Summary
Introduction
The National Lottery has been a fantastic success over the last 25 years, exceeding expectations to deliver over £40 billion for Good Causes. The impact of this Good Cause funding can be seen in every part of the country, from entire areas regenerated with National Lottery arts and heritage programmes, such as the Sage at Newcastle Gateshead and the Turner Contemporary at Margate, to the growing success of our Olympians and Paralympians as well as hundreds of thousands of smaller local projects who have received grants of £10,000 or less to expand their work.
Player Protection
There has, rightly, been a significant increase in focus on player protection in both the public and policy sphere in recent years. As a responsible business, Camelot must ensure that The National Lottery portfolio remains the safest place to play.
We continuously improve our approach, fine tune what we currently do, and search for new and innovative ways to protect players. To this end, we have recently updated our player protection strategy to strengthen our work in this area and ensure that our approach is industry-leading. Our aims are to make The National Lottery the safest place to play games, and to promote healthy play. We do this through identifying vulnerable players (both underage and problem players) and limiting their access to our games; ensuring our games are not high-risk or likely to appeal to vulnerable groups; and creating safe environments for players to enjoy our games – both in retail and online.
Optimising the policy and regulatory environment
In order to continue to maximise returns to Good Causes in a sustainable and responsible way, it is essential that the policy and regulatory environment helps The National Lottery to flourish. To achieve this:
1. Introduction to The National Lottery and Camelot
The National Lottery
1.1 The National Lottery has been an undoubted success since it was launched in 1994. Under Camelot’s stewardship, The National Lottery has raised over £40 billion for Good Causes across the UK from grassroots projects in local communities to iconic, world-class landmarks and events. More than 565,000 individual awards have been made across the UK – an average of over 200 lottery grants in every UK postcode district. The National Lottery has delivered in excess of £5.6 billion in funding for the arts, £13.7 billion for communities, £7.8 billion for heritage projects and £6.3 billion for grassroots and elite sport. In addition, more than £16.5 billion has been returned to the Exchequer in Lottery Duty and £71 billion in prizes to players. The National Lottery has also paid out over £6.5 billion in retail commission providing a vital source of income for many small, independent shops in communities across the UK.
1.2 The wider impact of National Lottery funding should also be considered: it can kick-start the regeneration of an entire area and unlock other forms of funding – being seen as a badge of quality making it easier to attract other funders or investors. This in turn leads to greater levels of philanthropy and financial giving, which then becomes a positive cycle with more funding leading to better facilities and so on.
1.3 With over 44,000 retailers selling National Lottery products, more than 96% of the UK adult population live or work within two miles of a National Lottery terminal, and around 60% of UK adults currently play National Lottery games.
Camelot
1.4 Camelot has been the licensed operator of The National Lottery since its launch in 1994, and the current Licence runs until January 2023, meaning that we have almost 25 years’ experience of responsibly operating a national asset and one of the most successful lotteries in the world. Camelot’s overarching objective is to maximise returns to National Lottery Good Causes through selling lottery products in an efficient and socially-responsible way. While we are responsible for generating returns to Good Causes, we do not play a role in the allocation of Good Cause funding. This is the specific responsibility of 12 lottery distribution bodies, each with specialist knowledge of their sectors.
1.5 We welcome the opportunity to respond to the Committee’s inquiry on the Social and Economic Impact of the Gambling Industry. This submission will set out:
2. Camelot’s approach to player protection
2.1 There has, rightly, been a significant increase in focus on player protection in both the public and policy sphere in recent years. As a responsible business, Camelot must ensure that The National Lottery portfolio remains the safest place to play. Player protection is a key priority for us, and we spent £1.98 million in 2018/19 on player protection measures with plans to increase our spend this year.
