8 March, 2021

Lifting the lid on bids

Gaming Economics CEO Lee Richardson reveals what is going on behind the scenes as we get to the business end of the UK National Lottery bidding competition

It's been 26 years since the UK National Lottery (UKNL) was launched, set up under license by the right-of-centre Conservative Government, led by John Major, in 1993. England first had a state-franchised national Lottery in 1567, however, designed to raise money to build new ships and ports for an export drive, but that's beyond the scope of this article (and my rather scant knowledge of Elizabethan history).

Since the modern-day inaugural draw, held on a Saturday evening in November 1994, the UKNL has become the single-most popular gambling channel chosen by UK citizens, operated ever since by Camelot, the initial successful bidder for the franchise. It's now time to again put the incumbent operator under scrutiny, as the Fourth National Lottery Bid Competition, for the 2023-2033 period, lifted off late last summer.

With a launch initially delayed by the pandemic, the competition has now moved beyond the initial 'Invitation to Apply'stage, prospective bidders have, no doubt, been busy over the recent holiday season, with initial bid submissions becoming due over the next month or so. So what's up for grabs here, exactly?

The UKNL has become one of the world's top five lotteries in the past quarter century, raising more than £40bn ($52.93bn) for good causes, and contributing almost £20bn to the UK Government through Lottery Duty. While the lottery operator returns around 96% of all revenues to players, good causes and the Government - one of the highest returns anywhere in the world - the fixed-term 2023-2033 franchise remains highly attractive to new bidders. This is despite the UKNL being globally-ranked just 59th in per-capita lottery spending, a position clearly impacted by the very broad range of alternative gambling options open to UK players, unlike many other lottery markets.

The bidding is anticipated to be fierce, and we already know the identities of some, including Sugal & Damani (which won the reserve bidder spot in the most recent bid competition) and Sazko. Gaming Economics understands that there are many others actively preparing bids, and expects these to come from lottery providers currently operating in North America, Africa, Europe and Asia.

All bidders will be acutely aware of both opportunities, and challenges, associated with this particular competition. External factors include the imminent reform of the UK Gambling Act 2005, which may not be concluded until late 2021, and which could coincide with the start of the 22-month transition period for any new Lottery franchisee. Gaming Economics anticipates the Gambling Act reform will result in the revision of the current age restrictions (which currently allow 16 and 17-year-olds to buy tickets), to instead become an 18-plus activity only, aligning itself with all other regulated UK gambling activities. It's already a political issue.

Camelot CEO Nigel Railton came under fire at an All-Party Parliamentary Group (APPG) session held late last year, for declaring it would take up to a year and cost £6m for Camelot to comply with any under-18s ban. This led to Carolyn Harris MP and chair of the Gambling-Related Harm on the APPG, to say, "The lottery and the products it provides should not be available to under-18s. This needs to be stopped immediately and it is wholly unacceptable for Camelot to say this process would take up to a full 12 months to implement."

Further potential risks for the future UKNL operator could include more advertising restrictions and new affordability tests, the consultation upon which is not due to close until January 2021. One key internal risk is just how difficult it's perceived, by prospective bidders, to unseat an incumbent franchisee. This was an issue analysed in depth by the National Lottery Commission, which reported on the process after the previous bid competition in April 2008. This body, and function, has since been absorbed by the Gambling Commission (GC), which has total responsibility for this crucial aspect within the scope of the current competition.

Vigne Kozacek, a gaming industry IT and security consultant, was with Camelot in the late 1990s when the incumbent was up against a bid from the Richard Branson-led People's Lottery, and believes Camelot will, again, be tough to shift:

I do think it will be hard to unseat Camelot, although there are other strong and experienced contenders around this time, perhaps the stiffest in the history of bids for the Lottery to date

- he says.

The GC will certainly not want any more threats of legal proceedings that followed previous bid competitions in 2000 and 2007. Nor will it, under exceptional UK public spending constraints, want to incur more than the £15m the bid competition cost last time. Still accounting for nearly 70% of all ticket sales, retail remains the largest UKNL sales channel, and it's clear the GC will want the winning bidder to further grow the non-retail channel.

A greater share of consumer spend, free of retailer commission, should enable the winning bidder to generate more for good causes. Other areas for close bid scrutiny will include new product development ideas, technical innovation and fresh approaches to promotion. The GC already has a challenging 2021 ahead of it, under pressure from politicians, the media, lobby groups and the industry. It will certainly want a controversy-free UKNL franchise operator selected by late summer 2021, targeted to produce more for good causes, and more for Government coffers.

But will it? Place your bets, and your bids.

Lee Richardson MBA is the CEO of Gaming Economics (gamingeconomics.com) and co-founder of The Big Betting Balagan podcast (bigbettingbalagan.com).