Under siege once again

With new entrants eyeing the UK lottery market and existing players aiming to strengthen their position, Camelot’s dominance looks set to be challenged. But the lottery operator’s virtual monopoly of retail sales will be the hardest obstacle t

The odds that Camelot will face significant competition for the first time in the lottery market are narrowing. Last week, Novamedia, which claims to be the largest charity lottery operator in the world, turned its attentions to the UK with a promise that the British – and Camelot – are in “for a big surprise” when the company launches its lottery later this year (MW last week).

Meanwhile, Inter Lotto has also struck a surprise blow for smaller charity-based lotteries by settling a long-running court battle on what are understood to be favourable terms against Camelot over the right to the name “Hotpicks”, a popular game that yielded a total prize pot of about &£280m in its first year alone (MW this week).

Scratching the surface

There are also signs that Sir Richard Branson is once more itching to take on Camelot. Last week, the Virgin Group launched its first foray into gambling with an online portal aimed at the general entertainment market, rather than hardcore gamblers, which is also expected to boast a charitable element. It will be headed by Simon Burridge, who ran Branson’s rival bid for the National Lottery licence, the People’s Lottery (MW August 31, 2000).

Even Camelot’s scratchcard games, one of the fastest-growing areas of its gaming business, are facing greater competition. Next month, Littlewoods will pre-empt Camelot’s plans for a game to support London’s Olympic bid with the launch of a range of Olympian-themed scratchcards in partnership with the British Olympic Association (MW March 4).

These latest challenges to Camelot’s hold on the market come just as its grip seemed to be tightening. The company’s sales in the first week of the Euro Millions game last month jumped by almost 20 per cent to about &£107m – the highest week since June 2001 (MW February 26). Unofficial figures estimate average weekly sales for February at &£92.5m, compared with average weekly sales of &£85m for the last quarter of 2003.

Great and the good

A Camelot spokesman points to the sales recovery and dismisses the threat from the incoming charity lotteries. “The National Lottery has raised over &£15bn for good causes, helping more than 160,000 projects in the UK. We are happy to be judged against our comparative year-on-year sales,” he says.

But, according to Inter Lotto chairman Lord Mancroft, the market is still open to new entrants. He says there is room for a charity-based lottery such as Novamedia to challenge Camelot: “Novamedia could be a major challenger, although it will need the right charities and a considerable amount of marketing support.” A Novamedia spokeswoman says its plans are still being finalised. The company is in talks with potential partners, and is said to be hunting for ad and media agencies.

Greenpeace UK marketing director Cathy Anderson says Novamedia has approached the organisation in the UK. She describes the company as “a fantastic partner” in the Netherlands, where Novamedia already counts Greenpeace among its partners for the country’s largest lottery games, which together boasted participation levels of more than 40 per cent of households and turnover of e511m (&£342m) last year.

Other European partners include Amnesty International, the Red Cross, Unicef, and the World Wide Fund for Nature. A Unicef spokeswoman says: “We have been approached regarding the UK but are waiting to see how it works.”

Fitting the bill

Novamedia’s plan to allow people to choose which charity will benefit will usurp Camelot’s “good causes” marketing platform. It also taps directly into government plans for the future of the lottery industry. Last year, the Government’s Lottery Review noted people’s desire to know where their money is being spent, while culture secretary Tessa Jowell has suggested people could be able to vote on how lottery money is spent in their communities.

Littlewoods lottery manager Martyn Baxter says the selling point of transparent “good cause” contributions is an advantage to charity lotteries. He says Camelot still struggles to overcome public suspicion that money is going to undeserving beneficiaries: “Customers have a much stronger affinity with charity lottery games. It is not just going into a black hole as with Camelot.”

Like Novamedia, Littlewoods is a large charity lottery operator with ten partners and a variety of games, both online and through retail outlets. The company has a valuable partner in Sainsbury’s, which uses Littlewoods to create scratchcards for its registered charities.

Martyn says Littlewoods sees itself as credible competition to Camelot, although he admits the company cannot hope to match Camelot’s sales figures. Turnover for Littlewoods’ scratchcards, lotto games and online casino was &£12.3m in 2003, up from &£11.4m the previous year. While Camelot spends more than &£24m on its above-the-line advertising alone, Littlewoods’ entire marketing budget for its charity lotteries comes in at less than &£1m.