2.2 Our strategy has always been about encouraging lots of people to play, but to individually spend only relatively small amounts. Our strategy works – we are ranked 66th in the world in terms of per capita spend, despite being the sixth largest lottery in the world by sales.[1]
2.3 We continuously improve our approach, fine tune what we currently do, and search for new and innovative ways to protect players. To this end, we have recently updated our player protection strategy to strengthen our work in this area and ensure that our approach is industry-leading. Our aims are to make The National Lottery the safest place to play games, and to promote healthy play. We do this through identifying vulnerable players (both underage and problem players) and limiting their access to our games; ensuring our games are not high-risk or likely to appeal to vulnerable groups; and creating safe environments for players to enjoy our games – both in retail and online. In order to promote healthy play we have recently launched National Lottery-specific messaging in retail, and aim to expand this programme this year.
2.4 We also acknowledge that we have a leadership role to play in the wider UK gambling industry – sharing best practice, promoting healthy play, and participating in research groups. Our approach to player protection is being aligned to the new National Strategy to Reduce Gambling Harms which was launched in March 2019, and we expect to play a key role in supporting the Gambling Commission in achieving its strategic objectives. We contribute substantially to research, education and treatment including by an annual donation to GambleAware, and this year we have also funded the expansion of an education programme by GamCare.
Inherently Low-risk Games
2.5 Rates of problem play with National Lottery games are very low due, in part, to the structural characteristics of lotteries. A lottery is a system of play in which prizes are distributed by chance among persons who are required to pay for their chance to take part. Lotteries are distinct from both gaming and betting, where in many cases there may be some element of judgement or skill involved in maximising the chances of winning. A lottery is generally in the form of a draw at a specific time (e.g. Lotto), or an instant experience (e.g. Scratchcards or Instant Win Games).
2.6 The most recent problem gambling prevalence figures show that National Lottery draw games and Scratchcards have some of the lowest rates of problem gambling across all gambling types at 1-2%.[2] Typically, problem gamblers will have seven or more types of gambling product in their portfolio so we know that, because of the scale of The National Lottery, problem gamblers are likely to play National Lottery games alongside other types of gambling products. However, because of the nature and style of our games, it is very unlikely that National Lottery games directly drive their problematic behaviour. For example, just 2% of calls to the GamCare helpline referenced Scratchcards as problematic in 2017/18, and 0% mentioned National Lottery draw games.[3]
2.7 Knowing that our games are played by problem gamblers means that we have both a responsibility to ensure that our games are designed to be of low appeal to vulnerable groups, but also an opportunity to identify and interact with these players, change their behaviour and signpost to relevant sources of help and support.
Responsible Game Design
2.8 We aim to minimise any risk of harm that National Lottery games might cause to players, no matter how small that risk might be. The first line of defence against excessive and underage play is our ‘Responsible Game Design Process’, which all of our games go through. As part of this process, all games go through Gamgard, an online tool that assesses a game’s structural risk levels, including jackpot sizes and speed of play.
2.9 The Gamgard tool is based upon the known risks of specific game features for people who are vulnerable to develop gambling problems. The project was developed in 2007 by two experts in the gambling studies field – Dr Richard Wood and Dr Mark Griffiths – by examining the current state of research on structural and situational characteristics worldwide and utilizing a team of seven leading world experts, in terms of responsible gambling issues and treating people with gambling problems.
Oversight and Regulation
2.10 All game updates go through the responsible game design process, and games which are significantly new and different from existing games, are then submitted to the Gambling Commission for approval prior to launch. This robust and formal approval process does not apply to the broader gaming and gambling industry, and means that the games we have in market remain low-risk.
Reducing excessive play in retail
2.11 Our retail partners play a critical role in helping us to ensure that playing National Lottery games continues to be a safe and enjoyable experience. Building on a pilot programme we ran in 2017 to help us better understand what problem play specific to The National Lottery looks like in retail and identify what additional support our retail partners may need, we have continued to develop our approach to reducing excessive play in retail with expert partners. We started to roll out this training programme to retailers in January 2019. The ‘Preventing Excessive Play’ programme aims to support our retailers in feeling confident and equipped in helping to prevent excessive play. It promotes a consistent approach to responding to a customer if they directly ask for help, and also provides retailers with the appropriate resources to be able to offer further information or support if they are concerned about one of their customers.
