Lottery.com Inc. (LTRY) is a leading technology company providing innovative solutions in the digital lottery and sports entertainment sectors. With a focus on international expansion and a strategic acquisition, the company is well-positioned to capture the growing demand for online lottery and sports content worldwide.
Business Overview and History
Lottery.com Inc., formerly known as Trident Acquisitions Corp. (TDAC), was formed as a Delaware corporation on March 17, 2016. On October 29, 2021, the company consummated a business combination with AutoLotto, Inc. (AutoLotto), after which it changed its name to Lottery.com Inc. and the business of AutoLotto became the company's business. In connection with the business combination, the company moved its headquarters from New York, New York to Spicewood, Texas.
Prior to July 2022, Lottery.com was a leading provider of domestic and international lottery products and services. As an independent third-party lottery game service, the company offered a platform that it developed and operated to enable the remote purchase of legally sanctioned lottery games in the U.S. and abroad. The company's revenue generating activities focused on i) offering the platform via the Lottery.com app and websites to users located in the U.S. and international jurisdictions where the sale of lottery games was legal, ii) offering an internally developed business-to-business application programming interface (B2B API) of the platform to enable commercial partners in permitted U.S. and international jurisdictions to purchase certain legally operated lottery games and resell them, and iii) delivering global lottery data and sports data to commercial digital subscribers.
In June 2021, the company acquired Global Gaming Enterprises, Inc., which holds 80% of the equity of Medios Electronicos y de Comunicacion, S.A.P.I de C.V. (Aganar) and JuegaLotto, S.A. de C.V. (JuegaLotto). Aganar has been operating in the licensed iLottery market in Mexico since 2007 and JuegaLotto is licensed by the Mexican federal regulatory authorities to sell international lottery games in Mexico.
On July 28, 2022, the company's board of directors determined that the company did not have sufficient financial resources to fund its operations or pay certain existing obligations, including its payroll and related obligations. As a result, the company effectively ceased operations, furloughing the majority of its employees. Since then, the company has had minimal day-to-day operations and has primarily focused on restarting certain aspects of its core businesses.
Business Segments
Lottery.com operates in three primary business segments:
B2C Platform
The B2C Platform allows users to purchase legally sanctioned lottery games via a mobile device or computer. It provides a user-friendly experience, enabling account creation, lottery game purchases, and automatic redemption of winning tickets. Prior to the Operational Cessation in July 2022, this segment generated revenue through service fees and mark-ups charged to users on lottery game purchases. The company expects to relaunch the B2C Platform in early 2025, initially in Texas before potentially expanding to other states.
B2B API
The B2B API segment offers an internally developed platform that enables Lottery.com's commercial partners to purchase certain legally operated lottery games and resell them to users within their respective jurisdictions. The company shares in the net revenue generated from these transactions with its commercial partners, typically up to 50%. Following the Operational Cessation, the B2B API Platform resumed limited operations in April 2023.
Data Services
Through its wholly-owned subsidiary TinBu, LLC, Lottery.com provides data services that deliver daily results of over 800 domestic and international lottery games from more than 40 countries to over 400 digital publishers and media organizations. Commercial acquirers pay a subscription fee and, in some cases, an additional per-record fee for access to certain large data sets. The company also enters into multi-year contracts to sell proprietary, anonymized transaction data.
Financial Performance and Ratios
Financials
Lottery.com's financial performance has been significantly impacted by the operational cessation in 2022. For the fiscal year ended December 31, 2023, the company reported total revenue of $6.99 million, down from $16.41 million in 2021. Net income for 2023 was a loss of $25.74 million, compared to a loss of $52.91 million in 2021. Annual operating cash flow and free cash flow for 2023 were both negative $2.11 million.
For the most recent quarter (Q3 2024), revenue was $200,660, representing a 30% year-over-year decrease primarily due to a decline in revenue from the Global Gaming subsidiary, partially offset by revenue from the new SMI Ltd. subsidiary acquired in September 2024. Net income for the quarter was a loss of $7.98 million.
The company's revenue decreased from $1.56 million in the nine months ended September 30, 2023, to $717,000 in the nine months ended September 30, 2024, a 54% decline. This was driven by decreases in revenue from the Global Gaming and TinBu subsidiaries, as well as the lack of revenue from the core Lottery business during that period.
