19 Nov The race to win the National Lottery franchise
hat next for the National Lottery?
The franchise to run the lottery is up for grabs. Incumbent Camelot is facing stiff competition to hang on to the lucrative deal. Our Q&A offers a guide…
What is the United Kingdom National Lottery (UKNL)?
The National Lottery is the state-franchised national lottery of the United Kingdom. It was established in 1993 by the government of John Major with a mandate to fund ‘good causes’ across the United Kingdom. The first licence to operate the UKNL was awarded in 1994.
The UKNL currently offers a variety of draw-based games including: Lotto; Euromillions; Set for Life and Thunderball. It also offers ‘instant win’ games and scratchcards. The UKNL has awarded over £75 billion in prizes to date.
What is happening with the National Lottery?
The National Lottery franchise is currently up for grabs in a competition being run by the Gambling Commission, the body that regulates the UKNL; it is the fourth time in the UKNL’s history that it has been up for competition. The last licence to operate the lottery was awarded in 2009 and expires in 2023. The fourth national lottery licence will run until 2033.
Who runs it, how does it work?
The current operator of the UKNL is the Camelot Group, who have run the lottery since its inception in 1994. Based in Watford, Camelot is owned by the Ontario Teachers’ Pension Plan, which purchased the company for an estimated £389 million in 2011. The Canada-based OTPP has an estimated £207 billion (CAD) in assets.
Camelot is responsible for promoting the UKNL, selling its products both online and via retailers, and distributing the resulting funds to good causes across the country via its network of distribution partners. The proceeds of the lottery are divided among prizes (52%), returns to good causes (25%); lottery duty (12%); retailer commissions (5%); and operating costs and profits (5%). All percentages are approximate.
What are the challenges facing the UK National Lottery?
As with many businesses, the UKNL has struggled to compete in the online world, where it faces increased competition for lottery and gaming spend. Camelot’s decision to raise ticket prices while lowering the odds of winning by adding a seventh draw number appears to have worked against sales; the customer base for the lottery’s core of draw-based games has fallen by a staggering eight and a half million people since 2012.
Camelot is under further pressure from anti-gambling campaigners who don’t believe the national lottery deserves separate regulatory treatment to other forms of gambling. The government has signalled its willingness to increase the minimum gambling age for National Lottery products to 18 but campaigners would like to see further action to stop problem gambling in younger populations.
How much is the UKNL franchise worth?
While an overall value for the franchise is hard to estimate, Camelot Group reported sales of £7.9 billion for 2019/20. Of that, 52% goes in payouts to winners, 25% to good causes, 12% in duty, 5% to retailers and 5% to the operator. So that 5% cut translates into £395 million to Camelot. Of that, Camelot says 80% is cost, leaving a profit of £79 million.
Will Camelot have serious competition this time around?
A fourth successive win by Camelot might prompt questions as to whether any outside contender will ever have a legitimate chance of winning the licence.
For its part, Camelot appears to be feeling some pressure. Eyebrows have been raised that they’ve nearly doubled their marketing spend in the latest calendar year as the renewal of the license comes up. They have struck a new partnership with The House Magazine, a popular title with MPs at Westminster.
European lottery giant Sazka Group has announced its intention to bid and last month appointed former Air Miles head and London 2012 organising committee deputy chairman Sir Keith Mills to lead their effort. Sazka Group currently operates lotteries in the Czech Republic, Greece, Cyprus, Italy, and Austria with combined annual sales of approximately £17.5 billion euros.
Meanwhile, the gaming trade press are reporting that Portugal’s Sugal Group and Damani of India will be making another bid for the UKNL, although few details are available so far.
Another rumoured bidder is Richard Desmond’s Northern & Shell, operator of the UK Health Lottery. The colourful Desmond is close to members of the Johnson government but has recently faced controversy over his government contacts during the planning approval process of his Westferry property development in Canary Wharf.
The Gambling Commission runs the competition and will recommend an operator for the fourth licence period. It is then up to the government to either accept or reject the nomination.