2.12 We will continue to roll out and evaluate the training programme during 2019/20. In addition, we plan to enable our retail partners to print out responsible play messaging from their National Lottery terminal, giving them a quick and easy way to provide a customer with helpful information.
Reducing Excessive Play Online
2.13 Due to our scale we have a responsibility to identify – and tackle – patterns of behaviour that may be an indicator of excessive play. To do this, we use the most current thinking on gambling-related harm to identify at-risk and problem players using our online behavioural analytics model, Mercury. We then use online interventions to raise awareness of the responsible gambling tools available to players to help them stay in control of their online playing habits – and so encourage a positive change in behaviour.
2.14 In addition, we are currently looking at how we can share data and insight from our in-house behavioural analytics model and enhanced interventions with other operators to further collective understanding in this important area. We will also be launching a new series of test-and-learn interventions to better understand what messaging and method of delivery leads to the most positive changes in player behaviour, both in the short and longer term.
Preventing Underage Play on The National Lottery in Retail
2.15 We have a legal and moral responsibility to ensure that National Lottery products – whether that is draw-based games or Scratchcards – are not played by anyone under the age of 16. It is therefore critical that we work closely with our retail partners – all of whom are independent of Camelot – to educate them on when to ask for ID.
2.16 One way we check that retailers have the correct safeguards in place to prevent underage sales is through our mystery shopper programme, which was developed by Camelot in 1999 and subsequently adopted by the National Lottery regulator as a licence condition. Our mystery shoppers are young people who are aged 16 or over but who look younger, and the programme enables us to test retailer awareness of, and compliance with, the safeguards that exist when selling National Lottery products.
2.17 To support last year’s programme, we introduced a number of measures to reinforce retailer awareness of their responsibilities – including distributing updated leaflets to our entire retail estate, together with supporting materials such as terminal stickers and Refusal Register sheets. Targeting those areas with historically low pass rates, we also emphasised the importance of responsible selling through articles in our bi-monthly retailer magazine, face-to-face visits and telephone calls, and added messaging about responsible play to our new retailer website.
2.18 As a result of the measures we have put in place, the programme once again delivered excellent results in 2018. Of the 11,600 mystery shopping visits that took place, 91% of retailers correctly asked for ID as proof of age on the first visit – exceeding our target of 90%. This matches 2017’s figure, and is up 5% on 2015’s results. To ensure that our retail partners continue to achieve high pass rates, we plan to further strengthen the programme in 2019/20 by continuing to focus on boosting retailer awareness and providing training, including distributing a refreshed range of responsible play material to National Lottery outlets and improving the visibility of 16+ age signage.
Preventing Underage Play Online
2.19 As part of our commitment to preventing underage play across our online channels, all players must go through a rigorous registration process and pass an Experian identity check if they want to set up an online National Lottery account. This enables us to ensure that players are who they say they are, and verifies their age.
Minimum age for playing National Lottery games
2.20 Whilst there is not currently evidence of a significant risk of harm to 16 and 17 year olds from playing any National Lottery game,[4] we believe that the Government’s review of the minimum age for buying National Lottery products as part of the next Licence competition process is appropriate as it has been 25 years since these restrictions were introduced. We have been providing data to DCMS on the topic and will respond formally to the government consultation in due course.
2.21 Taking into account Camelot’s 25 years’ experience of successfully operating The National Lottery, our view from an operational standpoint is that it is important to ensure consistency for retailers and players by having one aligned minimum age for the purchase of all National Lottery products. Splitting the age of play between product categories poses a significantly more difficult operational challenge, and therefore a unified approach is our strong recommendation. However, we believe it is for Government to decide the age of play for the next National Lottery Licence period, whether that be 16 years or 18 years.
3. Society Lotteries and The National Lottery
The Single National Lottery Model and the Lottery Ecosystem
3.1 In 1994, a clear and complementary distinction was established between smaller traditional society lotteries, fundraising for local good causes and The National Lottery, offering life-changing prizes in order to deliver large returns to Good Causes. The single national lottery model has been reviewed several times and it remains the most efficient way to maximise returns to Good Causes and society.
