Written evidence submitted by Camelot UK Lotteries Ltd [SOC0035]

1.0              Executive Summary

Delivering a thriving lottery ecosystem with one National Lottery at its core

1.1              Maximising returns to good causes must be at the very heart of any discussion about lotteries. This was a fundamental principle when The National Lottery was launched in 1994 and it remains true today. In total The National Lottery has to date raised over £32 billion for the Good Causes and paid over £12.4 billion to the Exchequer in Lottery Duty – which is far in excess of the original top end Government forecast of £1 billion per year for the Good Causes.  This has been achieved as a result of the very deliberate establishment of a highly-regulated single national lottery, and a clear distinction between The National Lottery and traditional society lotteries which has allowed both to co-exist in a complementary lottery ecosystem thereby maximising returns for good causes.

1.2              It is our strong belief that the ‘one national lottery’ system remains the best model to achieve the maximum benefit for good causes – alongside smaller scale, traditional society lotteries which are complementary to The National Lottery. A report by Frontier Economics, commissioned by Camelot, examined the current lottery landscape and reaffirmed this approach, concluding that any changes in the competitive landscape which reduce the monopoly role of The National Lottery would have a detrimental impact on the value of funds raised for good causes.

Supporting proportionate deregulation for traditional society lotteries

1.3              However, it is entirely right that traditional society lotteries should continue to have the necessary legislative and regulatory framework to allow them to continue to raise maximum funds for good causes. We support the principle of proportionate deregulation where appropriate to enable traditional society lotteries to thrive. We advocate further consideration of recent recommendations such as averaging the 80/20 rule over a period of time for the minimum contribution to good causes, the option to allow gift aid on lottery ticket purchases (including The National Lottery), single registration for remote and non–remote licences, and an increase in contributions to good causes in line with a lottery’s scale.

1.4              We caveat this with one very important point: any deregulatory measures that have the potential to undermine the settled principle of one national lottery alongside many small scale society lotteries must be avoided. For example, we fundamentally oppose any increase in prize caps for society lotteries. The level of prizes on offer to players is a fundamental differentiator between The National Lottery and society lotteries. An increase in prize caps for society lotteries risks fragmenting the money spent by players across all of the different lotteries available, leading to smaller jackpots, fewer tickets sold and, ultimately, far less money being raised for good causes.

1.5              Our concerns about the existing regulatory framework rest primarily in cases where the distinction between The National Lottery and society lotteries has been blurred and the boundaries of the legislation and regulation have been pushed, no longer reflecting the original intention of Parliament. The precedent set by the Health Lottery, which has in all but name positioned itself as a national competitor to The National Lottery, is of particular concern and, if replicated, threatens to destabilise the ecosystem in which the lottery market successfully operates.

1.6              This submission details our concerns about the operation of the Health Lottery – including that it appears to operate with expenses of around 50% of sales – and the precedent it sets. We offer policy solutions which we believe would serve to alleviate them, such as the reintroduction of a clear cap on expenses and an increase in the minimum return to good causes for national competitors to The National Lottery. For the avoidance of doubt, we are not proposing these measures are extended to all society lotteries – only national competitors.

Maintaining the ‘clear blue water’ between lotteries and gambling

1.7              We also believe that the protection and promotion of a healthy lottery ecosystem must also include maintaining the clear distinction – or ‘clear blue water’ – between lotteries and gambling.  Lotteries and gambling have always operated in separate markets – certainly most lottery players do not see themselves as gamblers – and been subject to different legislative, regulatory and financial obligations. However, we are becoming increasingly concerned about a blurring of the lines.

1.8              First, while products which offer bets on lotteries have existed in bricks and mortar betting shops for some years – and have always been of concern to Camelot – in recent years, the gaming and gambling market has seen the emergence of online companies enabling consumers to bet on lotteries/lottery-style draws over the internet in direct competition to traditional lotteries.

1.9              We believe this raises a different set of issues as consumers can more readily access these products in a ‘non-gambling’ environment, compared to a traditional betting shop. In entering a betting shop it is obvious to customers that they are engaging in betting activity; playing online sends no such obvious signal.

1.10              However, it is not just gambling operators who have muddied this ‘clear blue water’. In autumn 2013, the Health Lottery partnered with Coral, the bookmaker, to offer a betting product on the outcome of the Health Lottery.

The Health Lottery further blurred the distinction between lotteries and gambling by launching Health Bingo and Health Jackpot (a bet on the outcome of the German Lotto game) under a licence granted by the Alderney Gambling Control Commission and using the Health Lottery brand.

1.11              We firmly believe that these products (bets on lotteries) do not clearly make the distinction between lotteries and betting, mislead consumers and trade on the good name of lotteries for – in the main – commercial gain.

1.12              Further, we believe that the ability of the lotteries market to deliver the maximum benefit to good causes is also threatened by the recent focus on gambling advertising. While we understand the background to the various reviews of gambling advertising and can appreciate why this area is being looked at, we are concerned about lotteries getting wrapped up into a debate that has nothing at all to do with them. We believe that returns to good causes would be put at risk if changes are made to a lottery’s ability to advertise and promote itself – and this includes any measure which, perhaps inadvertently, aligns lottery advertising more closely with gambling.