Feelgood factor

Simon Burridge, chairman of Virgin Games and ex-head of the People’s Lottery bid, says charity lotteries allow gamblers to feel better about losing money. “Charity lotteries do well because people lose more than they win and the charity element means they can reassure themselves they are doing a ‘good’ thing,” he says. But, he adds, the charitable element alone is not enough to attract customers from Camelot, as people ultimately gamble to win: “People need a serious prize as an incentive to play and no one other than Camelot is allowed to offer a competitively sized prize.”

Charity lotteries are severely restricted under current legislation. Every game has a maximum sales limit of &£2m, of which ten per cent – &£250,000 – is the maximum prize on a &£2 maximum price.

A charity lottery can only raise &£10m a year on a single licence issued by the Gaming Board for Great Britain, although it would be allowed to hold more than one licence. These are usually run through a specialist licence manager such as Littlewoods or Inter Lotto. While there are 11 such licence managers, it is telling that some of those licensors, such as Rank and Virgin, have not attempted to enter the market.

Paul Hensby, formerly National Lottery Charities Board director of communications, says charity lotteries do not offer sufficient financial incentives for companies such as Rank under current restrictions. He says charity lotteries will always struggle as “Camelot research shows that people play the lottery to win stacks of money, not to make a difference.”

Lord Mancroft adds that the charity side of the market is looking ever more restricted, with Camelot offering larger prizes through its European lottery. He says Novamedia’s best chance is to challenge Camelot with games in the retail market, but he adds that Camelot’s virtual monopoly in retail would be extremely difficult to break, despite there being no regulatory barriers to doing so.

Calling the shops

James Lowman, public affairs spokesman for the Association of Convenience Stores, says it is possible to enter the retail environment with rival games, but that it would be difficult to challenge Camelot’s hold over retailers. Shops, he says, want a Camelot terminal to drive sales and are reluctant to jeopardise this by hosting rival systems.

And, he adds, there are few incentives for retailers to try alternatives. “Extra operators create problems in terms of space, technology and training costs. The market is only so big and diluting a well-established and efficient national lottery would not be helpful to anyone’s sales,” he warns.

This attitude, says Peter Ammundsen, marketing director of gambling company Vernons, effectively excludes rivals from the retail market. He says Vernons has tried – and failed – to enter the market in the past. Vernons is not hamstrung by an upper prize limit for its games as it runs fixed betting on foreign lotteries, rather than a lottery itself. Last week, the company launched an online “GB Lotto”, which offers a &£1m jackpot.

Ammundsen says: “In consumer terms, there is not much difference between our games and the National Lottery. But while Camelot is protected by its retail monopoly, we can only go for crumbs on its table with online games.”

Ammundsen stresses the importance of the online gaming market for potential challengers to Camelot, as there is a far lower cost of entry than in retail. Indeed, there has been a huge proliferation of lottery games online and on interactive television (iTV), with even non-gaming companies such as Friends Reunited now offering an independent lottery for members. However, Camelot is countering the threat with its &£45m new media strategy. Lotto and Daily Play are already available on the internet and will soon be launched on iTV and mobile phones.

So if charitable motives are not sufficient to challenge Camelot, and a grip on retail and online prevents others from competing effectively, then rival lotteries will struggle until UK legislation is changed. But this may not be too far off: the forthcoming Gambling Bill is likely to ease restrictions on charity lotteries and open up the market in other areas such as casinos by 2006.

A recent report by the Henley Centre estimates that growth in Camelot’s draw-based games would drop from 7.9 per cent to 5.4 per cent following deregulation, while the growth in its scratchcard operations would fall from 13.9 per cent to 9.6 per cent. Growth in society- or charity-based lottery games, meanwhile, is forecast to rise from 5.3 per cent to 7.3 per cent. A recent report from bank Williams de Broe supports this, saying Camelot’s odds of achieving its growth objectives “lengthen considerably” following deregulation.

It’s game on

The next few months will be crucial for Camelot and the gaming industry, with a report expected on gambling from Gerald Kaufman, chairman of the Culture, Media and Sport Committee, as well as findings from the pre-legislation scrutiny committee for the draft Gambling Bill.

The company could also find out how the Government sees the future of the National Lottery licence, which is up for renewal in 2009, with suggested plans including up to five operators for different parts of the industry in order to introduce greater competition.

Yet, long-term threats aside, Camelot’s position as the only significant competitor in the lottery market is unlikely to be challenged. The company needs to take advantage of this while it can as, come deregulation, it is a safe bet competition will be fierce.

“People need a serious prize as an incentive to play and no one other than Camelot is allowed to offer a competitively sized prize “

Simon Burridge, Virgin Games

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