Potential bidders to run the next National Lottery licence from February 2009 are weighing up their chances of beating incumbent operator Camelot. With bid costs estimated at up to &£10m, interested parties need to know they will have decent prospects against the incumbent before entering the fray.
As regulator, the National Lottery Commission (NLC) is preparing to publish its Statement of Main Principles in the next few weeks, setting out the broad terms of the licence and the way the contest will be structured. A more detailed draft Invitation to Apply will follow early next year, followed by the final invitation in the summer, with bids to be submitted by November 2006, and the licence awarded in summer 2007.
Many have Camelot down as favourite, given its 11 years of incumbent experience and its stable, if unexciting, record of raising &£17bn for good causes and &£6.3bn for the Treasury in duty. Until some fundamental issues about the licence are settled, challengers are nervous about competing for the chance to make about &£45m in profit a year. Some prospective bidders fear they may be treated as “competition fodder” by the NLC, with bids encouraged to create the impression of a competitive procedure, even though the result is a “foregone conclusion”. The NLC says it is committed to running a fair process with a level playing-field.
Of the runners and riders, banker Lehman Brothers has put out a cautious statement expressing “an interest in considering the potential for creating a consortium, in which the firm would play a role and possibly take an equity stake”.
Earlier this year, Hilton-owned betting chain Ladbrokes created a strategic partnership with Greek lottery technology company Intralot “to look at opportunities to bid for lotteries around the world”. It says it “may be interested” in bidding for the UK licence. Gala Group is not expected to take part following its acquisition of betting chain Coral Eurobet. Meanwhile, Sir Richard Branson’s People’s Lottery is also considering a bid, even though he dismissed trying again after failing in his attempt to run the current licence (MW December 21, 2000).
Australian company Tattershalls and bookmakers William Hill and Sportech – which runs Littlewoods – are possible bidders, while Italian lottery company Lottomatica and Tesco have also been linked to the process.
A critical consideration will be the length of the licence. Many think it should be longer than the seven years of the first and second terms, with Camelot suggesting a ten-year duration. In the seventh year, the regulator would examine a number of key performance indicators – such as returns to good causes – and according to these, award up to five more years on top of the ten. One source claims the NLC will opt for a “seven years plus three” formula.
Equally crucial is the issue of tax. Camelot backs a switch from lottery duty to a “gross profits tax” on non-Lotto games, where tax would be levied after prizes are paid. It would be set lower than the existing 12 per cent duty and would enable the operator to offer higher prize payouts on instant-win games such as scratchcards. The Treasury is expected to rule on this by the March 2006 Budget, and the system could be introduced late next year.
Other issues include the terms of any handover to a new operator, the capital investment required and whether there will be a two-stage bid process, with a longlist and shortlist. A Camelot spokesman adds that having to sell &£2.5bn-worth of tickets to raise &£750m for the 2012 Olympics is also a huge issue: “If you’re a bidder, that is going to be one of the things at the top of your list.”
Even so, the number one consideration for any bidder will be the odds on beating Camelot at its own game.