NHS Loto revived by 20m injection

A group of Malaysian businessmen is about to give the beleaguered National Health Service a boost. They are planning to pump 20m into the NHS Loto, the lottery game set up to raise funds to buy essential equipment for hospitals. And in the process, they hope to make themselves a whole lot richer as well.

Without the extra funding and a national roll-out the Loto would struggle to survive. Now it has ambitions to be number two in the market, dominated by Camelot. It recognises that it will not topple Camelot and is searching for a place in the market where it can survive.

NHS Loto was launched in 1988, although it gained little attention until June this year, when it was relaunched with 5m funding from American Allan Ginsberg and a live television draw. The Loto was tested in the London region on Channel 4 with players choosing their numbers by post or telephone. The numbers are picked, giving players a chance to win 10,000 and the opportunity to take part in a Thursday night televised draw on Channel 4 offering a 1m jackpot.

Loto operator Pascal & Co started searching for extra funding even before the relaunch. The experience of foreign lotteries shows that a huge marketing budget is needed to drive sales and the biggest boost any new lottery company can get is to have a jackpot winner. This evaded the Loto until late September.

It was caught in the Catch-22 situation of low sales leading to poor jackpots contributing to a loss of interest. The million-pound winner was partly financed through Pascal itself rather than receipts. It is estimated that total income for Pascal since the relaunch is less than 600,000.

The fresh cash injection comes from a company set up by the group of Malaysian businessmen in April, called Stenworld. The directors, Tan Aing Joo, Aliena Toh and Hon Kong Woo, have interests in “worldwide manufacturing and retailing conglomerates”, according to the company and joined the Pascal board on November 9. But they have never been involved in running lotteries before.

They claim to have been attracted to the Loto by the potential to take second or third place in the market. They have brought in Canadian consultant David Lim as chief executive of the business, still called Pascal. In the new structure, Ginsberg’s 5m accounts for 39 per cent of the total capital, another ten per cent, or just over 1m, is provided by a company called Stonecastle, and Stenworld provides the other 51 per cent, or about 6m, giving it the controlling interest.

Observers believe the company has about 45m to invest in the national roll-out of the game. This will cover marketing, distribution and the installation of terminals in corner shops and multiple retailers. But Lim refuses to elaborate on the source of Stenworld’s finances or comment on the 45m figure. However, he confirms that between 15m and 20m will be pushed into a marketing programme for the game once it is established nationally.

But Pascal still has some way to go before it can launch the game nationally. Lim is in talks with a number of “component” companies to provide the terminals and distribution needed to get the game running in shops all over the UK. He says it will be March before deals are completed, but admits to talks with a major UK brand company with a wide distribution network. It will need to be a company of the size of Cadbury Schweppes, which is part of Camelot’s consortium.

The NHS Loto has attracted the interest of more than just overseas investors in its seven-year history. Its first draw in 1988 was cancelled after being deemed “unlawful” by the Director of Public Prosecutions – it had failed to get clearance from the Gaming Board. The Department of Health continues to distance itself from the game.

But the Gaming Board, which regulates gaming and lotteries, and the Royal Borough of Kensington & Chelsea, which holds the Loto registration, have both expressed concerns about its operation.

The Loto has an unusual structure which allows it to avoid the scrutiny of the Gaming Board. Its registration with Kensington & Chelsea involves more than 100 separate regional games or societies with incomes of less than 250,000 a year.

The Gaming Board has previously asked the Home Secretary to close what it regards as a loophole, and a source at the local authority admits that the Loto’s multiple applications are causing some concern. Lim says he will apply for a Gaming Board licence when the NHS Loto expands.

Last week Camelot announced profits of 1m a week. This underlines how attractive the UK is for entrepreneurs with practical experience of running lotteries, provided they can raise the funds needed to compete with Camelot’s 50m annual marketing budget.

NHS Loto was set up to raise funds for the National Hospitals Trust charity. With the blessing of the then Prime Minister Margaret Thatcher, the NHT was to use lottery cash to buy capital equipment such as scanners for UK hospitals.

Lim has worked in Canada and the US – consulting on the lotteries in Ontario and San Francisco. He says his experience supports the idea that only big players – willing to invest in marketing and ads – will get a look-in. He believes there is room for only ten to 15 operators in the UK.

Pascal is looking at the gamut of lottery games for its national launch, and is considering scratchcards to run alongside the on-line game. One thing is clear – the terminals in shops will include a “quick-pick” facility, where the computer will randomly pick out the numbers for the player if so desired, which is standard procedure in the US.

NHS Loto uses TBWA’s direct marketing subsidiary, FSC, which provided one of its account managers, Craig Flint, to take care of marketing for Pascal. Lim says his review will examine all aspects of marketing including the director’s role. “We will look at all the service providers and people involved, and if they shine, we will continue working with them.”

Pascal highlights the contribution the NHS Loto makes to hospitals around the country – since June an estimated 165,000 has been raised. The NHT expresses no concerns about the change of ownership at Pascal. But current thinking indicates that players are not swayed by charitable inclinations – it is the prizes they play for and nothing else.

The NHS Loto appeals very much to the lottery specialist – it is not just an impulse purchase, but requires active participation from players who need to send or phone in their numbers.

UK Charity Lotteries, which runs the Lukcy (sic) Lotto scratchcard game, is the Loto’s main rival for the number-two spot. It launches its 20m marketing offensive early in the new year, while Lim and company will still be completing their plans.

The indications are that Lim will try to make NHS Loto more accessible to the general player, and introduce more user-friendly games as part of the 20m marketing plans. But it remains to be seen whether that will be enough to boost the number of players and justify the Stenworld investment.