1.13              Our submission looks at both concerns and offers suggestions as to how they might best be addressed.

1.14              The National Lottery has been a tremendous success, raising over £32 billion for the Good Causes and delivering benefits to communities throughout the UK for nearly two decades. We welcome the Committee’s interest in the lotteries market and hope that this inquiry will bring the necessary certainty and clarity to enable us to maintain a successful lottery ecosystem in the future.  

2.0              The Culture, Media and Sport Committee inquiry into society lotteries

2.1              Camelot very much welcomes the Committee’s inquiry into society lotteries and the opportunity to submit its response.

              Terms of reference

2.2              Drawing on our experience of running The National Lottery for nearly twenty years, our submission examines the following terms of reference as set out by the Committee:

• ensuring that the market delivers the maximum benefit to good causes;
• consideration of the case for relaxing the regulatory requirements;
• the regulatory positions and protections attaching to society lotteries, the Health Lottery and The National Lottery.

3.0              Background to Camelot UK Lotteries Limited and The National Lottery

3.1              Camelot is the licensed operator of The National Lottery and has been since its introduction in 1994, winning three licence competitions in the process. It has nearly 20 years’ experience of responsibly operating a national institution and one of the most successful lotteries in the world. Camelot’s licence to operate The National Lottery runs until 2023.

3.2              Camelot manages the lottery infrastructure, designs and promotes new games, develops the marketing support for lottery products, provides services for players and winners, and runs the network that sells tickets to players in partnership with over 44,000 retailers UK-wide – as well as on the internet, smartphone and tablet. Camelot is not responsible for the distribution of National Lottery funds; this is the responsibility of the National Lottery distributors. The National Lottery is regulated by the Gambling Commission.

3.3              Camelot’s overarching objective is to maximise returns to National Lottery Good Causes through selling lottery products in an efficient and socially-responsible way.

The National Lottery – a national success

3.4              The National Lottery has been an undoubted success since it was launched in 1994.

• Returns to society: To date, National Lottery players have raised over £32 billion for Good Cause projects, with more than 430,000 individual awards made across the UK – an average of 138 lottery grants for every postcode district. This is far in excess of the original top end Government forecast of £1bn per year for the Good Causes. In addition £12.4 billion has been paid to the Exchequer in Lottery Duty.
• Corporate responsibility: Camelot is internationally recognised for selling lottery tickets in a socially-responsible way. The UK National Lottery is ranked just 53rd in the world in terms of per capita spend, despite being the sixth largest lottery in the world in terms of sales. Camelot won the 2012 World Lottery Association Responsible Gambling Award (the last time it was awarded).
• Leading UK brand: The National Lottery crossed fingers logo is recognisable to 95% of the UK population. Camelot operates four of the top fast-moving consumer goods (FMCG) brands in the UK. One of those, Lotto, is the single biggest FMCG brand in the country. Total National Lottery sales each year are bigger than Coca-Cola, Warburtons, Walkers, Birds Eye, Cadbury Dairy Milk, Kingsmill, Nescafé, Lucozade, Pepsi and Andrex combined.
• Efficiency: The National Lottery is the most cost-efficient major lottery in Europe, with around 4% of total revenue spent on operating costs.
• Reach: Around 70% of adults play The National Lottery nowadays.

3.5                            All of the above has been achieved, in part, as a direct result of the very deliberate establishment of a highly-regulated single national lottery, and a clear distinction between The National Lottery and traditional society lotteries which has allowed both to co-exist – in the main – in a complementary lottery ecosystem thereby maximising returns for good causes.

4.0              Policy framework – a thriving lottery ecosystem to deliver maximum benefit to good causes

One National Lottery

4.1              Maximising returns to society should be the fundamental principle which underpins the lottery sector in the UK and, over the past twenty years, it is a principle that has in the vast majority of cases worked very successfully. This is because – as Parliament intended – traditional society lotteries and The National Lottery have historically operated in separate and distinct markets, whilst sharing a common goal around maximising returns to good causes and society. In essence, we co-exist in a lottery ecosystem where we complement each other and do not compete substantially.

4.2              This ecosystem was deliberately set up by Parliament to contain one National Lottery with other, smaller scale, lotteries fulfilling a different but important role for non-commercial societies. There is a clear distinction in both regulation and legislation between The National Lottery and society lotteries, setting clear boundaries between the two. However, this distinction blurred in 2011 with the launch of the Health Lottery. We have reservations about any attempt to commercialise society lotteries in ways that cuts across the spirit (if not the letter) of both statute and regulation.

First principles

4.3              Going back to first principles, Parliament’s original intent was, as the law clearly states, that there can only be one national lottery. There was sound reasoning to support this approach that stands the test of time and remains equally applicable today. A Home Office White Paper in 1992 titled ‘A National Lottery Raising Money for Good Causes’ set out why and how the National Lottery would be introduced in the UK. It stated that “… the best way forward would be to promote a single national lottery. This will have the advantage of:

(i)                 Ensuring large prizes which would capture wide public interest;

(ii)                Maximising the potential funds which could be raised for good causes;

(iii)              Minimising regulatory problems;

(iv)             Reducing the potential for fraud and criminal involvement; and

(v)               Being less likely to encourage undesirable forms of advertising.

4.4              The White Paper also recognised that other lotteries should continue to have a role in the lottery ecosystem albeit on a different – smaller – scale to The National Lottery.

