Camelot gambles on a global scale

Camelot’s decision to set up a separate international arm to run lottery games in overseas markets (MW last week) could bring it into sharp conflict with one of its shareholders, Gtech.

The National Lottery operator claims that plans to set up the international company are in their infancy and that important decisions about the shape of the operation have yet to be taken. But Marketing Week can reveal that the company running the overseas operation will be called Camelot International Services, which was established in August. Dan Kane, marketing consultant at Camelot, is one of the two directors of the new venture. It will seek to operate lotteries around the world, either as the sole operator or in conjunction with another company.

The consortium that makes up Camelot is composed of Cadbury’s, ICL, Racal, De La Rue and most importantly Gtech – the world’s foremost operator of lotteries. Gtech has customers in Spain, Ireland, Belgium and 26 states in the US. It is the main influence on Camelot, having devised the way the online game is played.

Camelot has leaned on the expertise Gtech has acquired in setting up other lotteries to run its own National Lottery. But now, if Camelot bids to operate lotteries in overseas markets, it could find itself in competition with Gtech. The first competition between the partners could come later this month when the South African government gives the green light to a state lottery.

Camelot has sent an “expression of interest” to the South African government concerning the proposed lottery. Gtech already has an office in South Africa, and would jump at the chance of taking a slice of any South African lottery.

It is unclear what role the other members of the Camelot consortium are playing in its new international role, but presumably they are funding the development either directly or indirectly. None of the partners, including Gtech, were available for comment.

International lottery analyst Bruce Lafleur, who publishes the World Lottery Almanac, says: “Camelot and Gtech are very separate entities. Camelot never lets Gtech forget that it is one of its customers. My guess is that the two would be very competitive in bidding for international business.”

One possibility is that Gtech is not a shareholder in Camelot International Services, which would remove any conflict of interest. That raises the prospect of Camelot working with the Swedish systems operator Esnet – number two to Gtech in the market. But Lafleur points out that if Gtech were included in CIS, “it would win both ways”.

A spokeswoman for Camelot says: “We might well be in conflict with Gtech, and there is potential for us to bid against each other, or we might do it in partnership.”

One of Camelot’s UK competitors reckons that in any franchise bid between the two, Gtech would win hands down. He says: “What has Camelot got to offer overseas markets? It has messed up its marketing (on scratchcards) in the UK – why would an overseas player hire a company that can’t even do scratchcards? Gtech is the brain behind the National Lottery.”

Sales of scratchcard Instants tumbled earlier this year from a high of 44 million to under 17 million – a lack of innovation was blamed (MW April 19). A second midweek television draw announced last week could cannibalise further scratchcard sales.

The Camelot spokeswoman is vague about plans for Camelot International, but says the process of putting the structure together is already underway. It is thought that Camelot could offer overseas countries complete packages – setting up the lottery, installing terminals, doing the marketing, handing out prizes and providing funds for good causes.

Camelot can point to one important fact – that in two years it has set up one of the two largest lotteries in the world, alongside Japan’s, with sales of 5.2bn a year.

But its detractors will counter that Camelot has been handed a monopoly that exists in no other market in the world. In most countries, the state runs a lottery in conjunction with private companies, rather than handing the entire operation to one firm. Therefore, say critics, it could not fail to make fat profits from its monopolistic UK licence and, in fact, should have made more for good causes.

Critics say that outside the workings of the lottery handled by Gtech, Camelot has not done especially well. The regulator Oflot threatened to take away Camelot’s licence for failing to supply enough retailers with scratchcard machines. The operator has seen the collapse of the scratchcard market and has been criticised, admittedly by rivals with axes to grind, for its “quite appaling” marketing.

It has become an unpopular company in the UK, even if the Lottery or the prospect of winning is much loved. The Camelot directors are perceived as the ultimate fat cats. In that environment, the attraction of overseas expansion is obvious.

The international lottery market is booming. In 1995, worldwide lottery sales amounted to $113.3bn (72.6bn), an increase of nearly one fifth on 1994. News of Camelot’s overseas foray coincides with the launch of a new company on the Alternative Investment Market, Alea.

It plans to run an online lottery in Russia, and will then turn its attentions to other developing markets. It is tying up with Esnet, which has already set up lotteries in Eastern Europe. But sources suggest that Esnet’s tenure of the Hungarian state lottery could soon be reviewed, creating an opening for a new operator to move in.

The US, European and Australian markets are relatively mature. The real potential comes from Africa, South America, the Pacific Rim and Eastern Europe. However, Camelot is understood to be considering bidding to operate lotteries in Spain, where there are already some 104 in operation. It may even look for a piece of the action in France, which has the fourth largest lottery in the world, La Française des Jeux.

Oflot says it has been aware of Camelot’s plans for some time, though it has received no formal application from the consortium to set up an international arm. A spokesperson says: “Camelot is a single-purpose company. It can’t do anything which would divert resources from the UK National Lottery. It has to apply to us for permission to set up an international division. If we felt it was having a detrimental affect, we would have to say something.” However, the company has been operating since August without Oflot’s permission.

Camelot will be able to use the skills and expertise built up on the back of the UK National Lottery to make profits from foreign lotteries. The consortium fears that, in the light of mounting public criticism of its profits, there may be moves afoot to terminate its seven-year licence early. In that scenario, it would at least have its international operation to fall back on. Preparing for the day the UK market is saturated is a further factor in Camelot’s decision to look overseas.

Since day one, Camelot has been seeking to expand beyond the operation of the online game, and with mixed success. The launch of National Lottery Enterprises to sell merchandise using the National Lottery brand is one example of diversification in the search for ever-greater returns on its licence. Its plan to launch “marketing partnerships” with fmcg brand owners, which were originally announced to be in June, had to be shelved although an anonymous food company has been lined up as the first partner for the scheme.

The success of Camelot in the UK owes a great deal to Gtech. If the two go their separate ways and expand into foreign markets, most observers believe Camelot would be taking the bigger risk. But as a company which has built its business on gambling, that seems appropriate.