your
customers and retailers, if you choose to survey them as well so you can make better
decisions that lead to increased revenues.

Share information with decision makers, the public


and your customers
Once you have data mining results, its important to communicate them with the people who
can or need to use them. Your audience may vary a great deal in terms of what they need
to know and how theyll use results. SPSS products give you a variety of report and deployment
options so you can communicate results to a wide audience.
The people who will ultimately make decisions based on results want information to be clear
and described in non-technical terms. Theyll likely want to explore results on their own and
see how changing variables, such as decreasing ticket prices by three, five percent or seven
percent for scratch-off games, affect results. If you use DecisionTime to create forecasts,
analysts can use WhatIf? to deploy forecasts on the Internet or intranet. Decision makers
can then ask what if questions about the data in the forecasts to find answers to potential
scenarios and have the information needed to make the best, most-informed decisions.
If youre data mining with Clementine, your department can use Clementine Solution Publisher
for deployment. Clementine Solution Publisher enables data miners to create deployment
applications quickly and cost-effectively, and because re-deployment is effortless, your
department can keep up-to-date with changes in your lottery system.
Since your lottery system likely funds vital programs for your state, its possible you need to
deploy information to more than just your decision makers. You may be required to report
results to your legislature, a state agency or a state accounting office or local school boards,
which rely on lottery revenue for funding. You might need to keep your public updated on the
payoff amounts and odds of winning. SmartViewer Web Server, the analytical content portal
for SPSS products, enables you to easily share information with a variety of people. Using
SmartViewer Web Server, analysts publish reports from SPSS into a secure database. Then,
your audience can view the reports, including interactive reports, using a Web browser.
SmartViewer Web Server enables you to quickly share important reports and information with
anyone you choose. Make appropriate information available to customers, the public and
other groups in real-time. With SmartViewer Web Server, you decide who receives reports and
how much they see. Confidential, sensitive or fee-based reports stay out of the wrong hands.
And important information gets to the right people on time.

Executive report

Data mining for lo ttery systems

State lottery needs and SPSS capabilities


Use this table as a guide to selecting products that can help your lottery system increase
revenues, make better use of your marketing dollars, identify profitable new games, better
understand your customers and share information. Visit www.spssbi.com for more information
on these products or e-mail SPSS Sales at sales@spss.com to discuss how your organization
can start data mining.
Situational questions

Impact

SPSS capabilities

How does your department poll


your citizens preferences for
lottery-sponsored products?

Does your department find


it difficult to obtain current
information from a full crosssection of your population?

SPSS Data Entry Enterprise


Server (part of the SPSS Data
Entry family): What if you could
use an intuitive graphic interface
to quickly create surveys and
forms for Internet, workstation,
paper, phone and personal
interview surveys? Would it
also help if you could instantly
analyze those results?

What type of analysis does


your department conduct to
determine which new products
to introduce to your citizens?

Does your department find it


difficult to accurately predict
the combination of odds, cost,
shapes or colors of your games
that lead to higher revenues?

Clementine, AnswerTree and


SPSS: What if, using your own
data, you could more accurately
predict the combination of game
characteristics that lead to
higher sales and higher profits?

How does your department


forecast sales and revenue for
the next week, month, year?

Does your department find it


difficult to precisely forecast
revenues given the irregular
sales cycles for lottery products?

SPSS Trends, DecisionTime/


WhatIf?: What if you could
include special, one-time events,
legislation changes and rule
changes in your sales forecasting
analysis? Would it help if you
had a product thats intuitive for
management to use but powerful
enough for analysts?

How are you sharing the


results of your analysis with
your department or with outside
entities, such as your states
legislature accounting offices,
local school boards, retailers
and other agents, journalists
and citizens?

Is your departments decisionmaking ability limited because


it is unable to access or use
critical analytical results? Is it
difficult to provide information
you are required to report to
outside entities in a way thats
meaningful to an audience
that may not have as much
knowledge about your state
lottery?

SmartViewer Web Server:


What if you could share the
results of your analysis with a
larger audience, including those
who arent as knowledgeable
about your state lottery, with
differing information needs?

Does your staff need help getting started with data collection,
analysis or reporting? Would
you staff like guidance so it can
deploy SPSS products more
quickly and more effectively?

