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UK lottery operator license up for grabs

UK National LotteryUK National Lottery: UK lottery operator license up for grabs

The licence to run the national lottery is up for grabs again, but some hopefuls say that the bidding process favors Camelot, the current UK Lottery operator.

As the sun beat down on the Hyatt Regency hotel in Mérida, on the Gulf of Mexico, several hundred delegates gathered inside last February for the World Lottery Forum.

Representatives of lottery operators from Niger to New Zealand were welcomed by Mexican president Vicente Fox. They were there for their annual conference to discuss the latest trends and technology.

Among the delegates was a group from Britain's National Lottery Commission (NLC), the national lottery watchdog. For them it was the perfect opportunity to gauge how much interest overseas operators would have in bidding for the licence to run the game.

Robert Foster, chairman of the NLC's project board, was encouraged by what he found. He thinks the level of interest is high.

"Our impression is that there are several people out there with a serious interest in bidding," said Foster.

This month the bidding process for the right to run the national lottery gets under way in earnest when the NLC publishes the draft invitation to tender documents.

It is the third time the licence has been up for grabs, and this time the pressure is on to ensure there is some genuine competition to keep Camelot, the incumbent operator, on its toes. But many observers think that Camelot is so entrenched that generating sufficient interest to create the competitive tension that the NLC craves is going to be near impossible.

Several parties have been linked with possible bids for the new licence, which will run for 10 years from 2009. They include Ladbrokes, the British bookmaker, which is said to be working in tandem with the Greek lotteries group Intralot; Tattersalls, the Australian gaming concern; Lottomatica, an Italian gaming group; and Lehman Brothers, the investment bank, where senior director Anthony Fry, who was closely involved in the formation of the national lottery, has declared his interest in setting up a consortium to bid.

Those contemplating forming bidding consortiums are being invited to register their interest with NM Rothschild, the investment bank that is advising the NLC. The Sunday Times can reveal that some companies have done so and they include Cable & Wireless and Thus, the British telecoms groups, and Wincor Nixdorf, the German IT company.

How many of these will eventually pursue bids is unclear. An executive at one international leisure company that has considered bidding said the return on running the lottery was pretty small, the cost was enormous, and the downside risk remained significant. "It has huge potential to damage your brand," he said.

The timing of the bidding process may not suit many of the large companies tipped to be interested. Lottomatica is working hard at integrating GTech, the IT supplier that was once a shareholder in Camelot. Tattersalls last week announced a merger with Australian rival Unitab. Scientific Games, an American company, has acquired Effnet. "There are a lot of changes going on and the supplier side is consolidating," said Foster.

The biggest question mark hangs over Sir Richard Branson, who has attempted to win the licence on the two previous occasions it was awarded - in 1994 and 2000 — and lost out. He is, as yet, undecided over whether to have a third shot.

Simon Burridge, who spearheaded Branson's bid last time and now chairs Virgin Games, said that the decision to participate this year would depend on whether the NLC had made it easier for bidders to compete against Camelot.

"Unless they level the playing field, we are not going to bid," he said. "I don't think they [the NLC] believe us, but they would be wrong."

Burridge argued that Camelot had an inbuilt advantage because it had been running the lottery since 1994, and this would deter others from bidding. He said: "When the bid is being put together, 75% of the time will be spent compiling answers to questions to which Camelot already has the answers. They include things such as where are your headquarters going to be, details of the supplier contracts you have in place, who your marketing director is going to be. Trying to recruit someone in 2006 for a job that may or may not exist in 2009 is difficult.

"There should be a situation where you can inherit a lot of the infrastructure rather than have to build a parallel set-up. And it should be about who has the greatest ability to unlock the amount of money going to good causes."

Another concern is the timetable. The final invitation to tender documents is due to be published in June, with final bids expected by October. The NLC will announce the winner in May 2007.

For its part, the NLC insists that it has gone out of its way to create the flattest of level playing fields. In a document published last November, entitled Statement of Main Principles, it said, for example, that any bidder, including Camelot, would have to invest in new technology and systems.

Foster said that the feedback he had received after publication had been good. "It's up to Simon what he wants to say. But the fact is that this is a 10-year licence [rather than the previous seven] and the return on those extra three years is very attractive. Camelot has to provide new technology. And there will be a transition period of more than a year and a half; that's a long time."

Camelot said it was preparing for a big fight, and had charged Richard Hurd-Wood with the job of heading its bid team. The lottery operator said that rather than having the upper hand, it was at a disadvantage this time round.

One Camelot source said: "We don't feel we have a significant advantage over other bidders; rather we have a significant disadvantage. That disadvantage is that we have been successfully running the lottery for 12 years — and one of the most powerful political messages of all is 'time for a change'."

At a management conference last week, Dianne Thompson, Camelot's chief executive, reportedly told her executives: "We are not bidding to retain the lottery licence — but to win it. Our bid team has been given a blank piece of paper and they are developing some amazing and fun ideas with a lot of help from people all over the business."

She shows no signs of being willing to roll over; the NLC has to hope that this will not deter others from having a go. As those who play the lottery are fond of saying — you have to be in it to win it.

National Lottery in numbers

  • The lottery was launched in 1994
  • £18 billion has been raised for good causes
  • £26.8 billion has been paid out in prize money
  • £6.6 billion has been paid to the Treasury
  • 1,800 millionaires have been created
  • Annual sales in the year to March 2005 were £4.8 billion
  • Customers on average spend £3 a week on lottery products
  • 71% of the population has played in the past month
  • The odds of correctly matching all six numbers in the main lottery draw are 1 in 13,983,816
    The biggest jackpot on the main lottery draw was £42m. It was shared by three winners on January 6, 1996
  • Finally, guess which part of the country bought most tickets in the record £126m jackpot Euro Millions draw in February. The answer is Kensington & Chelsea, the wealthiest part of Britain.

Sunday Times

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