Party piece

With the National Lottery’s tenth birthday celebration in sight, Marketing Week looks at its past successes and troubles, and whether changes to the UK’s gambling scene will affect its appeal. David Benady starts by examining the early

Ten years ago this week, Saatchi & Saatchi’s ad campaign proclaiming “It could be you” burst onto television screens, firing the starting gun for the launch of the UK National Lottery.

Back in 1994, hitting the jackpot on the Saturday night draw was the only route to riches, and 45 million tickets were sold each week. A few months later, scratchcards were launched and sales rose to 90 million.

But the obsession with winning the lottery that boosted ticket sales to undreamed-of highs was short lived. Players soon realised that they were unlikely to scoop the jackpot, and interest in scratchcards waned. Operator Camelot has attempted to combat this growing public indifference by launching various games and targeting regular users more heavily. Just like other consumer products that have passed their high, the National Lottery has been extended into sub-brands and is being promoted through new channels.

Golden ticket

Camelot argues it has done a better job at marketing the lottery than anyone could have predicted. After all, it has reaped some £46bn of ticket sales. In truth, the National Lottery demonstrates the power of marketing when it is backed by the full force of the state. A monopoly created through an Act of Parliament, the National Lottery has weaved its brand into the fabric of national life.

Lotteries have fast become a key part of international life as well. Over the past decade, world governments have become ever more addicted to lottery revenues – global ticket sales are now worth $130bn (£71bn), and sales are predicted to rise even higher.

Nowhere is the state more hooked on the Lotto than in the UK. The £16bn raised for the Good Causes Fund and the £5.7bn paid in lottery duties over the past ten years have helped to rebuild much of the country’s dilapidated cultural infrastructure. But the Government believes the public is unaware of how far lottery funds have benefited communities across the UK, which is why culture secretary Tessa Jowell has ordered a “National Lottery Day” on November 6 to highlight the regenerative effects of the lottery.

One of the lottery’s fault lines is the “national” tag in its title. This has led the public to expect that it would be run in their best interests. Yet it has often seemed that a tiny elite have been the main beneficiaries from this “national” enterprise. Indeed, the lottery was established after lobbying by members of the great and good, rather than because of a groundswell in public demand. Opinion polls may have shown support for the idea, but it was members of the establishment that ensured its launch. Good Causes from the Royal Opera House to Eton College have reaped massive rewards while most players have barely been lucky enough to win a tenner. Jowell believes a hostile media has mistakenly portrayed elite groups gaining at the expense of the public. People need to see the benefits of lottery spending for themselves, she thinks. This is why we are celebrating the lottery’s tenth birthday.

Pocket money

Camelot – which says it has made about £400m in profits over the decade – believes it has put much of the “fat cat” controversy that dogged it in the early years behind it.

The nadir was reached in May 1997 when Marketing Week published leaked figures showing that payments and bonuses to Camelot directors had increased by up to 90 per cent while lottery sales declined. The ensuing outrage at huge rises led the then culture minister, Chris Smith, to tell Camelot’s directors to pay back their bonuses. They refused and threatened to resign. A compromise was reached where the directors agreed to pay an undisclosed sum to charity and the matter was settled. Meanwhile, Camelot sued MW for return of the documents, and in the face of a doughty defence of press freedom by the magazine, the lottery operator won.

The future

This year, Camelot has managed to reverse a long sales decline. However, in the coming years the lottery and Camelot will face growing challenges: new competition from deregulated gambling, the rise of online games and the natural decline in interest that affects all lotteries over time. But when this licence period ends in 2009, the question is whether anyone will consider bidding against Camelot to run the lottery.

If no one comes forward, Camelot will, in effect, have been handed a monopoly. To avoid this potential problem, the National Lottery Commission has recommended that the Department for Culture, Media and Sport consider splitting the licence between different companies, which will be allowed to run their own parts of the operation.

Whatever the future for Camelot, it is clear that one of the lottery’s greatest contributions to national life has been to give the media a talking point. This will ensure that controversy is never far from any story concerning the National Lottery.

Can you believe that the National Lottery is ten years old this November? It’s certainly been a rollercoaster ride. Along the way we’ve had our fair – and frankly sometimes unfair – share of criticism, some of it in the pages of this magazine. Everything from who gets those grants, to our ad campaigns, to executive pay and, of course, those jackpot winners.

As a private company running a national institution for the public good, there was always going to be a considerable amount of scrutiny and debate surrounding how the lottery is run. And rightly so. But that belies the fact that the National Lottery has been one of the great British success stories of the past decade.

We’re celebrating our tenth birthday this November. It’s an opportunity to say thank you to our players and to remind people what the lottery is here to do: in short, to raise large amounts of money for Good Causes – and to create winners. So far we’ve raised over £21bn for society, funded more than 180,000 Good Causes, created over 1,700 millionaires, and offered people up and down the UK “a chance to dream”.

You’ve got to hand it to them

How many packaged goods brands in the UK do you know that can say they are bigger than Pepsi or Coke, or have over 70 per cent of the population participating on a regular basis? Or have a logo that is instantly recognisable to 95 per cent of the adult population?