4.5              A single national lottery under government licence, rather than a free-for-all approach, was deemed the most efficient way to ensure consistent protection of players, the fitness and propriety of its operation and then the maximisation of returns to good causes and society. Further, the economic case for whether good causes are best served by having a single national lottery provider has actually been revisited a number of times since The National Lottery was introduced.

4.6              In 2001, the Gambling Review Body (chaired by Sir Alan Budd) released a report recommending that limits on the size of prizes and maximum annual proceeds for society lotteries should be removed.  However, the report also recognised that a monopoly model to run the UK National Lottery was likely to maximise the proceeds for good causes, in particular because the scale of jackpots would increase participation, and that removal of prize limits on society lotteries could in principle harm demand for UK National Lottery products.

4.7              In its response to the Budd report, a 2002 government White Paper (A Safe Bet for Success – Modernising Britain’s Gambling Laws) rejected the recommendations on society lotteries, noting explicitly that competition with the UK National Lottery from larger society lotteries would probably reduce returns to good causes, in particular because a reduction in the prize pool and the size of jackpots would reduce overall demand for lottery tickets.

4.8              However in 2003, the government considered a radical new approach to licensing the UK National Lottery, replacing a single licence (where one operator provided all National Lottery products) with a multiple licence model (where licences were offered to run different parts of the Lottery, e.g. draw-based games and scratchcards).  A 2004 Culture Media and Sport Select Committee Inquiry (Reform of the National Lottery) concluded that retaining a single provider model would be preferable to moving to a multiple license system.  In the end, although the role of smaller scale society lotteries was upheld and recognised, the single licence model was retained for competition at the national market level.

4.9              The success of The National Lottery over nearly 20 years is testament to the importance of a single national lottery at scale, which maximises player interest and participation (and thus good cause funding). Simply put, a single lottery with a jackpot of £10m will sell more tickets, and therefore raise more money for good causes, than the sales and returns to good causes from two lotteries each with a jackpot of £5m. A single national lottery at scale also provides the basis for a stable and consistent regulatory regime where the interests of players, good causes, society and the operator (via a small and tightly regulated operating margin) are aligned and protected. Neither Parliament’s intent nor the law has changed.

4.10              Nonetheless, the lotteries and gambling markets – coupled with huge technological advances – have evolved significantly since The National Lottery was introduced, particularly in the last decade. It is therefore worthwhile revalidating whether the single National Lottery model remains the most efficient way to maximise returns to good causes and society. Camelot commissioned Frontier Economics (Frontier) to look into this once again and their findings clearly support a single National Lottery as the most efficient model to maximise returns to good causes.[1]

Frontier Economics analysis

4.11              Frontier’s analysis of the economic arguments and evidence found nothing to alter the previous conclusions – mentioned above – that returns to good causes are maximised by having one national lottery operator. Specifically Frontier concludes:

• Multiple national lotteries lead to diseconomies of scale, as administrative and other costs are repeated across providers, reducing the revenues available for good causes.
• There is empirical evidence from a number of countries that larger jackpots attract more players. Most estimates suggest that a 10% increase in jackpot size is associated with an increase in demand of around 3% to 5%. By concentrating sales, a single lottery provider maximises the jackpots available to win and thus maximises the revenues available to good causes.
• National lottery products are perceived to be substitutable, meaning that multiple operators are likely to ‘innovate’ by developing similar products and compete for market share, leading to significant cannibalisation of sales.
• Uncertainty in the market could lead to operators being less willing to bid for future licences to run The National Lottery, or demanding increased margins to do so, which could reduce future returns to good causes.

4.12              A full copy of Frontier’s report is included as part of this submission (see Appendix 1).

The precedent set by the Health Lottery – disrupting the ecosystem

4.13              The National Lottery and traditional society lotteries have, by and large, peacefully co-existed alongside each other as we are complementary and operate in separate and distinct markets. However, the launch of the Health Lottery has blurred this distinction, clearly intending to be a national competitor to The National Lottery:

• It is advertised and promoted nationally, frequently comparing itself with The National Lottery;
• It is branded nationally, under a single umbrella brand;
• Tickets (for both draw-based and Scratchcard games) are sold nationally – in a similar number of outlets to The National Lottery;
• The draw is televised nationally; and
• The good cause monies raised are in effect distributed nationally.

4.14              All of these factors clearly evidence that the Health Lottery is a national lottery in all but name – and Camelot is not alone in its concerns.

4.15              The Gambling Commission described the Health Lottery as being “clearly designed to circumvent the proceeds limits – the gambling equivalent of a tax avoidance scheme that exploits loopholes in the legislation” and stated that “the Department needs to decide whether to block the loophole or allow the limits to be breached and accept the possible damage to The National Lottery”[2].

4.16              In evidence to this Committee in January 2012, Jenny Williams, Chief Executive of the Gambling Commission, commented in response to a question from Therese Coffey MP that “If you’re saying that this [the Health Lottery] was a scheme designed to get around the lottery limits, yes, clearly it was.”

4.17              Indeed, this very Committee in its report The Gambling Act 2005: A bet worth taking? (July 2012) commented that “…the Health Lottery appears to us to accord with neither the spirit nor the intention of Parliament as set out in the National Lottery Act 2006 and the Gambling Act 2005”.

