The Lottery Corporation's Worst Run of Luck Has Fund Managers Buying

A once-in-decades jackpot drought and rising bond yields have pushed the lotteries operator lower, but managers see infrastructure-like licences, a digital margin tailwind and a new chief executive as reasons to look through the bad luck.

30 Sep 2026 · 4 min read

An infrastructure asset having an unlucky year

Fund managers are making an unusual argument about The Lottery Corporation: that its weakest year in recent memory was mostly bad luck. L1 Capital said in its September quarterly that FY26 was hit by a jackpot sequence estimated to be a 1-in-45-year event, which cut EBITDA by around $80 million, or about 11 per cent of Lotteries EBITDA. Combined with rising bond yields, the upfront cost of the Victorian licence and selling ahead of potential index changes, the stock de-rated sharply. L1's verdict: “We believe most of the factors above are temporary headwinds, rather than changes to the underlying quality of the business.”

We believe most of the factors above are temporary headwinds, rather than changes to the underlying quality of the business.

— L1 Capital, Quarterly Report, September 2026

That view has drawn buyers. L1, Ellerston Capital and Ten Cap all added in September, Investors Mutual Limited topped up, and Perpetual Asset Management and Blackwattle Investment Partners both rated it a buy. Perpetual put it simply: “It's been a very unlucky period and I think that offers a really good opportunity”.

Licences that run for decades

The bedrock of the thesis is duration. In May, the company paid $1.15 billion for a 40-year Victorian licence, which Pendal Group said was a positive surprise in length, as the market had expected 20 years, though the price led to earnings downgrades. L1 said the next major licence renewal is not until 2050, with Victoria now running to 2068, and that the licence was secured at an implied ~9 times EV to EBITDA, well below where the stock trades. Perpetual said average concession duration is now around 25 years, meaning no big-ticket licence spend for a long time, with implications for the right debt-to-equity mix. Milford Asset Management participated in the company's inaugural Australian dollar bond in September.

L1 described the company in June as one of the highest quality infrastructure-like assets in the Australian market, comparing it to Transurban but with stronger organic growth and much lower capital intensity, and noted lotteries turnover has grown 3.5 per cent a year over 20 years despite the GFC and COVID-19.

The margin tailwind from going digital

Managers see a structural margin story beneath the jackpot noise. Perpetual explained in March that online ticket sales carry much higher margins because the company is not paying commissions to retail agents, supporting high single-digit earnings growth. Airlie Funds Management said it owns the stock because it is “a unique collection of long-dated licences with a significant long-term margin tailwind from the mix-shift to purchasing lottery tickets online”, under a refreshed management team keen to drive cost discipline.

A unique collection of long-dated licences with a significant long-term margin tailwind from the mix-shift to purchasing lottery tickets online.

— Airlie Funds Management, Monthly Report, March 2026

A new chief executive and new games

New chief executive Wayne Pickup, appointed in November 2025, is central to the next phase. L1 rated him highly for his more than 25 years of lottery experience and expects him to cut costs and add products, citing a pipeline of game changes across Set for Life, Oz Lotto and Instant Scratch-Its, conversion of retail players to digital customers, and Keno modernisation. Blackwattle highlighted Oz Lotto specifically, recalling that a 2018 change making Powerball's top prize harder to win produced bigger jackpots and 20 per cent sales growth, and arguing similar odds changes to Oz Lotto could improve jackpot sequencing.

The skeptical view

Not all commentary has been positive. Pendal said in February that the stock's infrastructure nature led it to trade on 29 times earnings for only moderate growth, and that it saw other defensives such as Telstra as more attractive. Pendal also noted the June investor day was received slightly negatively, with a $10 million opex reduction failing to impress a market that had hoped for a larger cost-out program. Alliance Bernstein, while still positive, noted in July that sentiment had been weighed down by caution around jackpot activity and the sustainability of growth.

What managers are watching next

The near-term signal is jackpots. L1 noted that Powerball moved to around a $100 million jackpot in October, which it expects to support improved revenue trends, and its analysis suggests engagement grows exponentially as jackpots build above $60 million. Beyond that, managers will watch delivery on game changes, digital growth and cost discipline under Pickup, and the direction of bond yields, which L1 identified as a key driver of the recent de-rating.