SPSS Business Intelligence


Consulting: What if your
organization could get the help it
needs from data mining leaders,
who can help your organization
realize the full benefits of the
SPSS products you choose so
your staff can solve problems
independently?

How will your organization


implement its data mining
solutions?

Clementine Solution Publisher


and WhatIf?: What if you could
quickly and easily deploy data
mining results (Clementine
Solution Publisher) and forecasts
(WhatIf?) to decision makers.

Executive report

D ata mi nin g f or l otte ry sys tems

Sample application: mining lottery data to discover factors leading


to increased revenue
Situation
A state provided SPSS with historical data of instant ticket sales to analyze. The state wanted
to know how it could use historical data to find the most profitable and widely accepted games.
In addition, the state wanted to know in what region are those games most successful and for
what period of time they are most profitable.
The state provided a dataset containing information for almost 400,000 individual ticket sales.
These data represent ticket sales from July 1999 through July 2001.

Data mining with SPSS to discover factors that lead to high net-profit games
SPSS Business Intelligence division considered a number of data mining techniques and
then tested several techniques on the available data. SPSS generated relevant results using
techniques in AnswerTree and Clementine, looking at the data in both the context of the
entire state and also on a regional basis.
Without taking into account any geographical region, SPSS discovered the most important
factor in predicting game profitability is the number of months that the game is maintained
in the public. SPSS used data mining techniques that examined aggregated net profits and
game themes. Using this states data, SPSS discovered that crossword game themes have the
highest overall profit, if no other factors are taken into account. From this information, SPSS
concluded that a combination of a crossword theme and the optimum number of months the
game is available on the market can generate larger net profits.

How can lottery programs predict the optimum amount of time that it should offer an instant ticket game? Data
mining empowers you to take all of a games attributes and historical sales data and use them to predict the
ideal number of days, weeks or months that a game should be in the market. Here, SPSS used a rule induction
algorithm, Classification and Regression Tree (C&RT) in AnswerTree, to create this prediction. The C&RT algorithm uses a tree-based classification and prediction method. C&RT models tend to be easier to understand than
some other model types because the rules derived from this model have a very straightforward interpretation.

Executive report

Data mining for lo tte ry sys tems

Using the Classification and Regression Tree (C&RT) model in AnswerTree, SPSS discovered
that for net profits of greater than $1 million, a game should be in the market for less than
5.85 months. SPSS confirmed this result by running a C5.0 model in Clementine. SPSS selected
the C&RT model because it achieved a higher confidence level, or the probability that a
predicted event will occur. However, because its best to run multiple
models on a dataset in order to compare the accuracy of results, SPSS
also used the C5.0 model.
techniques

A variety of algorithms and


for better, more reliable models

Different types of data work better with different


algorithms, and your state lottery system probably
collects many types of data that are useful when data
mining. Its also likely your data change over time as
you create new programs and experience a change in
player demographics, among other factors. Therefore,
you need the ability to try different algorithms and
techniques with your data to find the best fit.
Thats why SPSS gives you a wide variety of algorithms
and techniques from which to choose. Using a range
of algorithms and techniques empowers you to build
better models and compare results against results
obtained from another model to determine which one
works best for your dataset. For example, Clementine
gives you a variety of techniques so you can classify,
cluster and segment groups, detect associations, do
data reduction and create custom algorithms.
AnswerTree gives you four types of decision tree
algorithms from which to choose to help you reveal
segments and predict how groups will respond. And,
SPSS gives you a variety of flexible algorithms for
describing your data, predicting numerical outcomes
and identifying groups. Using SPSS add-on modules with
SPSS Base gives you even more options for prediction,
classification, segmentation and time-series analysis.
Your department can use some of these products or use
the entire range of software available for data mining.

More specifically, the greatest profit levels occurred with games that
ended anywhere between 4.3 months to 5.05 months after their start
dates. This prediction has a confidence level of almost 100 percent.
Some games also generated high profits after more than 16 months
in the market, but as expected, the average monthly profit level is
considerably lower.
For games that the state kept on the market for less than 5.85 months,
SPSS examined secondary characteristics that drove these games to
higher profit levels. SPSS discovered the following:

For games in the market for the ideal time period, the second most
important variable in producing high profits is the games key
feature. The following key features generated the highest profits in
the shortest amount of time: Mystery Number, 15 Ways, Multiplier,
Bonus Word, Blue Line, Extra Numbers and 30 Ways.
Games that cost $3 or $5 to play have a greater likelihood of
achieving net profits of greater than $1 million. With a confidence
level of 70 percent, SPSS discovered that a game that costs $10
to play generates net profits of less than $500,000.
June generated the highest total profits or net revenues. However,
games started in March and August had the highest number of
high-profit games. Focusing on March and August led to no standout
variable in defining why those two months have the most highprofit games. Its possible that demographic information attributes
to this discovery.