4.18              Returning to the Gambling Commission, notwithstanding the concerns they expressed regarding the operation of the Health Lottery, they determined it was capable of functioning within the boundaries of the current legislation and regulations. Further, whilst the High Court rejected Camelot’s request to judicially review the Gambling Commission’s handling of the Health Lottery, the Court itself said quite explicitly that the operations and legality of multiple society lotteries is a matter for Government or Parliament to determine.

4.19              In light of the comments made by the Gambling Commission, the Committee and the High Court, we would urge Government and Parliament to revisit the legislation and regulations to ensure that the lottery ecosystem remains balanced with The National Lottery and society lotteries playing complementary but distinct roles.

4.20              Whilst we have concerns that the Health Lottery has impacted on National Lottery sales (we commissioned robust econometric analysis in 2012 that showed over 60% of The Health Lottery’s sales were cannibalised from The National Lottery), our principal concern has always been that other commercial operators could be encouraged to follow the Health Lottery model.

4.21              This is not without basis. Our intelligence suggests that various international gambling operators are now eyeing the UK lottery market. The then-CEO of William Hill said last year[3] “I’d love to get into the lottery business”. While the CEO of Tipp24 – a company that offers bets on the outcome of lottery draws via the internet, and which recently re-located its head office to London from overseas – said his aim was “to fully utilise the opportunities which the UK offers”.

4.22              We would not want the Government to sleepwalk into a situation whereby future returns to National Lottery Good Causes and Lottery Duty revenues – and the basis on which licences to operate The National Lottery are awarded – are seriously jeopardised because there is nothing to stop other commercial operators, including potentially those who are generally much less highly regulated and enjoy much greater commercial freedom than The National Lottery operator, from following the Health Lottery’s model.

Transparency of operation

4.23              In addition to the fundamental point that the law says there can only be one National Lottery, there also appear to be questions around the transparency and operation of the Health Lottery.

4.24              In January this year (2014), we asked Frontier to consider the returns to both players and to society of The National Lottery Lotto game and the Health Lottery’s core game – and thus compare their operating costs and profit. A copy of Frontier’s paper is included with this submission (see Appendix 2).

4.25              The analysis indicated that after prizes are paid, retailers paid and contributions made to good causes – at the statutory minimum of 20% – it would seem that The Health Lottery incurs around 50p in the pound in expenses (including any operator profit).

4.26              The table below illustrates the respective returns for the National Lottery’s Lotto game and the Health Lottery’s core game.[4]

Note: Returns to society includes payments to good causes and Lottery Duty

4.27              Therefore, the Health Lottery’s 50p in the pound for operating costs/profits compares with around only 5.6p for Lotto (and for the National Lottery portfolio as a whole, the amount is around 5p). In other words, the Health Lottery appears to take nine times more in expenses, per pound, than The National Lottery’s Lotto game and ten times more than The National Lottery as a whole. Further, a report by Nera Economic Consulting in 2012 for DCMS, the Gambling Commission and the National Lottery Commission found that “…most society lotteries have expense ratios of less than 40 per cent and many small lotteries…have expense ratios of less than 30 per cent”[5].

4.28              It cannot be right that a lottery operator retains more in expenses than it returns to players and good causes combined, as appears to be the case with the Health Lottery. Whilst Camelot appreciates the role which can be played by external lottery managers in supporting traditional society lotteries, it remains a fundamental principle of the legal and regulatory framework that purely commercial lotteries are unlawful, and that the level of expenses that may be retained by external lottery managers is restricted by law.   It is three years since the launch of the Health Lottery, and it appears that there is no prospect of any reduction in the level of expenses retained by The Health Lottery ELM Limited and its affiliates and commercial partners.

4.29              This analysis is based on what we and Frontier have been able to find out – however we have seen nothing to contradict our findings. The truth is that it is very difficult to ascertain the exact breakdown of returns from sales of Health Lottery tickets, as the relevant information does not appear publicly all in one place or indeed, at all.

4.30              We strongly believe that players have a right to know how their money is being spent – how many Health Lottery players are aware that around 50p in every pound they spend on a ticket appears to be retained in expenses?

Policy options to address the ‘loophole’

4.31              We have identified a range of policy options aimed at, to use the Gambling Commission’s own word, closing the ‘loophole’ exploited by The Health Lottery. For the avoidance of doubt, Camelot is not pushing for tighter regulation of all society lotteries. On the contrary, we are keen to champion proportionate deregulation wherever it makes sense in the wider interests of good causes – and we will return to this later in this submission. We have absolutely no intention of proposing any regulatory change that would undermine or jeopardise the valuable work undertaken by the vast majority of traditional society lotteries.

Proposals

4.32              We propose two straightforward potential changes to apply only to present or future operators that brand, market or position themselves as national competitors to The National Lottery.

Cap on expenses

4.33              The first would be to reintroduce a cap on expenses, which existed prior to the enactment of the Gambling Act 2005. As mentioned previously, it would appear that the Health Lottery currently operate with expenses of around 50% of sales – which is, obviously, more than it returns to players and good causes combined. To stress the context, as the operator of The National Lottery, we retain only around 5% in expenses. Prior to the Gambling Act 2005, maximum expenses were capped at 15% for large lotteries and 35% for smaller lotteries. The regulator also had the flexibility to make exceptions to these limits based on the operator presenting a clear rationale for why any increase was necessary. We think there is a strong case for its re-introduction. It gives clarity to all stakeholders, unlike the current requirement that expenses should be “reasonable” – which leaves considerable scope for subjectivity and argument between promoters and the regulator.

