8 September, 2021

National Lottery: Time for Change?

Amit Lakhani, Investment Director of Zeal Ventures, discusses the race to land the fourth UK National Lottery licence – and why a refresh might be in order

Later this year, the Gambling Commission has a decision to make, perhaps its biggest yet. Is it going to award the franchise to run the National Lottery to incumbent Camelot, which has run it since inception in 1994, or is it time for a change?

The UK Lotto is one of the most exciting lottery contracts in Europe, and I think this will be a true test of whether the European lottery market is actually open to new operators. Or not.

The bidders, so far as we know, are: Sazka of the Czech Republic, Sisal of Milan, Richard Desmond’s Northern & Shell, and Sugal & Damani, which bid back in 2007 and was chosen as the reserve bidder.

And of course, Camelot. I’m told there is a growing feeling in Westminster that Camelot’s time is up and with Sazka and Sisal coming out with all guns blazing, it is hard to argue Camelot deserves another run. For one thing, putting a bid together to run the lottery is a huge undertaking, costing several million pounds. The UK Government is aware it can’t expect businesses to put serious offers together if they think Camelot is just going to land the prize automatically.

There are other reasons to expect a change. At face value, The National Lottery’s recent results were pretty impressive – record revenues are certainly nothing to be sniffed at. But if you dig a little deeper, there are some worrying underlying trends that call Camelot’s stewardship of the lottery into question as the Fourth Licence Competition progresses.

After 26 years, The National Lottery appears to have lost its spark during the third licence, with nine million fewer players buying tickets. When The National Lottery was founded in 1994, Camelot was tasked with delivering a fun weekly draw to generate funds for good causes and create some millionaires along the way; but during its third licence period, Camelot has failed to reinvigorate draw-based games, instead relying on a smaller pool of players spending increasingly larger sums on instant win games.

In the short term, this strategy has allowed revenues to grow. After all, nobody in their right mind would spend up to £250 ($343) a week on Lotto or the EuroMillions, but the fast-paced and high-frequency nature of instant win games have been crucial to Camelot’s recent success. However, the lottery cannot continue to depend on a declining pool of legacy players committing bigger stakes to keep it alive. With the regulatory environment as it is, and more attention than ever being paid to player protection, it simply isn’t a feasible long-term business plan. Camelot’s quiet withdrawal of the £10 scratch card was a tacit recognition of this.

This begs the question – if the status quo isn’t quite good enough, who can deliver credible change? After all, The National Lottery is a vital institution to British society, so it requires a safe pair of hands. While changing operator intuitively sounds like a gamble, failing to inject new ideas into the lottery is riskier – the fourth licence could end up being a period of terminal decline based on current trends.

The National Lottery needs to attract new players, and the only way to do this is by investing in technology and making its products more exciting again. Looking at the competition, Richard Desmond is a known entity and has some knowledge of the UK market through his ownership of The Health Lottery. And yet he should be immediately ruled out. Beyond his controversial background and recent lobbying scandal, The Health Lottery has struggled to make an impact or inject any innovation into the sector.

Another contender, Sisal, which operates lotteries in Italy and Turkey, has been making some of the right noises since entering the race. However, its worrying track record of overpromising during tenders and underdelivering once in control is a huge concern. In Turkey, it is even being sued by disgruntled retailers incensed at a failure to deliver the commissions they were promised. Given the impact of the pandemic on retailers, we cannot afford a similar situation with The National Lottery.

This leaves Allwyn, whose parent company Sazka Group is one of the major players in Europe. The organisation has grown rapidly, demonstrated an impressive knack of improving lotteries in different markets, while its partnership with Vodafone for the UK bid suggests a serious commitment to innovation.

Regardless of who’s awarded the contract, The National Lottery must embrace the latest technology to reinvigorate it’s draw-based games. No amount of marketing spend will make the lottery fun and exciting again without delivering a better product.

You want my best bet? I think Sazka is the favourite.

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