National Lottery: how to gamble £600mn of public money

If one of your three jobs enshrined in law is to maximise the amount of money that goes to good causes, gambling £600mn of it on the chance you might be able to bring in a bit more over the next ten years seems like a risky bet.

But on one view, that’s exactly what the UK’s Gambling Commission did in March when it spurned National Lottery operator Camelot’s application for a new licence and handed the decade-long contract to Czech rival Allwyn.

Predictably, Camelot and its technology supplier International Game Technology (IGT) contested the decision in court. Everyone always threatens to contest the lottery licence decision in court. And unlike previous cases where it was the challenger fighting to overturn the status quo, Camelot had a lot to lose — basically its whole UK business.

That meant that even after dropping opposition to the licence handover itself, Camelot and IGT continued to press for combined damages that could have amounted to up to £600mn from the Gambling Commission for the loss of the contract. And there were two places that money could come from: one was the Treasury; the other, the lottery fund for good causes.

The good news is the bet seems to be going the Gambling Commission’s way — so far. After months of acrimony, Camelot has more or less thrown in the towel. Its owner, the Ontario Teachers’ Pension Plan, struck a deal to sell it to Allwyn for around £100mn over the weekend — little more than a year’s pre-tax profits for Camelot’s UK lottery business. Though that doesn’t deal with the IGT claim and the sale still needs regulatory approval (from the Gambling Commission no less), the bulk of the damages claim is expected to fall away.

Still, that begs the question of how the watchdog got itself into a situation where it was willing to risk that sort of money to start with. Broadly, the legal fight came down to how the Commission came to conclude that Allwyn’s bid, which offered up vastly more money for good causes but on the premise of much more ambitious revenue growth, was as low-risk as that of the lottery’s sole operator in the 28 years since its inception and so award the licence to Allwyn. Camelot argued the process was flawed.

The thing is that, legal arguments aside, it is hard to want to hand the new licence to Camelot. It talked about the “best-ever first-half returns to good causes” in interim results published on Wednesday. But in its last full year, the £1.91bn it raised for good causes was still below 2013’s high of £1.95bn despite more than £1bn in extra ticket sales.

Now, Camelot has increased prize money by more than £900mn in that time. And it has long argued that getting people to keep playing by offering them a bigger share of the pot is key to maximising money for good causes.

But it does nonetheless seem like Camelot has managed to botch the job over the years. Doubling ticket prices and making the main draw trickier to win in the 2017 financial year was an act of self-sabotage that cut £670mn from sales and almost £273mn from payments to good causes (as well as roughly 10 per cent from profits). It wasn’t until the latest year that payouts to good causes returned to 2016 levels.

The new licence, which runs from February 2024, changes the operator’s incentives to more closely align profits with money raised for good causes. Perhaps the new structure would have freed Camelot up to try all sorts of new things. And perhaps Allwyn’s plan to halve the main draw’s ticket price and double the amount raised for good causes won’t come off.

But after almost three decades of a monopoly operator and a recent run of underwhelming performance, it seems reasonable to try something new. The Gambling Commission would have faced a fierce fight any time it tried to award the contract to someone other than Camelot. It cannot be the case that an implicit threat from the incumbent should block anyone else from ever winning a lucrative government contract.

It may yet be the case that the Gambling Commission’s punt on Allwyn does not work out over the 10-year life of the lottery licence. But a £600mn damages claim had made the licence competition look pretty close to a lose-lose bet for the watchdog. Instead, Camelot’s sale to Allwyn might just mean it comes out OK.

cat.rutterpooley@ft.com
@catrutterpooley