Increase minimum contribution to Good Causes

4.34              Where this might be set would be a matter for discussion, but we believe it should align more closely with the returns to society delivered by The National Lottery, including Lottery Duty which is paid only by The National Lottery. For example, if the minimum contribution were raised from 20% to 32% this would be more accurately aligned with The National Lottery – a combination of the current minimum 20% return to good causes plus the 12% that the National Lottery pays in Lottery Duty.

4.35              These proposals would not apply to the majority of traditional society lotteries and would therefore not have a negative effect on them. It would, we believe, retain the distinction between The National Lottery and traditional society lotteries, while requiring a greater contribution to society from those using the current regulations to compete with The National Lottery on a national scale.

4.36              While these two suggestions do not and cannot directly tackle the fundamental issue of precedent, they at least might act as a brake on other organisations seeing lotteries as more of a profit-making business venture for the external lottery manager and its affiliates and commercial partners than an opportunity to benefit society.

5.0              Supporting proportionate deregulation for traditional society lotteries

Deregulatory measures worth exploring

5.1              While we firmly believe that there should be just one national lottery, we absolutely support the role of traditional society lotteries and fully endorse the principles of better regulation. We have worked collaboratively with the regulator of The National Lottery – previously the National Lottery Commission and now the Gambling Commission – to seek to deliver a more proportionate and fit-for-purpose regulatory structure. We think it is only right that consideration is given to deregulatory measures that could benefit society lotteries and, if appropriate, The National Lottery, and that any changes to the regulatory framework should be for the purpose of maximising benefits to good causes.

5.2              The ability of both The National Lottery and traditional society lotteries to maximise their returns to good causes relies on them operating in distinct and separate markets – and deregulatory measures should take this into account.

5.3              Two recent reports into the lotteries market – nfpSynergy’s report A Chance to Give (April 2013); and the Centre for Economics and Business Research (Cebr) report What have we got to lose? How society lotteries could do even more for good causes (February 2014) – make a number of recommendations on how the regulation of society lotteries may be changed to benefit growth and maximise returns. It appears to us that there are a number of suggestions that are worth exploring by policy makers. Specifically:

• Amend the 80/20 rule [20% being the minimum contribution to good causes] so that the minimum contribution is averaged over 3 years.

5.4              We think it makes sense for lotteries to be able to ‘average’ their contribution over a defined period of time – and not apply the minimum contribution to every single lottery. However, whether three years is the correct timescale is worthy of further debate and consideration – a shorter period of time would appear a more realistic timescale for a responsible operator focussed on maximising returns to the relevant good causes to achieve this average. Further, policy makers may also want to consider if this ‘averaging’ should only apply to new society lotteries – who will have to bear start-up costs in the early days of operation.

• Allowing gift aid on lottery ticket purchases

5.5              This certainly appears worthy of further consideration for the whole lottery sector including The National Lottery.

• A single registration for remote and non-remote licences

5.6              Duplication in regulatory process runs counter to the principles of better regulation and we would support streamlining wherever possible to reduce the burden on lotteries (including The National Lottery). However, such streamlining should not have the unintended consequence of reducing sensible, proportionate supervision of the operation of remote gambling facilities.

• Increase the good cause contribution in line with scale of the lottery

5.7              This recommendation is in line with Camelot’s own proposal around increasing the contribution to good causes for national competitors to The National Lottery.

Sharing best practice

5.8              In addition to regulatory or legislative change, there may be other ways of helping society lotteries raise more for good causes. Whilst Camelot is not expert in running society lotteries, we have lottery knowledge and expertise that we would be more than willing to share directly with society lotteries to help them become even more effective. For example, as the world becomes more ‘digital’ it is important to understand how this could impact on lotteries and their players – and to develop strategies accordingly. We have considerable experience of this and would be very happy to offer workshops on this or other subjects beneficial to interested traditional society lotteries.

Maintaining distinct and separate lottery markets

5.9              However, whilst we support proportionate deregulation for traditional society lotteries, there is one crucial caveat. Any deregulatory measures that have the potential to undermine the settled principle of one national lottery (alongside many small scale society lotteries) must be avoided. From a policy perspective, we all have to ask ourselves what we would prefer. One national lottery, closely scrutinised and monitored, subject to a rigorous competitive process at the point of grant of licence and one, moreover, which remains the globally-proven model to maximise returns to society. Or several large scale lotteries, far less closely regulated, pushing the boundaries of legislation and regulation, and crowding out the finely balanced co-existence that we believe Parliament clearly intended. We believe the latter outcome poses as great a threat to traditional society lotteries as it does to The National Lottery – and will undermine what has been, in the main, a very healthy and successful lottery ecosystem since The National Lottery was introduced.

5.10              Whilst there are a number of positive recommendations worthy of further consideration within the nfpSynergy and Cebr reports aimed at assisting society lotteries in maximising returns to good causes, we believe that any recommendations which challenge the fundamental distinction between The National Lottery and society lotteries will materially threaten long term returns to good causes and society, and the fundamental basis on which licences to operate The National Lottery are tendered and awarded.

