Camelot UK Lotteries Ltd — Written evidence (CHA0115)
Executive Summary
The National Lottery has had a hugely positive impact on the UK since its introduction in 1994 –providing an essential funding stream to charity organisations.
The National Lottery has transformed communities and enriched lives across the UK. In total, over £35 billion has been raised for National Lottery Good Causes and over 490,000 grants made to projects large and small, the length and breadth of the UK.
National Lottery funding is a vital source of income for the future of the charity sector and needs to be secured – and we are at a pivotal point in the lottery policy landscape.
The National Lottery supports charitable organisations across the UK, funding projects ranging from small, local organisations (e.g. charities such as Wintercomfort[1] or the Halton Carers’ Centre[2]), to national charities and multi-agency partnerships (e.g. Save the Children or The Samaritans). The Big Lottery Fund is the largest funder of communities in the UK, distributing £650m each year to projects, and the majority of those grants are made to local organisations and are for less than £10,000. It is essential that The National Lottery remains vibrant and healthy through the protection of the ‘one national lottery’ model, which has repeatedly been deemed the most efficient way to maximise returns to Good Causes and society. The Government is currently considering possible changes to the lotteries market. While we are supportive of reducing regulatory burdens and encouraging cost-cutting measures for traditional smaller society lotteries – which play an important role in raising funds for charities – 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.
The policy and regulatory environment must enable The National Lottery to flourish.
In order to protect and maximise returns to Good Causes:
- We absolutely oppose any changes to the prize and proceed limits for society lotteries. These are the very measures that separate The National Lottery from smaller, traditional society lotteries.
- A cap on expenses for national competitors[3] to The National Lottery should be reintroduced. This expense cap should be set at 15% of revenue – as was the case prior to the Gambling Act 2005 (this expense cap was alongside the minimum contribution of 20% to good causes). For the avoidance of doubt, we are not proposing that this measure is extended to all society lotteries – only national competitors.
- Any bets on the outcome of a EuroMillions draw should be prohibited in line with the original intention of the legislation. The Gambling Act 2005 (s.95) prohibits bets on any lottery which forms part of The National Lottery, in order to protect returns to Good Causes.
The direct link between The National Lottery and funding for charity organisations must be highlighted at every opportunity. It is essential that players know where their money is spent and understand the huge role they play in funding local charity organisations. This ensures the ‘life-changing’ link between playing The National Lottery and Good Cause funding reaches players which in turn has a positive impact on participation in The National Lottery and therefore increases returns to Good Causes.
1 Introduction
1.1 Camelot is the licensed operator of The National Lottery and is pleased to respond to this Call for Evidence by the House of Lords Select Committee on Charities. This submission relates to question 7 of the call for evidence (finances and resources).
1.1 A healthy and vibrant National Lottery is absolutely vital to ensure the continuation of much-needed funding for local and national Good Cause projects, many of which are registered charities. This requires both the buy-in of policy makers who provide a regulatory framework in which The National Lottery can continue to grow and thrive, and National Lottery players, who must understand their role in raising funds for Good Causes. To achieve this, it is essential that beneficiaries communicate the source of funding so that players can see the presence of National Lottery funding at projects in their local communities.
1.3 We are currently at a pivotal point for lottery policy as the Government is considering possible changes to the lotteries market. Any consequences – intended or otherwise – that damage The National Lottery’s ability to maximise returns to Good Causes would inevitably impact on the funding available for projects and charities across the UK.
1.4 However, it must be stressed that we recognise the important role of traditional society lotteries in providing much-needed funding for charity organisations and are supportive of reducing regulatory burdens and encouraging cost-cutting measures for traditional smaller society lotteries – they should have the necessary legislative and regulatory framework to support them in raising maximum funds for good causes. Our concerns lie in the proposed changes to the caps on proceeds and prizes – these would enable large-scale society lotteries which operate on a national scale to move into ‘life-changing’ prize territory, intended to be the sole preserve of The National Lottery.
2 ‘One National Lottery’
2.1 In order to generate the highest returns for Good Causes, it is vital that The National Lottery is both protected and able to grow. This can be achieved by providing the optimum regulatory environment for The National Lottery and enabling it to continue to meet the changing needs of consumers by offering innovative, appealing and responsible products.
2.2 Since its introduction in 1994, and based on the Government’s own extensive research into the most efficient lottery model, The National Lottery has effectively operated as a monopoly in order to maximise returns to Good Causes[4]. A single national lottery at scale provides the basis for a stable and consistent regulatory regime where the interest of players, Good Causes, society and the operator (via a small and tightly regulated operating margin) are aligned and protected.
2.3 The economic case for whether Good Causes are best served by having a single national lottery provider has been revisited a number of times since The National Lottery was introduced. The conclusion has consistently been that there should be a single national lottery at scale, which maximises player interest and participation (and therefore Good Cause funding).
