Executive reportData 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 state’s vital programs can be eased when data mining using SPSS products. Yearly revenues are in excess of $38 billion nationally. Today. Data mining with SPSS Data mining enables you to discover unseen patterns and relationships in large amounts of data. the lottery is a backdrop to American life in the 21st Century. survey and predict customer needs and report results to a broad audience. because modern American lotteries fund vital programs — for example. Virginia.6 billion. Data mining empowers you to change the future of your lottery system. so you have the power to make the right decisions today. 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. 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. survey and predict customer needs and report results to a broad audience. For example. When data mining with SPSS. Introduction: history of the modern American lottery and the challenges lottery systems face today Lotteries in the United States date to colonial times. usable information — the business intelligence — that you need to improve your lottery system. Puerto Rico and the U. lotteries in the United States have played a number of roles. Other states soon followed and created their own lottery programs. When data mining with SPSS. by delivering accurate predictions. you become empowered to analyze and improve performance.S. Since then.7 billion and $3. with lottery drawings announced nightly on local newscasts and stories about average Americans becoming instant millionaires. 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). How does your department evaluate customer preferences to determine what’s needed to increase revenues? Would it help if your state lottery could predict the key features. By 1971. states. respectively (fiscal 2000). isolating valuable. ® Executive report 2 . Virgin Islands all offer government-operated lotteries. Data mining with SPSS gives you a reliable guide to the future of your lottery system. King James I of England used proceeds from a lottery to help fund Jamestown. In fact.S. you use historical data and become empowered to analyze and improve performance. lottery ticket sales in the United States passed $100 million. Massachusetts and New York lead the way with sales of over $3. 38 U. the first British colony in America. And. the District of Columbia. According to the National Association of State and Provincial Lotteries (NASPL). Powerful analytical technologies quickly and thoroughly explore mountains of data. Declining revenues after an initial period of growth is a common experience for lottery systems. you can be assured your project is conducted using proven data mining methodology. you increase your return on investment (ROI) by marketing the right type of games to the right types of customers. most profitable new games Better understand your customers Share information with decision makers.Data mining for lo tte ry sys tems data mining tells you which game attributes are most likely to interest your customers. the public and your customers This white paper describes how you can perform data mining with SPSS products to solve these business problems. once profitable lottery systems may experience lagging sales. CRISP-DM provides step-by-step guidelines. SPSS follows the CRoss-Industry Standard Process for Data Mining (CRISP-DM). 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. And those decisions deliver consistent results that can help keep your lottery system profitable for years to come. And. Many factors can contribute to this. Created by industry experts. months or even years. States that newly adopt a lottery system can expect to see a tremendous amount of revenue growth during the first few weeks. 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. For example. SPSS is the data mining leader. lottery sales will eventually experience a downward trend in revenues. people become unresponsive to drawings that once generated a great deal of attention. According to David Gale. with over 30 years experience developing field-tested analytical software. Eventually. jackpot “fatigue” or simply boredom playing the same games. Most commonly. executive director of the North American Association of State and Provincial Lotteries (NASPL). tasks and objectives for every stage of the data mining process. Factors that contribute to downward sales include initial excitement wearing off. not on instinct or gut reactions. And even if your state lottery has strong returns. Your decisions are based on sound business intelligence. you can: ■ ■ ■ ■ ■ Increase lottery revenues Make better use of your marketing dollars Identify the best. When data mining your lottery system data with SPSS. you can predict what factors increase and decrease revenue. when data mining with SPSS. The amount of publicity and media attention initially given to a new lottery system in a state generally is quite high. Lottery statistics show that approximately 75 percent of customers play only when jackpots are larger than $15 million. Increase lottery revenues Over time. With this view of the future. describing how data mining can help you find answers to your tough business questions. ® Executive report 3 . 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. what can you do to ensure the system remains profitable? When you mine your data and apply your business knowledge. you could use Capri for Clementine to determine the sequence of events in a person’s decision to purchase a lottery ticket or the sequence of events your system needs to take for marketing profitable games. Clementine. identify regions most likely to embrace a particular game and so forth. and candy makers 12.2 percent of their revenues on advertising. games solicited or requested by the public directly to the lottery department or games solicited by ticket vendors. cosmetics companies 8. 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. 