But, as any marketers worth their salt know, a brand is more than a logo; it’s a promise delivered; what’s under the skin. As the operator of that national institution, our raison d’être is to raise money for the Good Causes in a socially responsible way. The continued flow of funds to society and Good Causes depends on the smooth operation of what is actually a very complex set of systems.

The entire operation – including, among other things, advertising, marketing, retailers’ point of sale, IT systems, terminals and staff – is run on costs of just 4.5 per cent of sales. That makes Camelot among the most efficient major lottery operators in the world – and compares to a European lotteries’ average of 14 per cent. Over the ten years since its launch, this represents an additional £3bn for players and Good Causes.

We believe the public has a right to know where all of that lottery cash goes – so in November 2003, we launched a campaign with the National Lottery Promotions Unit to raise awareness of lottery funding using blue plaques with the crossed-fingers logo. These plaques appear on lottery-funded projects so that the public can see how and where lottery cash has been spent.

That flow of funds to Good Causes is continuing. I’m pleased to be able to say that we have succeeded in returning the National Lottery to growth a year ahead of schedule – bucking the global trend of falling lottery sales.

Returning to growth has not been easy – it’s been a hard slog and it’s meant attention to detail. Our new multi-million pound “Lady Luck” campaign has had very positive cut-through, engaging players and non-players alike. But there are lots of little things we’ve done behind the scenes too; improving our telesales operation, making more terminals available, improving retailer credit terms, and introducing new themed scratchcards.

New product development is an important part of any well-run commercial business – particularly in the cut-throat packaged goods market. But it’s crucial to get the balance right – and to listen to customers and potential players.

Our games have been designed to give players the choices they asked for. They can now go for a quick, impulse purchase of a scratchcard, large jackpots offered by Lotto, Lotto Extra, or EuroMillions – or the smaller prizes but better odds offered by Thunderball or Daily Play.

More recently, as part of our commitment to improve access to the National Lottery, we’ve also embraced new channels of distribution that appeal to new players, giving them the opportunity to play on the internet, through interactive TV, or mobile phones.

Good cause for celebration

And the bottom line? Camelot’s most recent half-year results showed sales up by over £100m on the same period last year. Weekly sales are now running at over £90m – compared to £48m a week when The National Lottery launched in 1994. More importantly, we’ve seen returns to the Good Causes rise 8.5 per cent between this half year and the same period last year – that means an extra £50m for Good Causes.

On November 6 we will be marking our tenth birthday with the first National Lottery Day. We’ll be celebrating by offering Lotto players on that day free entry into a special £10m jackpot-only Birthday Draw. And, as part of the celebrations, some of the 180,000 National Lottery-funded projects up and down the UK will be opening their doors for free over the tenth birthday weekend.

I believe there’s ample reason to celebrate and our players should be rightly proud – that £21bn contribution to British society certainly makes some birthday present. November 4, 1994: Camelot launches ‘It Could Be You’ campaign through Saatchi & Saatchi

November 14, 1994: National Lottery Game launches

Saturday November 19, 1994: The first National Lottery draw

December 1994: Camelot appoints former Hasbro chief Jon Kinsey as marketing director to replace Karen Brennan

March 21, 1995: Launch of National Lottery scratchcards

January 6, 1996: Fourteen months after its launch, the first double rollover

November 1996: Camelot hires Signet chief Dianne Thompson as commercial operations director

February 5, 1997: Launch of Midweek Draw

May 31, 1997: MW publishes leaked documents showing Camelot directors’ pay increasing by up to 90 per cent while sales fall. National outrage ensues

October 1997: Marketing director Jon Kinsey leaves

January 1998: Kellogg new product development manager Ian Milligan joins Camelot as marketing director

August 1998: WCRS wins the £20m advertising account. Scraps the ‘It could be you’ in recognition that most people realised it wouldn’t be them, and introduces the ‘Maybe just maybe’ line

April 1, 1999: National Lottery Commission takes over from Oflot as regulator

June 7, 1999: Launch of Thunderball

November 13, 2000: Lottery Extra launches

December 19, 2000: Camelot wins the second seven-year National Lottery licence

June 2001: Launch of Millionaire, the first £1m scratchcard game

September 2001: Ian Milligan resigns as marketing director

December 2001: Ex-Kraft and Kwik Save marketer Phil Smith joins Camelot as commercial operations director

January 27, 2002: Camelot starts second licence

May 18, 2002: The National Lottery relaunches as Lotto with a campaign fronted by comedian Billy Connolly. It is poorly received and WCRS is eventually sacked

February 28, 2003: Launch of Instant Win games on the internet

September 22, 2003: Launch of Daily Play

January 2004: Abbott Mead Vickers.BBDO wins £24m lottery account

February 13, 2004: First EuroMillions draw (which incorporates UK, France and Spain)

May 29, 2004: First triple rollover for the Lotto

September 2004: Launch of ‘Think Lucky’ ads, starring Fay Ripley

October 13, 2004: Launch of Play by Text

November 6, 2004: The first National Lottery DayThere are no safe bets when predicting the future for the National Lottery or its operator Camelot. The next few years will be far from easy for Camelot, which is facing a fight for the lottery contract – and indeed its existence – in less than two years’ time. The National Lottery itself is also set to find the next ten years more testing than its first. With gambling to be deregulated by 2006, there will be far more competition for the spare pounds in the pockets of lottery players, and an ageing portfolio of games with which to compete.

