How much is a lottery worth? An analysis in view of lottery privatizations in Greece

State Lotteries, the Greek Crown jewels, have recently been offered for sale as part of a large privatization program in order to relieve public debt of the Hellenic state. The question as to whether the deal was fair has long been at the center of the local political and financial press and the answer depends, in our opinion, on firm specific and market specific factors and consumers’ attitudes towards games of chance. As a consequence, pricing decisions and game innovations by the Greek monopolistic operator have been the primary determinants of its value worth, not to mention their significant role in providing fiscal slack to the authorities, especially in times of crisis.

Optimal lottery pricing given a usual lottery demand equation, requires setting the payout ratio at a price elasticity of demand equal to one, assuming that the operator has zero marginal cost. In fact a large number of empirical papers around the world indicate that operators abide by the inverse elasticity rule (Perez and Humphreys, 2012; Grote and Matheson, 2011). Since state lotteries are an important source of non-tax revenue, optimal pricing is a significant factor in providing fiscal slack to the authorities, especially in times of crisis. However, when a single operator sells multiple lotteries or when he introduces new game variants after some time, as it is almost always the case, optimal pricing principles should account for interdependence and/or cannibalization effects.

The objective of this study is to assess the rationality of game pricing and innovation decisions of the Greek lottery operator up to its final privatization as a step towards finding out whether the firm has been over-  or undervalued at the time the deal was struck. To this we estimate cross and price elasticities on data from a sample of two lottery games operated in Greece and we assess pricing decisions and assess innovations on the basis of a multiproduct model (Forbes,  1988).