The UK’s National Lottery is overdue a shakeup

Roll up, roll up to watch the biggest gamble of them all coming up later this year – the bidding process to run the UK’s National Lottery is now open and the stakes are higher than ever.

At least three, possibly five, potential bidders from the UK and overseas are in the final stages of considering whether to launch rival offers to wrest control of the UK’s National Lottery from Camelot.

Camelot, which is owned by Canada’s Ontario Teachers Pension Plan, has run the lottery since its launch in 1994, raising more than £40bn from ticket sales for good causes. On most criteria, Camelot has run a pretty effective national lottery, but its 25 year reign has not been without controversy, from questions raised about high salaries for staff to criticism that not enough of revenue is spent on charitable causes.

So, should the Camelot team be allowed to take on a fourth contract from 2023? That’s the tricky decision for the UK’s Gambling Commission to decide upon when competing tenders are received later this year. In a recent interview, the Gambling Commission chief,  Neil McArthur, suggested there is “significant untapped potential” in the franchise, and that he hoped to see technology giants compete for the contract.

That sounds like a strong hint, and it’s certainly the message taken to heart by potential competitors. It’s the sort of tone they like to hear because putting together a bidding consortium costs millions and they want to know they are at least in the race.

Indeed, rivals claim that if the government were to hand Camelot another run for its money it would be de facto turning the lottery company into a state operator. They will also be arguing that its time Camelot’s feet were held to the fire: that it has become complacent, fixed in its ideas and less open to new ideas on gambling.

Who then are the most likely competitors to challenge Camelot’s reign? There are no surprises that Virgin’s Sir Richard Branson is having his third go at winning the National Lottery. He’s already been through the courts to challenge Camelot, and can only be admired for his persistence. Those with long memories will remember Sir Richard parading through the streets with equine superstar Desert Orchid, and riding to parliament in 1994 to make his pitch to run a People’s Lottery with the promise of all the profits going to charity.

The Virgin bid will put the case for modernising the National Lottery to attract more younger players, and to compete with the rapid growth of more tech-based online gambling firms.

Another contender is Richard Desmond, owner of Northern & Shell, and former proprietor of the national newspapers, the Daily Express and Daily Star. Desmond, who also runs the Health Lottery, has confirmed he is putting together a bidding team, and has received the draft invitation to apply from the tender managers.

Desmond’s pitch will be that he has run the loss-making Health Lottery since 2011, and is the only competitor to have experience of the UK lottery market. He has many times criticised Camelot for being tired, old-fashioned and out-of-date” format in need of new life.

More intriguing is the position of the Sazka Group, the Czech gaming conglomerate which operates lotteries across Europe from the Czech Republic to Italy, Austria and Greece. It’s Europe’s second biggest player, recording double digit growth across its markets in the last few years. Plans to float on the London Stock Exchange ahead of the tender process have been put on ice. Sazka, owned and run by Czech entrepreneur Karel Komarek, is said to be close to deciding on whether to go ahead with a consortium bid.

Two other overseas players, the Dutch company Novamedia, and Australia’s Tabcorp, are also said to be deciding whether to go ahead with bids.

So, it’s going to be a feisty fight. Camelot’s chief executive, Nigel Railton, needs to get his defence ready as there’s no doubt the competition for the next contract is going to be much tougher than previous rounds. Camelot’s track record is decent: 95% of total revenue goes back to winners and society while  4% of total revenue is spent on operating costs.

On average, Camelot generates around £30 million each week for National Lottery-funded projects. In total, £38 billion has now been raised and more than 535,000 individual grants have been made across the UK – the equivalent of around 190 lottery grants in every UK postcode district.Camelot will also be able to show that sales are on the rise again. In the last half, sales were up 13.5% to £3.9bn, and more importantly, the results were helped by a big boost in digital sales. These were up 40%.

But Railton will also have to respond to criticism over why sales to good causes have fallen, and why attempts to revive the National Lottery main draw have led to a rise in the number of weekly roll-overs.

Who gets to decide who should be in charge of the nation’s gambling habits, and the money going good causes?  That role falls to the Gambling Commission’s McArthur and his team, headed up by John Tanner from Her Majesty’s Revenue and Customs. Tanner is in charge of the National Lottery’s 4th License Competition programme which received feedback this week from its market engagement period.

Word is that there has been plenty of healthy interest from potential operators who, if they want to go through to the next stage, have to take part in a Selection Questionnaire.

Then they get weeded out, with formal offers taking place over the next few months with the winner being announced by the end of the year.  As one source said, the criteria surrounding this license will be noticeably different to previous rounds because of the huge changes to gambling that have come about through the rise of social media over the last 14 years.  There are also greater concerns today about problem gamblers, and the Commission has made it clear that it is more mindful than ever over maintaining responsible gambling.

There’s another twist which might delay the Commission’s own deadline for awarding the new contract. And that is whether the Department of Culture, Sport and Media will exist after Boris Johnson’s reshuffle, due early next month. Speculation is rife that the  DCSM is one of the departments that maybe be split up with various bits going to different departments. Not only might that delay the decision but would prove costly for the bidders.

For what it’s worth, my own view on the National Lottery – or indeed all lotteries – is that the size of the jackpots are too high – obscenely so. It cannot be healthy for any individual to win prizes that run into tens of millions. Take the case of Patrick and Frances Connolly from Northern Ireland, who became Britain’s fourth biggest-ever National Lottery winners when they won £114.9 million on New Year’s Day. That sounds more like a punishment than a prize. The biggest ever win was by Colin and Chris Weir from Largs who bagged an stupendous £161 m in 2011.

Since Camelot started running the National Lottery, more than £71 billion has been given out in prizes and more than 5,350 millionaires or multi-millionaires have been created. Surely it would be healthier to have more people win smaller amounts, with total prize money capped at £1 million?  According to the Lotto website, the chance of winning the jackpot is 1 in 45,057,474.

Call me a spoilsport, but I would like see statistics on whether more people would play if they knew the probability of winning was higher than at present. My hunch is that the higher the chance of success, the more people might play. Smaller amounts spread around the many means money would be spent more wisely: house improvements rather than a flash Lamborghini ?

Any rival offering those smaller but more meaningful prizes would get my money.