Proposals to abolish prize caps for society lotteries

5.11              Both the nfpSynergy and Cebr reports question the need to have caps on society lottery prizes – this is also an argument used by some society lotteries and external lottery managers. However, these caps are exactly what separate The National Lottery from society lotteries – and as already discussed there is a deliberate policy separation between the two. The level of prizes on offer is a fundamental distinction between society lotteries and The National Lottery.

5.12              The Frontier Economics report reconfirms that one National Lottery is the most efficient method of raising funds for good causes – and removing caps on society lotteries would just result in more national lotteries. Put simply, if you open up a ‘national’ lottery to competition from lots of different society lotteries operating at a similar level, the inevitable consequence is that the money spent by players becomes fragmented across all of the different lotteries available. That leads to smaller jackpots, fewer tickets sold and, ultimately, far less money being raised for good causes.

5.13              We, therefore, fundamentally oppose any increase in prize caps for society lotteries.

6.0              Maintaining the ‘clear blue water’ between lotteries and gambling

6.1              Looking beyond the lottery ecosystem, we believe that there are two other issues which put long term good cause revenues at risk by blurring the ‘clear blue water’ between lotteries and gambling. These are:

• Betting on lotteries/lottery-style betting products
• Gambling advertising reviews

Betting on lotteries – muddying the ‘clear blue water’

6.2              In the UK, lotteries – whether run as part of The National Lottery, by societies or by other lawful means – are as a matter of public policy exclusively the preserve of good causes and are operated for the public good.  It is a fundamental principle that purely commercial lotteries are unlawful, and that the commercial benefit which may be derived from the operation of any lottery is limited.  This position has been acknowledged by successive government documents and statements over the years[6].

6.3              Since the introduction of The National Lottery in 1994, gambling operators have introduced betting products based on the drawing of numbers to capitalise on the popularity of lottery products (betting on lotteries – excluding, for betting operators licensed in the UK, The National Lottery). This has included the development of numbers games, such as the 49s game operated by some UK bookmakers, as well as the taking of bets on the outcome of international lotteries and lottery-style draws conducted specifically for the purposes of a betting product. 

6.4              While products which offer bets on lotteries have existed in bricks and mortar betting shops for some years – and have always been of concern to Camelot – in recent years, the gaming and gambling market has seen the emergence of online companies enabling consumers to bet on lotteries/lottery-style draws over the internet in direct competition to traditional lotteries. We believe this raises a different set of issues as consumers can more readily access these products in a ‘non-gambling’ environment, compared to a traditional betting shop. In entering a betting shop it is obvious to customers that they are engaging in betting activity; playing online sends no such obvious signal.

Tipp24 / Lotto Network

6.5              One such example is Tipp24 which offers, through its website ‘MyLotto24.co.uk’, bets on the outcome of EuroMillions and German Lotto games with the chance of winning multi-million pound jackpots. However, Tipp24 also provides a ‘business to business’ offering (Lotto Network) to sports clubs, foundations and charities on behalf of which it offers bets on the outcome of the German Lotto game.  This underlying proposition is however unclear to the player, as the offer is marketed to consumers as a large jackpot lottery-type game (for example Arsenal Lotto, Aston Villa Lotto).

6.6              Lotto Network is clearly positioned as an alternative to the traditional lottery model with overt comparisons made between the ‘pros’ of Lotto Network and the ‘cons’ of society lotteries. The excerpt below is taken from Lotto Network’s website:

Lotto Network is a forward-thinking alternative to the traditional lottery model.

With society lotteries, in which the prizes available to offer are uncompetitive, and their annual incomes capped, Lotto Network partners can offer supercharged multi-million-pound jackpots to your donors. In order to maximise new player acquisition and increase customer spend per draw, the ability to offer spectacular prizes is crucial. We enable you to harness the power of lotto and host staggering jackpots over 1,000 times bigger than the capped small society lottery top prize of £25,000.

Unlike society lotteries, with Lotto Network there are no expensive upfront fees to pay and no licences for you to acquire. You receive 26% of lotto revenue, and there’s no laborious ‘banking and thanking’ or paperwork to worry about.

We fund all prizes, whether your player matches three numbers or scoops an enormous rollover jackpot running into tens of millions of pounds. It’s as simple as that.

Talk to us today about how your organisation can benefit from becoming a Lotto Network partner.

Operating as a society lottery vs. partnering with Lotto Network

6.7              It is clear from the above that Lotto Network is positioning itself as a competitor to lotteries, and its website further outlines the scale of its ambition – and threat to the traditional lottery market, stating: “If, by adding a Lotto Network product, a fraction of the existing lotto market can be acquired, the potential is vast.” (http://www.lottonetwork.com/docs/about/lotto-market.shtml)

6.8              Not only does Tipp24 position itself as an alternative to society lotteries to target sports and charity organisations, as set out above, to consumers it positions itself as a direct competitor to The National Lottery – with a comparable proposition of large jackpots, lottery-style play and links to good causes. Further, evidence shows Tipp24 is partnering with the Health Lottery to offer additional lottery bet products. For example, the Health Lottery is the marketing partner for Lotto Network’s Jackpot Millions game. (https://www.jackpotmillions.com/app/terms_and_conditions.htm).