3.2 The accepted principle of the single national lottery model has been eroded in recent years, and the Government’s announcement in July 2019 to increase the prize and proceed limits for society lotteries represents a further step away from this model.[5] Camelot has long argued that there should be a clear distinction between society lotteries and The National Lottery, and, while Camelot has continuously been supportive of ‘traditional’ charity society lotteries, we have repeatedly raised concerns about the growth of ‘synthetic’ national lotteries.[6]
3.3 The society lottery legislation was intended for small-scale charity lotteries. They are exempt from paying Lottery Duty, operate under a lighter touch, less transparent regulatory regime. ‘Synthetic’ national lotteries such as the People’s Postcode Lottery and the Health Lottery clearly encroach into the territory originally intended by Parliament to be the sole preserve of The National Lottery. This challenges the established policy principle that there should only be one national lottery to ensure maximum benefit to society, and undermines the Secretary of State’s and the Gambling Commission’s express statutory duty to maximise returns to National Lottery Good Causes (there being no equivalent duty in relation to society lotteries of any kind).
3.4 We welcome DCMS’ announcement that the Gambling Commission intends to consult on the levels of transparency for society lotteries and agree that it is “important that society lotteries demonstrate the highest levels of transparency”[7] as they raise funds for charities. We agree that the Gambling Commission should focus on transparency, including how the proceeds of society lotteries are spent, returns to good causes and executive pay.
3.5 In so using light-touch society lottery regulation to spend large sums on marketing to precipitate growth, the People’s Postcode Lottery in particular has seen extraordinary growth leading to sales of £365 million last year.
The impact of competition on The National Lottery
3.6 Frontier Economics (Frontier) was commissioned by Camelot in 2018 to analyse the effect of competition on National Lottery sales. Frontier found that competition has had a negative impact on National Lottery sales compared to what they otherwise would have been.
3.7 Frontier estimated that National Lottery sales have been cannibalised by £703 million as a result of competition over the period 2011 to 2017, leading to a reduction of National Lottery returns to society of £266 million over the same period.
3.8 It is also instructive to look at the lotteries market in Northern Ireland, where the People’s Postcode Lottery and the Health Lottery do not operate. In the absence of competition from ‘synthetic’ national lotteries, National Lottery performance metrics are consistently higher in Northern Ireland than the rest of the UK. For example, in Northern Ireland in 2018:
Eroding the efficiency of the ‘single National Lottery’ model
3.9 Beyond the negative impact identified by Frontier, the competitive market created by ‘synthetic’ national lotteries has forced The National Lottery to spend more on marketing in order to maintain share of voice – an indicator of future market share – at the expense of Good Causes.
3.10 The result has been to establish a marketing ‘arms race’ in which The National Lottery is forced to compete for share of voice in a market designed around the economically-efficient model of a ‘single National Lottery’, inflating its marketing costs and driving a cycle of inefficiency. In this financial year, The National Lottery will spend three times more on advertising than it did in 2010 for half of the impact.
3.11 It is also instructive to look at the marketing spend of the People’s Postcode Lottery over the same period, which saw its advertising spend increase from £6.3 million (2010) to £41.3 million (2018) – an increase of 556%. This is possible as the People’s Postcode Lottery continues to operate with high levels of expenses, and is not subject to Lottery Duty.
3.12 Indeed, DCMS recently noted that “the two sector leaders currently return amongst the lowest proportion of revenue to good causes.”[8] In real terms, in 2018 the People’s Postcode Lottery returned £116.9 million to good causes (32% of revenue) and spent £102.3 million in expenses (28% of revenue).[9] More than a third of this spend is used on advertising, a market in which it competes directly with The National Lottery.
