Glancing at his watch, Raaja Kanwar says, "in 15 minutes I'll have to leave for the disaster recovery site." Sharply dressed, the suave 34-year-old is completely at home in the environs of the Mumbai luxury hotel where he's meeting this writer. Disaster recovery is the last thing one expects him to mouth. After all, Kanwar, Managing Director, Apollo International, and one of the scions of the Rs 2,700-odd crore Delhi-based Apollo Group, is in town promoting his recently-launched online lottery brand, Lottus. Yet, astounding as it sounds, he and his senior managers make it a point to visit Apollo's disaster management unit at Vashi on the outskirts of Mumbai at least once a month. This hi-tech data centre employing 20-odd people is a "mirror" of one in Apollo International's HQ in Delhi-satellite Gurgaon. "Every transaction, sale and disbursement is simultaneously captured and stored here," elaborates Kanwar.

It isn't just Kanwar. State-of-the-art terminals, cutting-edge software, televised draws and vsat networks are all de rigeur in today's technology-heavy world of online lotteries. Launched with great fanfare two years ago, online lotteries were touted as great money-spinning propositions not just for lucky participants but even more for the organising companies. Encouraged by an international market valued at over $125 billion (Rs 5.6 lakh crore) and an untapped market-only two out of every 10 Indians have tried their luck on lotteries-operators rushed in, investing heavily in technology and marketing.

As it often happens, once the hype and hoopla died down, most companies realised that making money in the long term from online lotteries was probably as difficult as hitting the jackpot. High-profile entrants such as Mumbai-based Venture Business Advisers, Ispat Industries and MS Associates seem to have all but disappeared while others barely eke out an existence. Not surprising then that very few players in the estimated Rs 800-crore online lottery market now want to talk about their performance and plans. The reticence even extends to those companies promoted by corporate heavyweights such as Essar (subsidiary Essar Teleholdings launched its offering in West Bengal and Kerala last year). "The Indian lottery industry is currently in transition," says Vikash Saraf, CEO, Essar Teleholdings. "Online lotteries in particular have seen a paradigm shift in gaming preferences. Though the potential of the business remains healthy, the gestation period is long, and some legal and regulatory challenges have prompted serious players to rationalise resources." That's one way of putting it. Some online lottery companies are beset with serious financial and operational constraints. A few may be on the verge of shutting shop, others are actively considering distress sales or, at the least, strategic alliances. Expectedly then, the companies behind two one-time ambitious plays, Sunshine (Modi Enterprises) and Smartwin (Coimbatore-based Martin Group), declined to comment.

"Online lotteries can only manage a 70-75 per cent payout, while paper lotteries routinely dispense 90 per cent" Paresh Rajde, Director, Forbes Infotainment

When Lady Luck Doesn't Smile

On the face of it, online lotteries seemed (and seem) a winning proposition. They are innovative, transparent and much more exciting given the variety of games on offer. "An online lottery is more flexible (than an offline one)," says Paresh Rajde, Director, Forbes Infotainment, a company promoted by Mumbai's Forbes Group. "It lets you choose your own lucky number as well as the number of plays, something you can never do with a pre-printed paper draw."

If the companies stood to gain from vending this flexibility to customers, then the governments of several states-especially those from the north-eastern part of the country such as Meghalaya, Arunachal Pradesh, Nagaland, Manipur, Mizoram and Sikkim-which were already active in the lottery business, stood (and stand) to gain too. Additional revenues from sales of online lottery tickets can be deployed in infrastructural projects.

Things didn't quite work out that way. For a start, the new entrants ignored the stranglehold paper lotteries had over the regular punter. With fewer overheads than online lottery companies, paper lottery companies pay out the entire prize money to winners. "Online lotteries can only manage a 70-75 per cent payout; paper lotteries routinely dispense 90 per cent," says Rajde.

Then, there is the question of government intervention. The Lottery Regulation Act 1998 regulates lotteries in India and to date 14 states have been given licences to run their own lotteries. The state government issues a licence after inviting competitive bids from interested parties. The licensee makes the investment, designs games and markets the lottery. Out of the returns from ticket sales, the licensee has to pay an assured return to the state government-this varies with the number of draws and prize money-in addition to sales tax.

