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MADRID (MarketWatch) -- When Spain's famed lottery called "El Gordo" -- The Fat One, in English -- rolls around this Christmas, you can bet the country with nearly the highest unemployment in Europe will have plenty of participants.

That's because through good or bad economic times, lottery operators seem to be able to count on individuals parting with small change to chance on a big win. Observers say the higher the pool, the bigger the attraction, such as for the weekly Euro Millions lottery, which has rolled over five times and is offering a pot of 90 million euros ($132 million) for Friday's draw.

But the picture for Europe's tiny group of publicly traded lottery operators is mixed.

German-based online lottery group Tipp24 is the exception. Shares have soared over 250% on a change in business operations due to a change in the law in Germany, while Greece's OPAP and Italy's Lottomatica have respectively lost 3.5% and 23% in the last 12 months.

Those who watch the industry closely assure that weaker performances are largely unlinked to the recession that drove jobless levels to a 10-year high of 9.2% in September for Europe, and have kept a tight lid on consumer spending.

"We do not see any coherent trend among European lotteries," said Friedrich Stickler, deputy chief executive officer of the Austrian Lotteries. "Some of our colleagues are facing substantial growth. They've made changes in game plans. They are lucky as there are enormous jackpots, with several jackpots in a row."

"It depends not only on the consumer climate. It depends on events that are not planned, like jackpots and jackpot rollovers. If you have a rollover, it's good for business. This is something you cannot produce," said Stickler.

Figures from La Fleuer's World Lottery Almanac show the value of lottery sales in Europe dipped 4.8% between 2007 and 2008 to $47 billion, after a fall of 0.7% between 2006 and 2007. Figures for 2009 are not yet available.

Lottery operators in Europe recently faced down a big threat from the Internet after a ruling from the European Court of Justice a month ago that online operators need a license to from each European state, and cannot just get by with a license in tax havens such as Gibraltar or Malta and offer games across Europe, said Stickler.

Much of Europe's lotteries are state-owned and operated. Germany's lottery is run by its 16 different states, but Tipp24 offers a shadow German lottery from its U.K. subsidiary.

In the U.K., Camelot Group operates the National Lottery. Four of its five different owners have their 20% stake up for sale and it's rumored that Virgin Group's Richard Branson wants the lottery business, though the company won't divulge its plans.

Changing its game plan

Of Europe's tiny group of listed lottery operators, none have offered more drama this year than Tipp24. It recently reported a 63% rise in revenues for the first nine months of this year, retracted its previous profit warning and raised its earnings forecast for 2009. Its shares, up 428% year-to-date, have soared on a change in the company's business operations, prompted by a German law that went into effect this year banning most forms of online gambling and prohibiting marketing in Germany by companies such as Tipp24.

Tipp24 was best known for collecting lottery slips in Germany from online players, but the law change forced it out of the country and they now operate a shadow German lottery from the U.K. through a Web site, with lower overhead and higher profit. It has a U.K. license and pays a 15% gambling fee.

Marcus Sander, Frankfurt-based analyst at Oppenheim Research, said Tipp24 offers a derivative on the German state-owned lottery, using the same numbers and payoffs. But it now keeps 50% of its profits, as opposed to a 10% slice in the past from the German state. "They have lower operating costs compared to the state-owned lottery. Their margin is much, much higher," said Sander.

He rates the company a strong buy, based on valuation and cash generation potential, noting that there's a good chance the German rules on Internet gambling could change after recent elections. In that case, he said they could continue running the U.K. business model, but do another separate model to run within Germany.

"Again that should be positive for Tipp24, because they can go into Germany again without a decline in profitability," though he said that could mean more competition. Also there is the long-term prospect of Tipp24 as a takeover target, perhaps from German-based conglomerate Gunther Holding, which has a 28% stake in the group.

As for the downturn, he said there's no impact at the moment. "It's more a question of an interesting product. Look at the Euro Millions or the Spanish Lottery. It's not the likelihood of a win that attracts people, but the size of the jackpot." He said Tipp24 likely won't attract more players, but will have the opportunity to generate stable, high, free cash flow over the coming year.

Scratch and win

One of the more global players in the European lottery sector is Gruppo Lottomatica, which operates in more than 50 countries and owns Providence, Rhode Island-based Gtech, another key lottery systems supplier. See story on acquisition of Gtech.

Lottomatica is owned by the publishing, media and financial services group De Agostini.

Lottomatica's shares have been on a decline since 2007 and are down 14% year-to-date. The company will report third-quarter results next week. Its consortium was recently confirmed as the sole bidder for Italy's Scratch and Win card tender, which means it will retain 100% of that market. Lottomatica's Scratch & Win concession expires next May -- the game sold more than 2.5 billion tickets last year.

Alessandro Bai-Badino, analyst at Deutsche Bank, has a buy rating on the stock, noting that it has a few things going for it. Aside from Scratch and Win, earlier this month, the U.S. Lottery Association reached a deal that will allow 45 U.S. state lotteries to cross-sell both Mega Millions and Powerball tickets, which could boost same-store sales of Gtech, boosting Lottomatica's profitability.

Also Gtech and Spain's leading logistics operator Logista signed a contract with ONCE, which manages Spain's National Lottery, to provide lottery technology, marketing services, logistics and retailer services for a complimentary retailer network. Logista is a unit of Imperial Tobacco

In a note to analysts, Bai-Badino said risks for Lottomatica include lower-than-expected wagers on lotteries, higher-than-expected price compression on the renewal of lottery concessions and loss of major lottery contracts and gearing, which would limit participation in further industry consolidation.

He added that third-quarter performance of Lottomatica may be uninspiring, with Italy seeing a decline in Lotto, a high payout in sport betting and increased marketing costs.

Mauro Baragiola, analyst at Citigroup, has a sell/high risk rating on Lottomatica. In a recent note to clients, he said the company has yet to benefit from its Gtech acquisition from 2006. As both Lottomatica and Gtech manage regulated games, whose concessions are awarded by states, legal action related to concessions are always a threat to profitability.

"Although the Italian business has been achieving outstanding results, the international business is suffering from poor U.S. sales, few new concessions and an increasingly competitive environment in a deflationary world," said Baragiola.

Greek games

Publicly listed but state-controlled OPAP, which exclusively operates and manages Greece's lottery and sports betting games, also has grappled with change. A law passed in July was due to slap a 10% tax on net winnings from OPAP's games, though that has since been suspended by the socialist government, which won office Oct. 4.

Shares have been volatile, currently trading around 17 euros, down 16% year-to-date.

Elias Katsikalis, Athens, Greece-based analyst at Euroxx Securities, has an overweight rating on the stock and a price target of 20.30 euros. "OPAP is the dominant player in Greece and has a concession from the Greek state to operate until 2020," he said. "It's a cash cow. The only thing it's doing is producing cash. Every year it gives general dividends." This year's dividends are expected to be lower than last year's due to the struggling Greek economy.

He also likes OPAP for its clean balance sheet in case it wants to find opportunities outside of Greece and an ability to raise money easily, along with a strong dominant position in its home market with more than 5,000 points of sale. It also benefits from Greece's decent-sized population of more than 10 million.

Katsikalis expects OPAP do the necessary work to improve the attractiveness of their games, such as introducing a live betting platform within 2010. He said the tax picture in Greece is still unclear, but is encouraged by the new government which has said it'll re-examine all measures. He also believes OPAP will seek opportunities outside its home base, such as in France where markets are gradually opening up and Italy.