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.8 percent. Interventions and events are outside occurrences that may affect the series you’re forecasting.7 percent. You can achieve better returns on your marketing investment by mining historical sales data. SPSS or any combination of these products. Advertising accounts for less of the cost of a lottery ticket than virtually any other consumer product. By contrast. While WhatIf? empowers you find the answers to tough questions. or even a change in consumer confidence. such as “How will changing the odds of the lottery affect our customer’s purchasing patterns?” Both SPSS Trends and DecisionTime/WhatIf? include “interventions” and “events” in modeling. Examples of interventions and events include an increase in the number of numbers drawn. 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). SPSS Trends gives you an easy-to-use graphical interface to analyze historical information and predict future events using time-series analysis. 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. For example. ® Executive report 4 . the percentage of revenues allocated toward advertising is unlikely to increase. According to the NASPL. as part of your data mining solution. unexpected events that previously affected sales. AnswerTree and SPSS also can help you predict factors that may increase sales or alter customers’ buying patterns. Perhaps you would like to examine the predicted sequence of events that occur when you change your lottery’s odds and how this change is likely to affect profits. restaurant owners spent 3. Identify the best.5 percent. beverage manufacturers 7. North American lotteries spent $400 million (USD) on advertising and received $34 billion in sales. survey data from the public and survey data from retailers.Data mining for lo tte ry systems Performing analysis in SPSS Trends or DecisionTime/WhatIf?. Advertising expenditures accounted for 1. AnswerTree. DecisionTime is the best way to quickly create powerful forecasts using SPSS’ proven. lottery systems create new games based on results from surveys taken in focus groups. can give you valuable insights for more strategic marketing plans that lead to increased revenues. heavy-duty analytics — the kind spreadsheets don’t offer.17 percent of total revenue. ensure customers play the lottery on a regular basis. Using Clementine. in 1996. With a large percentage of revenues usually mandated for various causes. 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. you can analyze your survey data or historical data for better game development that leads to higher revenue. Your staff can create surveys that you can deploy to focus groups and other survey respondents (such as your retailers) on the Web. which you can adapt to meet your lottery system’s needs. your customers and your retailers. However. your state may outsource demographic studies to an independent research firm. ® Executive report 5 . 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 design a form that allows a survey respondent to enter the ZIP code in which they live. paper. including: ■ ■ ■ Are certain shapes more appealing than others? Do certain font styles produce more profitable scratch-off games than others? Are certain retailers. You can also deploy surveys on kiosks in supermarkets or convenience stores without needing an Internet connection. Using SPSS Data Entry products. When you use the SPSS Data Entry Enterprise Server. such as convenience stores or large grocery stores. more likely to successfully market and sell tickets? Better understand your customers Like many lottery systems. 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. 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 system’s marketing practices. your lottery system could bring research inhouse and use a combination of data collection software and data mining software to better understand your customers. analyze them and deploy them to the proper audiences. This means your department can easily reach your potential respondents in a variety of formats. 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. Feature-rich design tools and a library of proven sample questions. phone or through personal interviews. Using a combination of SPSS products to collect survey research data. independent research firms lack the expert knowledge your organization has about how you run your state lottery (such as. survey responses are saved in SPSS file format for instant analysis in SPSS. help you write questionnaires that encourage complete answers and minimize data entry errors. It can also help you answer a number of other questions when developing new games or redesigning existing games.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 that’s very successful in certain areas of your state but is an average seller in other areas. Data mining can help you predict the color combinations that will be more successful in specific regions of your state. These data can also be read directly by Clementine and Answer Tree. state lottery rules). new rules and games. the analytical content portal for SPSS products. Your audience may vary a great deal — in terms of what they need to know and how they’ll use results. such as decreasing ticket prices by three. Make appropriate information available to customers. Share information with decision makers. sensitive or fee-based reports stay out of the wrong hands. a state agency or a state accounting office or local school boards. your department can keep up-to-date with changes in your lottery system. Since your lottery system likely funds vital programs for your state. 