Bring on the Branson

Sir Richard Branson believes attractions such as more rollovers, more millionaires and more cash to Good Causes can raise ticket sales by 44 per cent in a new People’s Lottery. But it’s not only the National Lottery Commission that has serious doubts about this claim.

When the first balls drop from the newly-installed National Lottery draw machines some time after October 1 2001, it will be the start of the biggest product relaunch in history.

If the draw machine turns out to be controlled by the People’s Lottery, this historic event will mark the debut of a seven-year bid to sell some £52bn-worth of lottery tickets – equivalent to a near £1,000 spend by each man, woman and child in the United Kingdom.

The figures really do seem like telephone numbers. But it is the belief of the National Lottery Commission that the People’s Lottery has seriously misdialled.

Last week, the NLC expressed grave doubts over the claims by both Sir Richard Branson’s People’s Lottery and Camelot that they could raise £15bn for Good Causes over the seven-year licence.

It would mean selling some 44 per cent more tickets than are being sold during the period of the current licence, a feat the Commission believes highly unlikely.

Of course, such unrealistic claims may not matter, in the short term. The NLC has rejected the bid of the only other Lottery contender, Camelot. The consortium failed the “all due propriety” test because of its reliance on Gtech as a supplier. It looks like the end for an organisation which rapidly made itself one of the most unpopular companies in the history of UK business. Unless, that is, Camelot’s challenge to the Lottery Commission’s decision is successful in court.

The problem with Camelot, we are told, lies in the probity of its technology partner Gtech. It began with Gtech founder Guy Snowden, who was instrumental in setting up Camelot in 1994. It was Snowden who a jury believed had tried to bribe Branson into dropping his bid for the current licence. Following this, Gtech – supplier of technology to 70 per cent of the world’s lotteries – was ejected from the Camelot consortium. But it continued as a supplier. It emerged earlier in the summer that a software glitch had been kept secret from Camelot, from its own board and from the NLC. Gtech is unlikely to ever be involved in running UK lotteries again.

Should the NLC finally select the People’s Lottery next month to run the lottery, the task of reviving the money game’s dwindling sales will have to begin in earnest.

But the NLC, which has spent six months examining the bids, doubts the People’s Lottery will be as successful as Branson himself believes.

The Commission says it found both applicants were “unduly optimistic about the level of sales that would be achieved over the licence period”. It did not believe the People’s Lottery’s goal of a 44 per cent increase in sales compared with recent levels was viable.

What’s more, there is likely to be a lot more competition over the next seven years from other lotteries, such as the Yahoo and Microsoft-supported online game, And the NLC does not even believe that the People’s Lottery’s regional game – which aims to raise some £4bn – would be legal.

A statement issued by the Lottery Commission says: “The Commission therefore concluded that likely revenue scenarios would fall significantly below the principal forecasts.”

But both bidders stand by their respective forecasts. John Jackson, director of the People’s Lottery, says: “The issue we have is how much will the sales drop between now and when we take over in 2001. We are confident with the relaunch that we’ll get close to the numbers in our forecast.”

He also suggests that there are few reasons to believe Camelot’s claim that it too could raise £15bn. He says: “If they’ve gone ex-growth for the last four years, how can they get a boost in the future?”

At the heart of the People’s Lottery bid is the plan to change the game matrix. Under its proposals, the number of balls will be raised from 49 to 53 . Though this should see fewer jackpot winners, the People’s Lottery believes it will create more rollovers. Jackson says: “Our research suggests that rollovers are the life blood of any successful lottery.”

Players will also be given the chance to buy a seventh number for £1 and to win £1m if six out of the seven numbers match. This means players will have a one in 3.2 million chance of winning £1m pounds as opposed to 1 in 14 million under the present system.

Sir Richard Branson says: “The odds of winning a million at the moment are not good. Under our plans the odds of winning a million will be better than the premium bonds, better than the pools and better than anything else.”

Simon Burridge, chief executive designate of the People’s Lottery will oversee the day-to-day running of the organisation, believes the proposition of a not-for-profit organisation operating the Lottery is one of it greatest assets. Not only will it mean that a further £760m (through being a not-for-profit organisation) will be raised for Good Causes over the licensing period, but that it will also help bring the six million lapsed lottery players back to the fold.

He says: “Of the those who have stopped playing, 75 per cent have said they would play again if all profits go to Good Causes and if there is a greater chance of becoming a millionaire.”

