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David Vanrenen
Founder of the ILLF
I’ve had the pleasure of chatting with David Vanrenen recently. I asked about the story of the ILLF and what had inspired him to come up with, and to and invest in, such an idea.
In the early 1990’s. David was running a software house in the UK and South Africa. The business specialized in creating trading systems for Reuters and had gained valuable technical experience with databases, interfaces, and communications.
David saw the success of national lotteries around that time. He realized the potential that a new kind of lottery would have; an internet lottery. Not only could he, perhaps, make some money but he would definitely do some good in the world.
And, of course, it was a nice technical challenge; to create the software needed to support an internet lottery.
The Red Cross
The first job on David’s list was to get a respectable charity on-board. Via his contacts, David met with The Red Cross in Geneva. He introduced them to the idea of an Internet Lottery. They thought it was pretty cool but a bit risky for Switzerland. However, they had contacts with the country of Liechtenstein (which they happened to know) was interested in operating a lottery. However, having only 39,000 inhabitants, there was an obvious problem.
David persuaded the Liechtenstein authorities to support his Internet Lottery idea, which they ultimately did. The ILLF was incorporated in 1994. A year later, the tickets went on sale and the first draw was fittingly held in a bar.
Payments are key
The key to it all was payments (of which there are many in a lottery). Most of the lottery ticket sales were expected to be to non-Liechtensteiners. In those days international payments were not only slow, but also expensive, as were credit card transactions.
David also realized that if the payment costs were too high, then It will seriously impact the practicality of the lottery, possibly jeopardizing the whole project.
So, primarily to reduce costs but also to improve the transaction speed, David implemented a clever Internet payments solution. The solution he came up with involved a network of locally registered bank and merchant accounts which he could then aggregate to form his own private clearing house.
This reduced costs as only local transfers were needed to facilitate what were seemingly international payments. David, Adriaan and Henry wrote the software needed to manage it all and the payment system was integrated into the lottery system.
Now a customer could credit their lottery account by simply using their credit card or by making a local bank transfer. Lottery winnings could also be paid back to the customer with a local bank transfer. So, no international bank charges were involved and the costs were kept under control. Nice.
David, Adriaan and Henry would capitalize on their payments system and, in 1997, would go on to create the Earthport company. The business became one of the world’s largest independent ACH networks. Earthport was ultimately sold to Visa in 2019 and formed their Visa Direct product.
Jackpot Insurance
As with all lotteries, the chance of winning a large prize for a relatively small outlay is the main attraction. InterLotto.li offered a guaranteed minimum Jackpot prize for 6 correct numbers of 1.2 million SFR. This was way above their ticket sales. The jackpot was supported in the form of an Insurance agreement.
The insurance company trusted very little. It therefore insisted that the actual draws be televised and under the control of a reputable auditing company; in this case Coopers & Lybrand.
As a result, the ILLF needed to deploy significant live broadcast technical resources to be deployed. This would enable the draws to be broadcast live, via satellite connections, and reach millions of viewers.
David mentioned that the jackpot was actually won once by a customer in Greece . The jackpot amount was paid by the insurance company with no issues. I wondered if the insurance company pulled out after that, as it lost a lot of money. David told me that after the first jackpot payout the insurance company considered the chances of another jackpot occurring again was extremely low. So, they continued to insure the jackpot and they turned out to be correct, it was the only time the jackpot was ever won.
Marketing is another key
Notably, InterLotto.li supported multiple lotteries and was the first to offer scratch cards. These guys were on a technical roll and there were plenty of products for them to bring to the market.
However, marketing the lottery was troublesome. The initial intention was to advertise the lottery in many European countries and attract new players, therefore increasing sales and profitability. They had some deals in place; notably in the UK.
Being the first online lottery, the ILLF was venturing into a legal world of international regulation and protectionism, largely untested at that time. Liechtenstein was, by that time, a member of the European Economic Area. This gave the country access to EU markets. But not necessarily to advertise gambling products (as we all know now).
Court cases in Austria, Germany, Norway and the UK all ruled against the ILLF. As a result, the ILLF was generally banned from advertising the lottery to residents of those countries.
Nevertheless, the lottery battled on and continued operation but the market was getting harder to reach.
The ILLF branched out by licensing its lottery software to other companies. It was then in reasonable shape to be sold to a group of investors from Liechtenstein in the late 1990’s.
Ultimately, the legal issues that prevented the ILLF from expanding to key markets, combined with increased competition sadly led to its eventual bankruptcy in 2011.