Proposed solution to the marketing spend challenge: re-introduce a cap on expenses
3.13 Camelot believes that there must be the reintroduction of an expenses cap for large-scale ‘synthetic’ national lotteries at between 5-10% of sales. Prior to the Gambling Act 2005, maximum expenses were capped at 15% for large lotteries and 35% for smaller lotteries. For the avoidance of doubt, we are not suggesting that the expenses cap applies to traditional society lotteries – only to ‘synthetic’ national lotteries. We urge the Gambling Commission to include this in any future consultation on transparency in the society lottery sector. In the meantime, we would also ask the Commission to re-examine the extent to which the expenses currently retained by the external lottery managers of the ‘synthetic’ national lotteries can properly be regarded as reasonable.
Impact on the fourth National Lottery Licence Competition
3.14 As mentioned above, the competition for the fourth Licence to operate The National Lottery commences this year (2019). We believe that the growth of ‘synthetic’ national lotteries is very damaging to the long term value of a hugely successful national asset and looking ahead, there is a significant risk that further relaxations of society lottery regulations could weaken the forthcoming fourth Licence competition process. It is therefore very important that bidders for the fourth Licence are given clarity by the Gambling Commission on the market in which they will be operating. This should include:
3.15 Risks include increased complexity, and bidders raising prices (i.e. any profit they may wish to take) to adjust for competitive market uncertainty, with the potential for this to result in a reduction in overall returns to society in the long term. Further, it will likely increase the complexity of Licence negotiations to manage the risk of adverse regulatory or policy changes.
4. The statutory regime governing The National Lottery
4.1 As above, we remain firmly of the view that the single national lottery model is the key to ensuring the highest possible returns to Good Causes and society, as well as ensuring protection of players, and the fitness and propriety of The National Lottery’s operation. Accordingly, there should be a clear distinction between the regulatory regime of The National Lottery and society lotteries.
4.2 The National Lottery was constituted by The National Lottery Etc. Act 1993 and is regulated by the Gambling Commission. Prior to this, it was regulated by The National Lottery Commission. The National Lottery is far more closely regulated than any other form of gaming, gambling or lottery. Given that the licensee is awarded a contract to operate an important national asset with revenues now reaching over £7 billion per year, regulatory oversight is essential. However, in order to operate The National Lottery to the best of our ability, it is imperative that the policy and regulatory environment evolves and modernises in order to allow it to flourish.
Reforming the Taxation Regime of The National Lottery
4.3 Alongside increased direct competition in the lotteries market from ‘synthetic’ national lotteries, the wider market in which The National Lottery operates has transformed significantly in recent years. Over time, all major gaming and gambling sectors have been moved to a Gross Profits Tax (or equivalent), while The National Lottery remains an outlier taxed on turnover – Lottery Duty at 12%. This tax regime restricts The National Lottery’s capacity to respond to the changing market dynamics and its ability to compete on price or value. Camelot believes that migrating The National Lottery to a Gross Profits Tax would help to meet our overarching objective of maximising returns to National Lottery Good Causes through selling lottery products in an efficient and socially-responsible way.
4.4 In other markets a response to increased competition would be to reduce price to the consumer, but in the case of The National Lottery the effective response would be to increase the share of sales returned to players – the prize payout. Evidence shows that being able to compete on prize payout is a key part of maintaining an attractive and relevant consumer proposition. This is particularly true of instant win games (online instant win games and Scratchcards), which attract customers on the basis of a frequent winning experience and therefore require a higher prize payout to compete in the market.
4.5 The current Lottery Duty regime creates a misalignment between the Exchequer and Good Causes, leading to distorted incentives. This is because, under the current regime, returns to the Exchequer are based on turnover but returns to Good Causes are based on sales less prizes (gross profit). Therefore, although gross profit could be increased through a higher prize payout to players, under the current Lottery Duty regime this would likely mean more income for the Exchequer and less for Good Causes (undermining The National Lottery’s ability to meet its duty to maximise returns to Good Causes).
