Good causes and the second-term licence

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Jane Taylor reports on how regulatory changes will affect Lottery funding totals

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Sunday January 27 was, believe it or not, a big day for the Lottery: the start of Camelot’s second seven-year licence. But you probably didn’t notice, because nothing went wrong. The 26,000 new terminals that Camelot had had to supply to retailers were delivered on time, and the game continues, pretty much seamlessly. Camelot itself was playing down the event, anxious for a low-key launch just in case there were any embarrassing hitches. 

NLDF Contributions: Annual Averages

Despite this, extensive promotion of the Lottery is absolutely key to the success of the second term – and the amount of cash raised for good causes. Camelot plans a big spring promotion, and under the terms of the new licence may have to spend more than £500m on marketing over the seven years. The minimum publicity spend is pegged at 1.5% of sales income for the first five years, producing an annual average of about £75m. 

This enormous spend is one of the more prominent changes in the second-term licence. Harriet Spicer, chair of the regulatory body the NLC, explains the thinking at the heart of the licence: ‘We were extremely keen to put as much effort as possible to align the interests of [Camelot’s] shareholders and the good causes.’ 

The regulator has done this by restructuring the way ticket income is processed, making Camelot take its profits out of the same pool as the good causes. It creates a very direct relationship between the two elements: the more cash Camelot can shovel into that pot for the distributors, the more it will be allowed to take for itself. 

Spicer, who has been a Commissioner since the NLC was set up in 1999, sets great store by the dynamic tension between operator and regulator and believes Camelot is responding. ‘I don’t believe Camelot is profiteering. They have taken steps to change, and that comes from an appreciation of what’s the proper thing to do in the second licence. The risk for that company was entirely different when the Lottery was set up. It’s appropriate that they’ve reduced their profits, altered the pay of their executives and continue to address their social and ethical running of the company.’ 

The regulator is sticking by its projections that the distribution fund will end up with about £10bn over the coming seven years – pretty similar to the amount raised in the first term. But that forecast depends crucially on Camelot maintaining ticket sales at £5bn a year, and two factors may make this a tough target. The first is experience from lotteries world-wide, which suggests that as any lottery matures, players do steadily fall away. Camelot has shouldered the blame for the decline in its ticket sales over the past two years, saying it took its eye off the ball to concentrate on winning a long and ugly battle for the second term franchise. We will gain a much clearer idea during the next six months as to whether, with the help of a big marketing push and new games, the sales decline can indeed buck the global trend and be turned around. 

The second factor threatening the well being of the Lottery is the current review of gaming law. When the government issues a white paper in the spring, the key issue will be how far, if at all, it wishes to go to protect the status of the National Lottery from increased competition in a far more liberal gambling environment. Spicer says: ‘If you allow side betting, and large commercial operations think lotteries are worth a runner, the likelihood is that highly competitive businesses such as supermarkets might well be interested.’ The idea of a Sainsbury’s or M&S lottery suddenly makes the National Lottery look a lot more vulnerable. 

Global lottery experience carries another lesson: to keep players hungry, you have to offer ever bigger prize payouts. In the first licence Camelot’s target prize value was 50p in the pound. But that 50% payout is neither legally required nor fixed in the licence: Camelot may, and already does for certain games, pay out considerably more. And more for the winners means less for the distributors – unless the lure of the bigger prizes gives sales a hefty boost.