Cashcascade

6.9              There is also further evidence of a blurring between the charity and betting sectors with products such as Cashcascade enabling charities to raise money using betting on lotteries (https://www.cashcascade.org/charities.php). This illustrates the fact that the charity sector is already using betting products to raise funds, and that if charities continue to adopt the Tipp24 model the impact of betting on lotteries could be much greater in future.

Health Lottery partnership with Coral

6.10              However, it is not just gambling operators who have muddied this ‘clear blue water’. In autumn 2013, the Health Lottery partnered with Coral, the bookmaker, to offer a betting product on the outcome of the Health Lottery. The game, originally called Health Lottery Plus but subsequently changed to Health Lottery Bet, is clearly an example of a commercially-minded society lottery operator pushing the boundaries and extending its scope. It would appear a device to circumvent limits on society lotteries imposed by the Gambling Act 2005 as the game – which is a bet on the outcome of the Health Lottery – offers a jackpot of £1 million.

6.11              The Health Lottery further blurred the distinction between lotteries and gambling by launching Health Bingo and Health Jackpot (a bet on the outcome of the German Lotto game) under a licence granted by the Alderney Gambling Control Commission and using the Health Lottery brand.

Policy options to maintain ‘clear blue water’

6.12              We firmly believe that the operation of these games by gambling operators, who are effectively trading on the existing brand equity of lotteries for – in the main – purely commercial gain, is contrary to policy direction. The recent emergence of betting on lotteries online also raises new consumer issues. Camelot believes that these products fundamentally mislead consumers (not withstanding any ‘small print’ to the contrary) and therefore represent an unappreciated risk for consumers and lead to policy demarcation issues, which should be addressed through Government and regulatory action as a matter of urgency. Camelot proposes three options to address these issues:

6.13              (i) Prohibition of betting on lotteries          

While offering bets on the outcome of The National Lottery in reliance on a UK betting licence is effectively prohibited under the Gambling Act 2005, there is no similar restriction on UK bookmakers offering bets on other lotteries or lottery-style draws – such as society lotteries, lotteries in other countries, or draws organised by the bookmaker for the purposes of the bet. It is also an anomaly that it is prohibited under the legislation to place a bet on the outcome of the UK EuroMillions game (a National Lottery product), but it is entirely possible to place a bet on the EuroMillions draw where the game is promoted in another EuroMillions country (e.g. Austria). This is despite the fact that it is in effect the same game as UK EuroMillions, and that EuroMillions in another country actually forms part of UK EuroMillions (and vice versa). The Gambling Commission’s view to date has been that this activity does not breach the mandatory betting licence condition prohibiting bets on the outcome of the National Lottery specified by the Gambling Act 2005.

6.14    We believe that in order to maintain the ‘clear blue water’, all betting on lotteries and lottery-style draws – either in bricks and mortar outlets and online – should be prohibited under UK law. In relation to The National Lottery, we believe that the ‘loophole’ which allows operators to offer bets on the EuroMillions draw as promoted in another country should be closed; and in relation to society lotteries we ask that the current protection afforded to The National Lottery is extended to all UK licensed lotteries.

6.15         (ii) Improved clarity of marketing

We are also very concerned about the manner in which operators offering bets on lotteries advertise these products to consumers. Irrespective of ‘small print’ on the relevant website, we are concerned that consumers – especially those who play The National Lottery but do not engage in betting or other gambling activity – are unlikely to understand the fact that they are not playing a lottery but are instead undertaking a form of gambling which is rightly regarded as carrying different and greater risks for players.

6.16              Returning to the Health Lottery, we mentioned earlier the change in the betting product’s name from Health Lottery Plus to Health Lottery Bet shortly after its launch. High Street bookmakers have also, for a number of years, included the term ‘bet’ in the name of their products based on betting on the outcome of lotteries i.e. Irish Lotto ‘Bet’. We consider these to be helpful precedents for how to address this consumer confusion issue and believe that this approach should be enforced on other operators that offer bets on the outcome of lotteries.

6.17              Therefore, all products that offer bets on lotteries or lottery-style draws must only be marketed on the basis that they are bets (and as a minimum must clearly include the word ‘bet’ in their title, and preferably must not use ‘lotto’ or ‘lottery’ or similar wording at all).

6.18              (iii) Re-define all bets on lotteries as ‘pure’ lotteries

These transactions fall within the definitions of both ‘betting’ and ‘lotteries’ for the purposes of the Gambling Act 2005, and under section 14(7) of the Act the Secretary of State has the power to make regulations to specify that such transactions should be classed – and therefore must be regulated – as lotteries under the Act.

6.19              Therefore, all betting transactions on lotteries or lottery-style draws should be classed as lotteries, and therefore must be offered pursuant to a lottery licence.

Gambling advertising reviews

6.20              We also wanted to draw the Committee’s attention to one further concern that Camelot has around the ability of traditional society lotteries and The National Lottery to maximise returns to good causes. As the Committee will be aware, in March 2014 the Department for Culture, Media and Sport announced a number of inquiries into gambling advertising in the UK. We understand the background to the reviews and can appreciate why the area of gambling advertising is being looked at. However, we are concerned about lotteries getting wrapped up into a debate that has nothing at all to do with them.

6.21              As the Committee may know, the CAP and BCAP Codes make a very clear distinction between gambling and lotteries, with lotteries – including The National Lottery – covered in a separate section.  This reflects the reality that gambling and lotteries are completely different activities and are treated as such in policy terms – and in the specific case of The National Lottery, also having a different statutory basis from gambling.