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. affect results. and because re-deployment is effortless. If you use DecisionTime to create forecasts. With Web-deployed surveys you have access to a greater and more diverse sample of the population. Also. SmartViewer Web Server enables you to quickly share important reports and information with anyone you choose. using a Web browser. including interactive reports. deploy your surveys on the Web to allow for more complete coverage of every region. you decide who receives reports and how much they see. the public and your customers Once you have data mining results. Web-deployed surveys are also more cost effective in the long term because your organization doesn’t have the added expense of paper and postage that apply to mailed surveys or long-distance charges associated with phone surveys. which rely on lottery revenue for funding. analysts can use WhatIf? to deploy forecasts on the Internet or intranet. most-informed decisions. They’ll likely want to explore results on their own and see how changing variables. SmartViewer Web Server. analysts publish reports from SPSS into a secure database. your audience can view the reports. This gives your department more intimate knowledge about your customers — and retailers. Confidential. it’s important to communicate them with the people who can or need to use them. ® Executive report 6 . five percent or seven percent for scratch-off games. SPSS products give you a variety of report and deployment options so you can communicate results to a wide audience. Clementine Solution Publisher enables data miners to create deployment applications quickly and cost-effectively. You may be required to report results to your legislature. And important information gets to the right people — on time. it’s possible you need to deploy information to more than just your decision makers. If you’re data mining with Clementine. With SmartViewer Web Server. the public and other groups in real-time. your department can use Clementine Solution Publisher for deployment.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. Using SmartViewer Web Server. The people who will ultimately make decisions based on results want information to be clear and described in non-technical terms. if you choose to survey them as well — so you can make better decisions that lead to increased revenues. Then. You might need to keep your public updated on the payoff amounts and odds of winning. enables you to easily share information with a variety of people. 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. spssbi. one-time events. DecisionTime/ WhatIf?: What if you could include special.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. cost. 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. including those who aren’t as knowledgeable about your state lottery. ® Executive report 7 .com to discuss how your organization can start data mining. better understand your customers and share information. workstation. retailers and other agents. Situational questions Impact SPSS capabilities How does your department poll your citizen’s 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. legislation changes and rule changes in your sales forecasting analysis? Would it help if you had a product that’s 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. Visit www.com for more information on these products or e-mail SPSS Sales at sales@spss. with differing information needs? Does your staff need help getting started with data collection. year? Does your department find it difficult to precisely forecast revenues given the irregular sales cycles for lottery products? SPSS Trends. such as your state’s legislature accounting offices. AnswerTree and SPSS: What if. make better use of your marketing dollars. 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. 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. month. journalists and citizens? Is your department’s 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 that’s 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. using your own data. shapes or colors of your games that lead to higher revenues? Clementine. 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. identify profitable new games. local school boards. 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. 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 game’s attributes and historical sales data and use them to predict the ideal number of days. 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. In addition. 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.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.000 individual ticket sales. These data represent ticket sales from July 1999 through July 2001. weeks or months that a game should be in the market. The C&RT algorithm uses a tree-based classification and prediction method. the state wanted to know in what region are those games most successful and for what period of time they are most profitable. Without taking into account any geographical region. SPSS discovered that crossword game themes have the highest overall profit. Using this state’s data. ® Executive report 8 . if no other factors are taken into account. Classification and Regression Tree (C&RT) in AnswerTree. SPSS generated relevant results using techniques in AnswerTree and Clementine. SPSS used data mining techniques that examined aggregated net profits and game themes. SPSS used a rule induction algorithm. From this information. SPSS discovered the most important factor in predicting game profitability is the number of months that the game is maintained in the public. looking at the data in both the context of the entire state and also on a regional basis. to create this prediction. Here. The state provided a dataset containing information for almost 400. Therefore. more reliable models Different types of data work better with different algorithms. key features should be: Mystery Number. Bonus Word. SPSS also used the C5. SPSS confirmed this result by running a C5. the greatest profit levels occurred with games that ended anywhere between 4. among other factors. ® Executive report 9 . Certain colors resulted in low revenue: silver/green.000. SPSS selected the C&RT model because it achieved a higher confidence level. In Area X. SPSS discovered that to generate net profits of greater than $1 million. For games that the state kept on the market for less than 5.Data mining for lo tte ry sys tems Using the Classification and Regression Tree (C&RT) model in AnswerTree. SPSS discovered the following color schemes should be used: pink/green.0 model. However. blue/white. It’s also likely your data change over time as you create new programs and experience a change in player demographics. Blue Line. 15 Ways. the average monthly profit level is considerably lower. Bonus Word. segmentation and time-series analysis. Some games also generated high profits after more than 16 months in the market. 