2.4 In order to make a clear distinction between The National Lottery and smaller traditional society lotteries, prize and proceed limits exist for society lotteries – with the top prize currently capped at £400,000. This clear demarcation reflected a policy decision about people’s motivation to play: people play society lotteries primarily as a means to give to charity; and play The National Lottery primarily to be in with a chance to win life-changing prizes[5] - which should be the preserve of The National Lottery. This balance ensures that charities benefit on both fronts – from maximised returns from The National Lottery and also from society lotteries which enjoy loyal support for local charities.
2.5 The advent of national or ‘umbrella’ society lotteries such as The Health Lottery and People’s Postcode Lottery has blurred this distinction between The National Lottery and other society lotteries. These large-scale society lotteries, marketed and sold on a national scale, encroach into the territory originally intended to be the sole preserve of The National Lottery through its monopoly model. We are concerned about the impact that this can have on The National Lottery’s ability to maximise returns to Good Causes.
3 Risks to National Lottery funding for charities
3.1 It has been proposed by some society lotteries that the limits on prizes and proceeds for society lotteries should be increased. These limits are the very measures which separate The National Lottery from society lotteries and preserve the balance between the two. The current top prize for society lotteries is £400,000 and it is illustrative to note that with the exception of the People’s Postcode Lottery, no other society lottery comes close to the current £400,000 prize limit for a single draw (out of 117 society lotteries researched by Camelot, 80% have a top prize of less than £10,000).
3.2 Camelot recently commissioned research[6] with over 1,000 consumers to identify the impact of increasing the jackpot for society lotteries on player participation. As the below chart clearly highlights, increasing the jackpot materially increases the likelihood that consumers will play umbrella society lotteries. For example, likelihood of playing the People’s Postcode Lottery at jackpots of £500,000 and £1 million increases by 15% and 67% respectively (vs. the current £400,000 jackpot). The results for the Health Lottery are even more stark with likelihood of playing increasing by 60% for a £500,000 jackpot and 145% for a £1 million jackpot (vs. its current top prize of £100,000).
3.3 The same research also identified the source of funding for the increased play. As the chart below illustrates, the research found that around two thirds of consumers expect any additional play to come at the expense of The National Lottery.
3.4 Not only would increasing the jackpot for umbrella society lotteries increase consumers’ likelihood to play at the expense of The National Lottery in some form, it also appears to change the motivation behind their decision to play. As a result, motivation to play moves away from the traditional (and settled) policy position around donating to a good cause, towards more interest in winning big prizes – moving away from the original purpose of society lotteries which should be “promoted for the benefit of a non-commercial society” and conducted for “charitable purposes”[7].
3.5 But why is this of concern? A comparison of the returns to society and operating costs of The National Lottery’s Lotto game, the Health Lottery and the People’s Postcode Lottery reveals that every £1 spent on The National Lottery delivers much more for society (Good Causes and Lottery Duty) than £1 spent on ‘national competitor’ society lotteries. In the case of the Health Lottery, it only returns the statutory minimum of 20% to Good Causes whilst the People’s Postcode Lottery returns 30%. The National Lottery’s Lotto game returns 41.8% to society – delivering twice as much per £1 spent to society than the Health Lottery and nearly 40% more than the People’s Postcode Lottery.
3.6 Furthermore, the regulatory regime for the Health Lottery and People’s Postcode Lottery allows them to spend a significant – and disproportionate – amount of revenue on advertising. It cannot be correct that in 2015 the Health Lottery and People’s Postcode Lottery with combined annual sales of c. £220 million spent only c. 12% less on advertising than The National Lottery (with sales of £7.595 billion).
3.7 Over the past six or so years, The National Lottery’s share of advertising has been significantly squeezed with both the Health Lottery and People’s Postcode Lottery increasing their spend. In the last year these national competitors have been joined by Lottoland (a company that takes bets on the outcomes of lotteries – please see section 4), which has represented around 10% of ‘lottery’ advertising spend in some months. In the first six months of 2016, the main lottery competitors (the Health Lottery, People’s Postcode Lottery and Lottoland) have collectively spent more on advertising than The National Lottery[8].
3.8 The disproportionate amount spent on advertising by these competitors (respective to their market share) clearly distorts the lottery market and crowds out The National Lottery. This dilutes the impact of The National Lottery’s communications and has a consequential impact on Good Cause revenues. Further, it has resulted in The National Lottery needing to spend more on advertising and marketing in order to protect its market position. This situation is likely to be exacerbated if the top prize for society lotteries is increased as competitors could further encroach into National Lottery territory by promoting larger jackpots.
3.9 For these reason we would urge policy-makers to:
- make no change to the top prize for society lotteries;
- reintroduce a cap on expenses at 15% of revenue for national competitors to The National Lottery[9].