4.6 A Gross Profits Tax regime provides The National Lottery with the tools required to respond to new market forces. It enables the operator to deliver even more value to players by increasing the share of sales it returns to players through its prize payout, while also maximising returns to society by offering an attractive proposition that increases the entertainment value of The National Lottery. In short, a Gross Profits Tax enables Camelot to develop more attractive and compelling National Lottery games that stimulates player interest and demand thereby maximising returns to society. It is important to remember that games will continue to be designed in a socially-responsible way encouraging lots of people to play but to spend relatively small amounts.
The Benefits to Society of Taxation Reform
4.7 Camelot commissioned Frontier Economics to estimate the impact of moving from Lottery Duty to Gross Profits Tax and their central scenario modelling suggests that it would unlock £1.7 billion additional returns to society over the 10 year period to 2028/29. In addition, there would also be increased retailer commission of £1.1 billion over the same period.
4.8 There is, however, potential for further significant upside if, as we expect, the scope to increase prize payouts unlocks new innovations that increase demand for The National Lottery over and above Frontier’s central scenario. Under a range of different assumptions, Frontier estimate that additional returns to society could be as high as £6.6 billion, though it should be noted that the total impact is sensitive to the specific assumptions used. Similarly, the increase in retailer commission could be as high as £2.1 billion over the same period. Camelot has proposed that it receives no unearned benefit from the change.
4.9 With the competition for the fourth Licence approaching, this is the right time to consider The National Lottery’s taxation regime in order to provide clarity for all potential bidders. In the increasingly competitive market within which The National Lottery operates, a move to a Gross Profits Tax could be a key factor in ensuring its current and future health.
5. Conclusion
5.1 The National Lottery has been a fantastic success over the last 25 years, exceeding expectations to deliver over £40 billion for Good Causes. The impact of this Good Cause funding can be seen in every part of the country, from entire areas regenerated with National Lottery arts and heritage programmes, such as the Sage at Newcastle Gateshead and the Turner Contemporary at Margate, to the growing success of our Olympians and Paralympians as well as hundreds of thousands of smaller local projects who have received grants of £10,000 or less to expand their work.
Player Protection
5.2 There has, rightly, been a significant increase in focus on player protection in both the public and policy sphere in recent years. As a responsible business, Camelot must ensure that The National Lottery portfolio remains the safest place to play.
5.3 We continuously improve our approach, fine tune what we currently do, and search for new and innovative ways to protect players. To this end, we have recently updated our player protection strategy to strengthen our work in this area and ensure that our approach is industry-leading. Our aims are to make The National Lottery the safest place to play games, and to promote healthy play. We do this through identifying vulnerable players (both underage and problem players) and limiting their access to our games; ensuring our games are not high-risk or likely to appeal to vulnerable groups; and creating safe environments for players to enjoy our games – both in retail and online.
Optimising the policy and regulatory environment
5.4 In order to continue to maximise returns to Good Causes in a sustainable and responsible way, it is essential that the policy and regulatory environment helps The National Lottery to flourish. To achieve this:
6 September 2019
[1] La Fleur’s World Lottery Almanac 2019
[2] https://www.gamblingcommission.gov.uk/PDF/survey-data/Gambling-behaviour-in-Great-Britain-2016.pdf
[3] https://www.gamcare.org.uk/app/uploads/2019/03/GamCare-Annual-Statistics-2017-18.pdf
[4]https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/817457/Consultation_on_the_minimum_age_for_playing_National_Lottery_games.pdf p8
[5]https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/817544/Response_to_Consultation_on_Society_Lotteries_PDF.pdf
[6] By ‘synthetic’ national lotteries, we mean society lotteries which operate on an industrial scale, are marketed under an ‘umbrella’ brand and compete at a national level with The National Lottery
[7] DCMS, Government Response to the Consultation on Society Lottery Reform, July 2019, 1.7
[8]https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/817544/Response_to_Consultation_on_Society_Lotteries_PDF.pdf p14
[9]https://www.postcodelottery.co.uk/uploads/media/default/0001/07/8569fb5b69b2a3e76f3c26bef767d54b0b5cf575.pdf p28