Liquidity
As of September 30, 2024, Lottery.com's liquidity position was as follows:
- Current ratio: 0.67 - Quick ratio: 0.67 - Debt-to-equity ratio: 0.25 - Cash balance: $60,470
The company's current ratio indicates a need for additional working capital to fund operations. The debt-to-equity ratio suggests a relatively conservative capital structure. Lottery.com's asset turnover ratio of 0.10 for the nine months ended September 30, 2024, indicates room for improved asset utilization.
The company's ability to continue its operations and successfully restart its core business segments is heavily dependent on securing additional funding. The current cash balance, combined with future borrowings, is expected to be sufficient to resume core operations. However, there is no assurance that the company will be able to obtain the necessary capital to support its operations and pay its expenses, repay its debt, or that additional funds will be available on favorable terms, if at all.
International Expansion and Strategic Acquisition
In a strategic move to capitalize on the growing global lottery and sports entertainment markets, Lottery.com has launched its international lottery operations. The company has invested in a customized technology platform to deliver an intuitive, secure, and engaging experience tailored to meet the diverse needs of international audiences. This initiative is expected to generate new revenue streams by the end of the first quarter of 2025.
To further strengthen its international expansion efforts, Lottery.com announced the acquisition of Spektrum Ltd., a subsidiary of PlusEVO Ltd., in an all-stock transaction valued at $1.5 million. This acquisition provides Lottery.com with an advanced lottery management system and gaming platform, enabling the company to offer a more localized user experience while ensuring compliance with regulatory requirements in new markets.
Geographic Performance
Lottery.com operates primarily in the United States, with some international operations in Mexico through its Aganar and JuegaLotto subsidiaries. The global lottery market is projected to grow at a CAGR of 6.05% from 2022 to 2028, with the Latin American market alone expected to reach an estimated size of $0.68 billion by 2028.
Risks and Challenges
Lottery.com faces several risks and challenges that could impact its future performance. The highly regulated nature of the lottery and gaming industries, coupled with the need to obtain licenses and approvals in various jurisdictions, presents ongoing compliance hurdles. The company's ability to successfully launch and scale its international operations within the expected timeframe is also crucial to its growth strategy.
Additionally, the competitive landscape in the sports entertainment sector continues to intensify, with established media companies and tech giants investing heavily in original sports content. Lottery.com's Sports.com platform will need to differentiate itself and attract a loyal user base to generate sustainable revenue.
Legal and Regulatory Issues
Lottery.com has faced several legal and regulatory challenges:
- In July 2022, an internal investigation revealed instances of non-compliance with state and federal laws concerning the procurement and fulfillment of lottery tickets. This led to the termination of the previous CFO, Ryan Dickinson, effective July 1, 2022.
- The company was subject to a class action lawsuit filed in August 2022 by shareholder Preston Million alleging violations of federal securities laws. The lawsuit named the company and certain former officers and directors as defendants.
- Lottery.com has been involved in various other legal proceedings, including a lawsuit filed against J. Streicher Financial, LLC for breach of contract, and lawsuits related to the acquisitions of TinBu, LLC and Global Gaming Enterprises, Inc.
Conclusion
Lottery.com's strategic focus on international expansion and its recent acquisition of Spektrum Ltd. position the company to capitalize on the surging global lottery and sports entertainment markets. While the company has faced significant challenges in the past, including operational cessation and legal issues, its renewed commitment to compliance, operational efficiency, and innovative technology solutions suggest a promising path forward.
The company's ability to successfully relaunch its B2C Platform, expand its B2B API operations, and leverage its Data Services segment will be crucial for future growth. Additionally, securing adequate funding and navigating the complex regulatory landscape will be key challenges for Lottery.com in the coming years.
As Lottery.com continues to execute its growth strategy, investors will closely monitor the company's ability to generate consistent revenue and profitability, particularly in light of its recent financial struggles and operational restructuring. The success of its international expansion efforts and the integration of newly acquired technologies will play a significant role in determining the company's long-term viability in the competitive digital lottery and sports entertainment markets.