"We have successfully promoted online lotteries as recreation rather than as hard-nosed gambling" Sawal Das Jethani, Senior Marketing Manager, Pan India Network Infravest

Their greed whetted by the high potential online lotteries hold-something that has come about because of hype generated by the companies themselves-state governments are now upping their demands. In Karnataka, for instance, the government has started charging online lottery vendors Rs 1 lakh per draw. Forbes' Dhandhanadhan, which used to hold 24 draws a day earlier, has been forced to bring down the number to six.

Companies also have to address the issue of ethical hang-ups, with crucial states like Delhi continuing to enforce their ban on lotteries, equating them with gambling. This, combined with the fact that the typical lottery player belongs to the lower income groups, has meant that companies are finding it virtually impossible to widen their user base. Now, both to widen their reach to the higher income segments and remove the stigma surrounding lotteries, companies are turning to international game concepts like Lotto. "We have been successful to a large extent in promoting online lotteries as gaming-a fun-time recreation rather than hard-nosed gambling," says Sawal Das Jethani, Senior Marketing Manager, Pan India Network Infravest, the Essel Group company that has promoted Playwin.

Jethani knows what he is talking about. For, if there is one company that has struck gold with online lotteries, it has to be Playwin. Launched in March 2002, the company was the first off the block (with an initial investment around Rs 300 crore), ushering in the trend of online lotteries. Today Playwin has 4,000 terminals across the country, all networked by VSAT connections and a turnover of just under Rs 800 crore. Lining Pan India's boardroom in Mumbai's Worli are large customised prints of the seven wonders of the world exhorting the customer to "never stop dreaming". And probably it is this fantasy world of untold wealth that keeps consumers coming back week after week. "Where else would you get the chance to win Rs 2 crore on an investment of only Rs 10?" queries Jethani.

Not one to rest on the near monopoly it enjoys, Playwin now plans to come out with incentives to woo higher income groups, even women. "We plan to organise tea parties exclusively for women where our products will be showcased," says Jethani. "Another innovation will be the introduction of prepaid cards, which will maximise convenience."

New Game, New Rules

"Everybody wants instant gratification," says Kanwar. "The question is, how do you sustain the frenzy?" Running an online lottery is expensive business. Technology accounts for the biggest chunk, around 60-70 per cent. Most of the operators have tied up with one international technology provider or the other. While Playwin has an alliance with ILTS, California, Apollo has joined hands with Australia's Jupiters International and Essar with Editec of France.

"Everybody wants instant gratification. The question is, how do you sustain the frenzy?" Raaja Kanwar, Managing Director, Apollo International

Then there is the distribution. Online lottery companies have striven to outdo one another in terms of reach and the sheer snazziness of their outlets; however, this comes at a price. Apart from investments in trained personnel and equipment like computers, communications can be a big cost component. A VSAT connection, for instance, could cost around Rs 1,70,000 a terminal.

Rajde, a chartered accountant by profession, is a veteran of the lottery business, having spent seven years in the paper version of it before launching Dhandhanadhan in July 2003. He believes success in the online lottery business is contingent on three things: "Deep pockets, a thorough understanding of consumer psyche and picking the right game." Others feel online lotteries are just an extension of the fast moving consumer goods market and are building penetration strategies accordingly: "Shopping malls, multiplexes, any place with high footfalls is an opportunity to sell our games," adds Kanwar.

Hard times are forcing companies to look for innovative ways out. In January this year, Dhandhanadhan sent out a letter to its retailers suspending draws and giving them the option of withdrawing their money; later, it joined forces with Coimbatore-based Martin Group, a pioneer in the paper lottery trade whose online venture never really took off, and pooled distribution and technology resources.

What's plaguing online lottery owners most-this is something no one will officially talk about-is the issue of multiple state regulations and high minimum guarantees state governments expect from online lotteries. Online lottery companies feel more realistic taxes would help them increase payouts to consumers and wean people away from paper lotteries. "We can contribute by way of sales tax and licence fees to the state exchequer," says Saraf. "But the authorities have to realise the customer expectations in terms of payout money." Money, it would appear, does talk.

-additional reporting by Payal Sethi and Alokesh Bhattacharyya