Camelot’s rivals say it’s time for change, but few can dispute the company’s well- documented success in funding Good Causes over the last two licences. Indeed, Peter Ammundsen, marketing director of Vernons, part of the rival Ladbrokes empire, admits Camelot would be a hard act to follow. But, he says, it would be surprising if Camelot had not done a good job considering the monopoly power awarded by the licence. Ladbrokes, with Littlewoods and Richard Branson’s The People’s Lottery, are again in the running to compete for the licence in 2009, and speculation is also linking international gambling giants, such as Australia’s Tattersalls, with the bid.

The People’s Lottery is still a going concern. Simon Burridge, chairman of Virgin Games and ex-head of The People’s Lottery, believes Branson’s lottery would have surpassed Camelot’s performance and says the company will be looking at the licence this time. But, says Burridge, all bidders are waiting for the Government to report on what the licence will say and what the bidding process will be.

The report will also decide on the barriers to entry for rival bids. Camelot owns the infrastructure and the majority of assets around the lottery and Burridge says it would be impossible to consider a bid without easy means to transfer these to the next operator.

National Lottery Commission chief executive Mark Harris says the body has recommended to the Government that the licence be as open and flexible as possible to ensure the maximum number of competitors. He admits that technology and other assets owned by Camelot are still an issue, with very few rivals able or willing to create a lottery from scratch. Seven applicants bid for the first licence in 1993, but this fell to just two, Camelot and The People’s Lottery, last time.

The Government needs to ensure that the licence is more open to competition this time, Harris says. But the organisation’s suggestion to split the licence by game or channel to more than one operator has attracted widespread criticism. Harris does not press the controversial point, which has been attacked by Camelot and competitors alike, although he stresses that such an option would add flexibility to the licence and open the way for competitors.

But Burridge rejects the idea as unworkable. He says the People’s Lottery is simply looking for a level playing field. “The test should be on who can give the most to charity and we think we could. And we would make it fun. We would dress it up to make people like the lottery again, which Camelot has failed to do.”

Bidding is also very costly, adds Burridge, so companies need to know they stand a chance against Camelot. He says the last bid cost over £18m, while funding needed to be secured for £140m, with an additional £50m guarantee. “If the bid process is the same as last time then we’re not going to bother,” he adds.

Camelot director of corporate affairs Mark Gallagher rejects the notion that there are insurmountable barriers to entry. He says the second licence “ironed out any incumbency problems” and points to “fiercely competitive” bidding rounds for the last two licences. Camelot’s only advantage, he says, is its experience of running the lottery, although he admits companies risk their reputations by launching a bid. He adds that Camelot has recommended the Government add extra incentives to the licence to overcome this deterrent.

Scratch below the surface

Camelot has also made recommendations for the next licence, suggesting it become “more flexible” to allow further game development.

Indeed, Mark Slattery, former communications chief at the National Lottery Commission, says the National Lottery licence will not be as uncomplicated as it was ten years ago. He believes the next operator “will be significantly affected by gambling deregulation and will face new threats from casinos”. The next operator will need to rearrange the games portfolio to ensure future growth but, he adds, it is difficult to see what new games can be introduced.

Vernon’s Ammundsen agrees: “Distribution channels and games are saturated. Camelot sales will definitely grow again next year, as new channels such as mobile phones and TV offer new potential, as well as the extra 800 terminals being created. But beyond that will be a struggle, particularly [when] faced by a vibrant new gaming market.”

Camelot commercial director Phil Smith acknowledges the need to keep the lottery fresh into the licence renewal and beyond. “We will need to use all available channels to deliver the lottery in the most convenient way and refine our portfolio of games,” he says. Smith insists interest in the lottery can be maintained. “Ten years ago, no one would have predicted that people would want to play by text message. Who knows what people will want in the future.”

Meanwhile, the operator’s games portfolio is now almost full, according to sources, although this will not mean the end of product innovation. A Camelot source says the strategy over time will be to gradually replace some of the older, smaller draw-based competitions with new alternatives to boost play. The source says: “We won’t change the draw-based games as quickly as the scratchcards. But Camelot has made it clear that the draw-based portfolio will slowly evolve over time, helping to maintain public interest and participation in the lottery.”

Having managed to return to sales growth for the first time in six years last April and sustain the increases through the half-year period, the operator is confident that by developing channels in mobile, the internet and interactive TV, it will keep revenue rolling in the right direction up to the licence renewal.

But after that, all bets are off. A question mark even hangs over who will lead Camelot into the next period after chief executive Dianne Thompson steps down. The one certainty in all this is that the lottery will remain one of the country’s favourite talking points.

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