Alchemy 3: The Lottery Technology Contractor the FTC Says Skimmed Proceeds Meant for Good Causes

The Federal Trade Commission and a coalition of state attorneys general filed a lawsuit alleging that Alchemy 3, LLC — the company holding the exclusive contract to provide lottery ticket-printing terminals for Powerball — exploited its monopoly position to charge state lottery commissions fees that exceeded what a competitive market would produce, diverting proceeds that would otherwise have flowed to public programs including education, public health, and veterans' services.DOCUMENTED

The case is an unusual application of antitrust law: rather than involving direct consumer harm at the point of a retail transaction, the alleged harm fell on state lottery programs themselves — and by extension on the beneficiary programs those lotteries fund. Because state lotteries are structured to direct a portion of ticket revenue to designated public purposes, any excess cost extracted by a contractor effectively reduces the money available for those purposes.

The Structure of the Powerball Contract

Powerball is administered by the Multi-State Lottery Association, a nonprofit organization representing the lottery commissions of participating states and territories. The Association contracts with vendors to supply the technology infrastructure that allows ticket purchases — including the point-of-sale terminals that retail locations use to print Powerball tickets. Alchemy 3 was the contractor providing this terminal technology, under an exclusive arrangement that gave the company a singular position in the supply chain for one of the largest lottery products in the United States.REVIEWED

The FTC's complaint alleged that Alchemy 3 used this exclusive position to charge fees that the Association would not have accepted in a competitive market with multiple providers bidding for the contract. The sole-source nature of the arrangement, regulators argued, removed the competitive check that would ordinarily discipline a vendor's pricing — allowing Alchemy 3 to set fees that went beyond what the service would command if lottery commissions had alternatives to choose from.DOCUMENTED

How Lottery Revenue Flows

State lotteries are structured so that ticket revenue is divided among prize payouts, administrative and operating costs, and proceeds directed to the designated beneficiary fund. The percentage allocated to the public fund varies by state but is typically material — often 25 to 35 percent of gross ticket revenue, representing hundreds of millions of dollars annually in states with large lottery sales. Costs associated with lottery operations, including vendor contracts, come out of the administrative and operating portion of revenue, which means that elevated contractor fees directly reduce the pool available for either the beneficiary fund or the prize pool — or require a larger administrative share that leaves less for public purposes.REVIEWED

The FTC's theory was that by charging above-competitive fees, Alchemy 3 effectively captured a portion of the value that the lottery system was designed to direct toward public programs. The harm was diffuse — spread across dozens of states and their respective beneficiary programs — but the agency's complaint argued it was real and measurable against what those fees would have been in a competitive contracting environment.

When a sole contractor to a public lottery overcharges for its services, the shortfall falls not on a consumer but on a classroom, a clinic, or a veterans' program.

The Antitrust Theory

The legal theory in the Alchemy 3 case rests on monopolization principles under the Sherman Act. A company that holds a dominant or exclusive position in a market does not violate antitrust law simply by possessing that position — the law requires that the company either acquired or maintained that position through anticompetitive conduct, or that it charged monopoly prices in a way that harmed competition or market participants. The government's complaint in this case appears to have focused on the latter dimension: that Alchemy 3's pricing, shielded from competitive discipline by the exclusive contract structure, produced outcomes that harmed the state lottery commissions and their downstream beneficiaries.REVIEWED

Antitrust cases involving public contractors are relatively uncommon, and the Alchemy 3 case raised questions about how competition law applies when the buyer is not a private actor but a consortium of state agencies making collective purchasing decisions. The Multi-State Lottery Association's ability to renegotiate or rebid the contract — and the practical barriers to switching vendors in a live lottery system with terminals installed across tens of thousands of retail locations — were likely central to the government's argument that Alchemy 3's position was genuinely monopolistic rather than simply dominant.

Implications for Public Contracting

The case reflects a broader interest, in antitrust enforcement circles, in scrutinizing the terms on which monopoly or near-monopoly vendors supply services to public institutions. Government agencies and public bodies have historically been seen as sophisticated purchasers capable of protecting their own interests in contracting — but the FTC's willingness to bring this case suggests the agency views sole-source contracting arrangements in public settings as presenting antitrust risks worth investigating and litigating. If the public body is locked into a contract with a single vendor and switching costs are high, the dynamics may not be materially different from the monopoly vendor relationships that the Sherman Act was designed to address in private markets.REVIEWED

For state lottery commissions specifically, the case was a reminder that vendor contracts — even those involving publicly administered bodies — are not immune from federal antitrust scrutiny. Future contracting for lottery technology infrastructure, and for other systems where network integration creates high switching costs, may be structured with greater attention to competitive bidding processes and contract terms that limit the ability of any single vendor to extract above-market fees over the life of an exclusive arrangement.

Where the Case Stands

The FTC and state attorneys general filed their complaint in federal district court. The litigation was ongoing, with Alchemy 3 contesting the government's market definition, the characterization of its pricing as anticompetitive, and the question of whether the Multi-State Lottery Association — as a sophisticated institutional buyer with its own procurement processes — had the standing to be the victim of the monopolization theory the government was asserting. The case was expected to turn on fact-intensive questions about the competitive alternatives available to the Association and the process by which the exclusive contract was established and maintained.

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