4 Maintaining the ‘clear blue water’ between lotteries and gambling
4.1 We 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 have been subject to different legislative, regulatory and financial obligations. However, we are becoming increasingly concerned about a blurring of the lines.
4.2 A key issue is the prevalence of companies offering bets on lotteries. Our principle concern in this area is that under UK legislation[10] it is prohibited to take bets on the outcome of The National Lottery, including the outcome of the UK EuroMillions game (this is to ensure returns to Good Causes are not damaged). However it is an anomaly that it is 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 the UK EuroMillions game (and vice versa).
4.3 We believe that any bets on the outcome of a EuroMillions draw – such as those offered by Lottoland[11] – should be prohibited in line with the original intention of the legislation which prohibits bets on any lottery which forms part of The National Lottery.
4.4 Beyond the specific issue of betting on EuroMillions, we are also concerned that, 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 – the gaming and gambling market has seen the emergence of online companies offering bets on the outcome of lotteries/lottery-style draws more generally, directly competing with traditional lotteries.
4.5 There are some operators offering bets on lotteries which do not meet, in our view, basic levels of transparency as to whether the product they are offering is a bet or a lottery. As a result, they mislead consumers and trade on the good name of lotteries for – in the main – commercial gain. Again, it should be stressed that lotteries “cannot be run for private or commercial gain” yet in the majority of cases, bets on lotteries do not have a charitable or good cause element.
4.6 We believe that all bets on lotteries should be clearly and prominently labelled as such to enable consumers to easily distinguish placing bets from playing a lottery, therefore ensuring player protection and compliance with the Gambling Commission’s guidance on the matter.[12]
5. The importance of recognising National Lottery funding
5.1 It is vital to the long term brand health of The National Lottery that players know how their money is spent. Progress has been made over the years to inform players of projects large and small, the length and breadth of the UK, which have benefited from National Lottery funding. Initiatives such as the development of a common National Lottery brand and the annual National Lottery Awards are examples where The National Lottery family worked collectively to the benefit of The National Lottery and showcased the amazing work of funding beneficiaries. More recently, Camelot has introduced an ‘editorial board’ which has representation from the National Lottery Promotions Unit. The editorial board looks to utilise our extensive communications channels to amplify the Good Causes message to as wide an audience as possible. Its aim is to be part of the national conversation and tell stories about people, not just projects, so that there is a real connection between players and the Good Causes they fund.
5.2 But beyond these National Lottery initiatives, there is also a clear need for those projects which have benefited from National Lottery funding to publicly recognise its contribution and display the iconic ‘crossed fingers’ logo – recognised by 95% of the population – at every possible opportunity. The projects are the face of Good Cause funding and represent the tangible benefits that National Lottery funding can bring. Increasing awareness of its reach and impact reinforces the ‘Life Changing’ purpose and the positive outcome of every National Lottery ticket sold or game played.
5.3 There has been considerable investment by Camelot in telling the life changing story, making the connection between playing, winning and giving to good causes. The ‘Play Makes It Possible’ tagline has been a central element to National Lottery marketing for over a year, on the basis that knowing about National Lottery Projects promotes positivity and has a direct impact on players’ participation in National Lottery Games and therefore increases returns to Good Causes.
5.4 The National Lottery family is working closely with the charities and projects that benefit from funding to encourage them to display National Lottery branding at facilities and on their websites and social media channels. While there has been great progress in this area, the way in which people consume media is changing and the need for a common voice is greater than ever. In order that players understand how buying a National Lottery ticket contributes to both local and national Good Cause projects the story must be told clearly and in a way that resonates with the public. It is essential that the whole National Lottery family, including the distributors and beneficiaries of funding, are collectively working to make that link clear, and we must all have higher expectations as to the way in which National Lottery funding is acknowledged.
6. The wider impact of National Lottery funding
6.1 The wider impact of National Lottery funding is more difficult to quantify but equally important. It can kick start the regeneration of an entire area and can also unlock other forms of funding – it can be 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, with donors keen to be part of the success and to maintain it – it becomes a positive cycle with more funding leads to better facilities and so on.
6.2 One example is Golden Lane Housing (a subsidiary of Mencap), which in 2012 used social investment from the Big Lottery Fund to develop a charitable bond that could fund specialist housing for people with learning difficulties. They initially purchased 27 properties and housed 99 people, with the strength of that model enabling them to go on and raise further funding through the London Stock Exchange and grow the portfolio to 400 owned properties, 275 leased properties, and serve 1320 people with learning disabilities. Through projects such as these, National Lottery funding has changed and enriched lives across the nations and regions, and supported thousands of local organisations doing great work in their community.
6.3 It is essential that the policy and regulatory environment enables The National Lottery to flourish, so that the vital funding it provides can continue to support charities across the UK for the future.