What's new? Tatts Group was always the front-runner to win the NSW Lottery prize but it was the NSW government that hit the jackpot with the $850 million price tag.

When Tatts listed in July 2005, it was perhaps better known for its lottery business than its gaming machine business. But the real money-maker was not the lottery business.

In 2006, the company merged with Queensland wagering company UNiTAB and added a significant new earnings stream to create a more diversified company.

That was followed in 2007 by the acquisition of Queensland's state lottery business, Golden Casket, for $542 million. That added more substance to its lottery division and, with some excellent execution by management, lifted Tatts's lottery operating earnings from $35 million in 2007 to $118 million in 2009.

In April 2008, disaster struck. The Victorian government whipped away its gaming machine licence when it expires in 2012. That business has generated an average operating profit of $228 million for Tatts during the past eight years and accounted for about 43 per cent of group earnings in the 2009 financial year.

Even the renewal of Tatts's Victorian lottery licence became a debacle for the company. The state government's attempt to introduce competition turned into what Tatts's highly regarded chief executive, Dick McIlwain, described as a "highly degraded bunch of short-term licences, a tin-pot franchise".

Now, having secured the third major leg in the Australian lotteries industry, McIlwain is confident he can add a further $120 million of operating profit to Tatts's lottery business by 2014. That's quite a big ask, even allowing for some reasonably chunky cost savings once the three-year "no sackings" clause for the 166 employees is up. There's also an existing lottery systems contract that doesn't expire until 2012 that would allow more cost savings once integrated with Tatts's own systems.

The outlook Lotteries are recognised as a low-impact, socially acceptable form of gambling with a history of funding community projects as the quid pro quo.

Tatts has a track record of delivering good earnings from its lottery business. They've shown with the Golden Casket acquisition that they really know what they're doing and the company should receive some leeway to work its magic on the NSW Lotteries.

There's no question this was the right acquisition but the concerns will remain about whether the company paid too much (all funded with cash and debt).

It doesn't completely resolve the issue of replacing the Victorian gaming earnings, either. Winning the Victorian wagering licence may be the solution but Tatts is up against the incumbent, Tabcorp, and a state government likely to change the structure of the racing industry. That could change the economics of owning the licence.

Price Retail investors paid $2.90 when the stock listed in 2005. Since the GFC, the stock has traded no higher than $2.93, in March 2009. Now about $2.39, the price is at the lower end of its recent range.

Worth buying? The NSW Lotteries acquisition will prove to be a good one but it doesn't resolve all the issues. Investors may get more excitement from buying a few Powerball tickets instead.

Greg Fraser is an analyst at Fat Prophets sharemarket research.