To better understand how demographics influence lottery profits,


SPSS examined data describing the gaming characteristics from one
area of the state. In Area X, SPSS discovered that to generate net
profits of greater than $1 million, key features should be: Mystery
Number, 15 Ways, Multiplier, Bonus Word, Bonus Blue Line, Extra Numbers, Lucky Numbers
or 30 Ways. Net profits in Area X dropped by more than 50 percent on two games, General Wild
Joker and Crossword Doubler. In Area X, certain ticket colors helped to generate higher revenue.
For net profits greater than $1 million in Area X, SPSS discovered the following color schemes
should be used: pink/green, red/purple, pastel yellow/orange, blue/yellow and teal/yellow.
Certain colors resulted in low revenue: silver/green, black/blue, yellow/multi, blue/white,
purple/green and red/black.

Executive report

Data mining for lo tte ry sys tems

What if you could predict the financial


success of an instant ticket game
before its release? In this case, SPSS
used a neural network algorithm in
Clementine to predict how successful
a group of instant ticket games was
likely to be based on their attributes.
A neural network is a simplified
model of the way the human brain
processes information. The network
learns by examining individual
records, generating a prediction for
each record and making adjustments
to the weights whenever it makes an
incorrect prediction. This process is
repeated many times, and the network
continues to improve its predictions
until one or more of the stopping
criteria have been met.

Data mining is an on-going process


The state lottery program is also interested in knowing the ideal date to sell a sports-themed
card. For example, is it more profitable to sell a sports-themed card when a sports season starts,
at the half-way point of a season or close to the date of the play-off and championship games.
However, the state currently doesnt have data that would predict this date. In the future, the
state could collect data that helps it predict the ideal date to start a sports-themed lottery game.
The state might also want to know if retail locations play a role in profitability for sports-themed
or other types of games. For instance, do convenience stores have different sales patterns than
large grocery stores? As the state lottery program continues to collect data, it can continue data
mine to improve its games and marketing approaches to generate higher net profits.

Data mining empowered the state lottery department to discover:

For net profits of greater than $1 million, a game should be in the market for less than
5.85 months. More specifically, the greatest profit levels occurred with games that ended
anywhere between 4.3 months to 5.05 months after their start dates.
Secondary characteristics that help drive these games to higher profit levels include
the games key feature and price to play
Specific key features provide higher net profits in different regions of the state

Using the knowledge this state gained through data mining, it can change its marketing
plans to plan for more games to last between 4.3 and 5.05 months and concentrate certain
key features based on regional preference.

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D ata mi nin g for l otte ry sys tems

Clementines visual interface enables you to use extremely powerful algorithms without programming.
The models generated in Clementine can then be browsed or deployed as code or as executable files and
used to score new data that relates to the model.

Conclusion
When data mining with SPSS, lottery systems like yours can get accurate predictions using
historical data, customer surveys and your business knowledge. Results obtained from data
mining can empower you to increase revenues, make better use of limited marketing dollars,
create new, more profitable games, survey and predict customer needs and report results to
a broad audience and more. Data mining gives you the answers you need to overcome the
ever-changing challenges your lottery system faces and ensures your organization can
make better decisions.

About the SPSS Business Intelligence division


The SPSS Business Intelligence division helps people solve business problems using statistics
and data mining. This predictive technology enables our customers in the commercial, higher
education and public sectors to make better decisions and improve results. The SPSS Business
Intelligence division software and services are used successfully in a wide range of applications,
including customer attraction and retention, cross-selling, survey research, fraud detection,
enrollment management, Web site performance, forecasting and scientific research. The
SPSS Business Intelligence divisions market-leading products include SPSS, Clementine,
AnswerTree, DecisionTime and SigmaPlot. For more information, visit our Web site at
www.spssbi.com.

DMLTWP-0402

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