The People’s Lottery also hopes to increase sales by turning round the falling sales of scratchcards. Jackson says: “Sales of instants is below £500m. The UK lottery is one of the lowest performers in Instant tickets of any major lottery. We have to get that back to acceptable levels.”

Branson believes the answer could lie in aiming scratchcards at niche audiences. He says: “Instead of having generalised scratchcards for everybody, we’ll have scratchcards aimed at the football crowds, the cricket crowds and all the target audiences we think will do better.” Scratchcards will offer the opportunity to win both cash and prizes, such as cars and holidays.

Like the Camelot bid, the People’s Lottery is widely understood to have emphasised a multi-channel approach to running the lottery. It is hoped that widening accessibility will also boost sales.

Jackson says: “By using the Internet we believe we can double the sales of instants to £1bn a year.” He believes Internet sales could account for 40 per cent of this.

But changing the format and accessibility of the lottery portfolio alone will not be enough to generate such a huge hike in sales. There is also the question of how to market the lottery.

Andrew Jones, a Camelot spokesman, says: “The marketing spend is vital to what is effectively a fast-moving consumer product. You have to realise that we are competing for the overall leisure spend.”

But an insider who was closely involved with the ad campaign to launch the National Lottery believes that there is plenty of room to improve the marketing. He says: “I believe that the marketing of the lottery was tremendous in its first year or so. But after this the creative thinking turned bland. Can you remember any of the ads of recent years?”

He recalls: “Camelot was faced with the problem of reconciling the PR for the National Lottery with that of the ‘fat cat’ pay and bonuses scandal. Not to mention the negative media coverage of many of the Lottery-funded projects, especially the Dome.”

The same insider believes that the People’s Lottery will create a “Branson effect”. He says: “If executed by Virgin at its best, the aftermath of the relaunch should boost sales in the short-term.”

Luke FitzHerbert, author of the Directory of Social Change’s National Lottery Yearbook, agrees. He says: “Branson will use the relaunch to get a one-off boost. He is saying he will be cleverer than Camelot, employing his well-honed marketing and PR skills.”

The problem is turning a short-term boost into long-term sustainable growth, however. Rawdon Glover, the former Camelot brand manager who is now head of marketing at Audi, says increasing sales by 44 per cent is a very tall order and is incompatible with the growth model required to run the lottery.

He says: “When I was at Camelot, our challenge was always to sustain steady growth. It was not about leap-frogging from year to year. To sustain growth you must treat the lottery as a classic example of product life-cycle management.”

Some observers believe that the People’s Lottery will give added credence in its marketing to the positive impact that lottery funds have on the UK.

An insider at the National Lottery Charities Board says: “We were always surprised by the extent to which Camelot kept us at arm’s reach, not asking us about the impact the funds are making. We think Branson will be far keener to use the positive impact of the Lottery for its PR.”

Burridge confirms that more use would be made of the good news stories coming out of the Lottery. He says: “We see little point in simply showing money being handed over to Good Causes. We want to highlight the correlation between playing and giving a lot more.”

But Michael Parker, the former vice-chairman of Saatchi & Saatchi, which was appointed to handle the creative campaign for Camelot’s £40m launch, believes the public plays the lottery “first and foremost to win”.

This is a view shared by Camelot spokesman Andrew Jones. He says: “We never felt that marketing expenditure aimed at raising the profile of Good Causes would increase sales. Instead, the Good Causes were seen more to do with the health of the brand.”

Of the People’s Lottery’s bid, he says: “Just because people want the jackpot, we don’t believe that lowering the chance to win from one in 14 to one in 23 is enough to encourage people to buy more tickets. Changing the matrix in other countries has proved disastrous.”

It is currently unclear whether the People’s Lottery will be asked to revise its forecasts. Burridge believes that the reason Lottery Commissioners have cast doubt on its forecasts is because they are concerned about what state the Lottery will be in when Branson takes over. He says: “Sales have continued to deteriorate since we made our calculations in February. The commission is worried about information that has recently been made available.”

He adds: “If things go to rack and ruin over the next 12 months we could face some problems.”

Even with the pending legal challenge by Camelot, most observers believe the appointment of the People’s Lottery is a foregone conclusion. And it would seem that Branson has already gone some way to addressing the concerns of commissioners, by promising to underwrite a £50m fund to secure payment to winners in the case of insolvency.

But whatever the figure commissioners believe to be a realistic target, Branson will be fully aware that his performance will be judged on his own estimates. He will be only too aware of what targets did to the Millennium Dome.

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