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.3 months to 5. That’s why SPSS gives you a wide variety of algorithms and techniques from which to choose. SPSS discovered that a game that costs $10 to play generates net profits of less than $500. Games that cost $3 or $5 to play have a greater likelihood of achieving net profits of greater than $1 million. Extra Numbers. predicting numerical outcomes and identifying groups. pastel yellow/orange. techniques A variety of algorithms and for better. black/blue. For example.05 months after their start dates. However. It’s possible that demographic information attributes to this discovery. a game should be in the market for less than 5. cluster and segment groups. yellow/multi. SPSS examined secondary characteristics that drove these games to higher profit levels. because it’s best to run multiple models on a dataset in order to compare the accuracy of results. In Area X. you need the ability to try different algorithms and techniques with your data to find the best fit. Multiplier. Extra Numbers and 30 Ways. but as expected. or the probability that a predicted event will occur. And. Bonus Blue Line. With a confidence level of 70 percent. do data reduction and create custom algorithms. Your department can use some of these products or use the entire range of software available for data mining. SPSS discovered the following: ■ ■ ■ For games in the market for the ideal time period. More specifically. SPSS examined data describing the gaming characteristics from one area of the state. 15 Ways.85 months. and your state lottery system probably collects many types of data that are useful when data mining. Clementine gives you a variety of techniques so you can classify. June generated the highest total profits or net revenues. This prediction has a confidence level of almost 100 percent. To better understand how demographics influence lottery profits. purple/green and red/black.85 months. classification. Using SPSS add-on modules with SPSS Base gives you even more options for prediction. Multiplier. games started in March and August had the highest number of high-profit games.0 model in Clementine. certain ticket colors helped to generate higher revenue. General Wild Joker and Crossword Doubler. AnswerTree gives you four types of decision tree algorithms from which to choose to help you reveal segments and predict how groups will respond. the second most important variable in producing high profits is the game’s key feature. Lucky Numbers or 30 Ways. blue/yellow and teal/yellow. red/purple. For net profits greater than $1 million in Area X. Focusing on March and August led to no standout variable in defining why those two months have the most highprofit games. Net profits in Area X dropped by more than 50 percent on two games. detect associations. The following key features generated the highest profits in the shortest amount of time: Mystery Number. SPSS gives you a variety of flexible algorithms for describing your data. SPSS discovered that for net profits of greater than $1 million. 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. and the network continues to improve its predictions until one or more of the stopping criteria have been met. it can change its marketing plans to plan for more games to last between 4. For example. the greatest profit levels occurred with games that ended anywhere between 4. ® Executive report 10 . The network learns by examining individual records.05 months and concentrate certain key features based on regional preference. at the half-way point of a season or close to the date of the play-off and championship games. For instance. Secondary characteristics that help drive these games to higher profit levels include the game’s 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. generating a prediction for each record and making adjustments to the weights whenever it makes an incorrect prediction. do convenience stores have different sales patterns than large grocery stores? As the state lottery program continues to collect data. is it more profitable to sell a sports-themed card when a sports season starts.05 months after their start dates. 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. Data mining empowered the state lottery department to discover: ■ ■ ■ For net profits of greater than $1 million. the state currently doesn’t have data that would predict this date. 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.85 months. This process is repeated many times. A neural network is a simplified model of the way the human brain processes information. the state could collect data that helps it predict the ideal date to start a sports-themed lottery game.3 months to 5. However. More specifically. In the future. it can continue data mine to improve its games and marketing approaches to generate higher net profits. The state might also want to know if retail locations play a role in profitability for sports-themed or other types of games. a game should be in the market for less than 5.3 and 5. create new. The SPSS Business Intelligence division’s market-leading products include SPSS. ® DMLTWP-0402 Executive report 11 . enrollment management.® DecisionTime® and SigmaPlot. About the SPSS Business Intelligence division The SPSS Business Intelligence division helps people solve business problems using statistics and data mining.com.® For more information. This predictive technology enables our customers in the commercial. higher education and public sectors to make better decisions and improve results.® Clementine. Results obtained from data mining can empower you to increase revenues. make better use of limited marketing dollars.® AnswerTree. forecasting and scientific research. fraud detection. 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.spssbi. customer surveys and your business knowledge. Conclusion When data mining with SPSS. cross-selling.D ata mi nin g for l otte ry sys tems Clementine’s visual interface enables you to use extremely powerful algorithms without programming. visit our Web site at www. 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. The SPSS Business Intelligence division software and services are used successfully in a wide range of applications. survey and predict customer needs and report results to a broad audience — and more. more profitable games. including customer attraction and retention. lottery systems like yours can get accurate predictions using historical data. Web site performance. survey research.