6.22               It is worth noting that we have always taken our responsibilities around advertising and promotion of The National Lottery very seriously – alongside other gold standard player protection measures. Long before CAP and BCAP developed their Codes, we established our own Advertising and Sales Promotion Code designed so that our activities did not encourage underage or excessive play. In effect, we have been advertising responsibly since The National Lottery began in 1994 and this side of our operation plays a vital part in driving sales in order to raise the maximum amount for The National Lottery Good Causes. Further restrictions would come at a real price to these Good Causes. 

6.23              As mentioned we do not believe the various reviews are directed at lotteries but we are concerned about any unintended consequences which may result. For example, it has been suggested by some in the gambling industry that National Lottery advertising should carry a gamble-aware symbol. This is completely at odds with the vast majority of our players’ perception that they are not gambling at all and would therefore be more likely to generate confusion.  The consequence of this is that returns to the Good Causes could be damaged if people felt uncomfortable with the idea that they were engaging in gambling. 

6.24              Further, there has been debate around the 9pm watershed for gambling advertising and whilst lotteries – to date – have not been mentioned in this context, the potential consequences on good cause revenues should lotteries be wrapped up in the this would be severe.

6.25              In summary, any blurring of the clear demarcation (or ‘clear blue water’), always intended by Parliament, between gambling and lotteries would seriously inhibit all lotteries legitimate marketing and advertising activities to the detriment of the Good Causes we – and society lotteries – exist to serve.

7.0              Conclusion

Delivering a thriving lottery ecosystem with one National Lottery at its core

7.1              Maximising returns to good causes must be at the very heart of any discussion about lotteries. This was a fundamental principle when The National Lottery was launched in 1994 and it remains true today. The success of the lottery ecosystem has been achieved as a result of the very deliberate establishment of a highly-regulated single national lottery, and a clear distinction between The National Lottery and traditional society lotteries which has allowed both to co-exist in a complementary lottery ecosystem thereby maximising returns for good causes.

7.2              It is our strong belief that the ‘one national lottery’ system remains the best model to achieve the maximum benefit to good causes – alongside smaller scale, traditional society lotteries which are complementary to The National Lottery.

Supporting proportionate deregulation for traditional society lotteries

7.3              However, it is entirely right that traditional society lotteries should continue to have the necessary legislative and regulatory framework to allow them to continue to raise maximum funds for good causes. We support the principle of proportionate deregulation where appropriate to enable traditional society lotteries to thrive.

7.4              We caveat this with one very important point: any deregulatory measures that have the potential to undermine the settled principle of one national lottery alongside many small scale society lotteries must be avoided.

7.5              Our concerns about the existing regulatory framework rest primarily in cases where the distinction between The National Lottery and society lotteries has been blurred and the boundaries of the legislation and regulation have been pushed, no longer reflecting the original intention of Parliament. The precedent set by the Health Lottery, which has in all but name positioned itself as a national competitor to The National Lottery, is of particular concern and, if replicated, threatens to destabilise the ecosystem in which the lottery market successfully operates. We believe that opening up The National Lottery to substantial competition from society lotteries has the undesirable consequence that the money spent by players becomes fragmented across all of the different lotteries available, leading to smaller jackpots, fewer tickets sold and, ultimately, far less money being raised for good causes.

Maintaining the ‘clear blue water’ between lotteries and gambling

7.6              We also believe that the protection and promotion of a healthy lottery ecosystem must also include maintaining the clear distinction – or ‘clear blue water’ – between lotteries and gambling.  Lotteries and gambling have always operated in separate markets and been subject to different legislative, regulatory and financial obligations. However, we are becoming increasingly concerned about a blurring of the lines.

7.7              First, while products which offer bets on lotteries have existed in physical betting shops for some years – and have always been of concern to Camelot – in recent years, the gaming and gambling market has seen the emergence of online companies enabling consumers to bet on lotteries/lottery-style draws in direct competition to traditional lotteries. These products do not clearly make the distinction between lotteries and betting, mislead consumers and trade on the good name of lotteries for – in the main – commercial gain.

7.8              Further, we believe that the ability of the lotteries market to deliver the maximum benefit to good causes is also threatened by the recent focus on gambling advertising. While we understand the background to the various reviews of gambling advertising and can appreciate why this area is being looked at, we are concerned about lotteries getting wrapped up into a debate that has nothing at all to do with them. We believe that returns to good causes would be put at risk if changes are made to a lottery’s ability to advertise and promote themselves – and this includes any measure which, perhaps inadvertently, aligns lottery advertising more closely with gambling.

7.9              The National Lottery has been a tremendous success, raising over £32 billion for the Good Causes (well in excess of the Governments original top end forecast of £1 billion per year) – delivering benefits to communities throughout the UK for nearly two decades. We welcome the Committee’s interest in the lotteries market and hope that this inquiry will bring the necessary certainty and clarity to enable us to maintain a successful lottery ecosystem in the future.  

October 2014

List of Appendices [published as separate documents]

Appendix 1                            Frontier Economics, The Economic Case for One National                                                         Lottery, October 2014                                         

Appendix 2                            Frontier Economics, Comparison of the returns from The                                                         National Lottery’s Lotto Game and The Health Lottery, January                                           2014