BATTLE FOR LOTTERY

The UK National Lottery

The Inevitable Conclusion, Or A Sting In The Tail

Since 1994 operator Camelot has presided over the UK’s native lottery enterprise. Fast-forward to present day, and it stands on the precipice of winning its fourth successive term as principal provider of the country’s lottery services. In its relatively fledgling history, no other firm has been given the operational responsibility to run the government’s most lucrative public contract.

Some commentators would suggest that this latest chapter of bidding is yet another open-and-shut case. Indeed, Camelot certainly seem in pole position, if you pardon the pun, to keep the keys to the castle. However, this not quite yet cut and dried.

The latest tendering instalment has unravelled in a rather odd, contradictory landscape. Fierce but discreet, aggressive but distant; this year’s race has been fought in an atmosphere of ambiguity and suspicion. A number of parties jockey for position in an intensively competitive field, aiming to secure a decade-long licence projected to be worth circa £80bn in ticket sales alone. No wonder the tension is tangible. Camelot’s platform of ownership doesn’t appear to crumbling under the pressure, but watching three gaming heavyweights throw their full force behind their respective campaigns must be daunting prospect.

The Gambling Commission has been eager to keep the bidding process tightly under wraps. It’s not difficult to see why. Successive tender procedures have been wrought with controversy and intrigue. And, although the regulator only inherited governance of the process in 2013, the Commission will inevitably keen to preserve an image of integrity and credibility. Public announcements, lobbying, and commentary on rival bids have all been forbidden, as the UK’s body for gaming control suffocates any prospect of further drama.

However, we at least know the bidders, and a sense of the scale of the investment ploughed into their individual campaign trails. Czech billionaire Karel Komarek, looks to wield his considerable influence, as his firm, Allwyn Entertainment, targets licensing rights. Media entrepreneur Richard Desmond is also on the hunt, with his Health Lottery subsidiary, Northern & Shell, fronting up a bid. Last but not least, Italian gaming giant Sisal, which is set to be acquired by Dublin-based Flutter Entertainment, has also put its hat in the ring. Their bid is endorsed by current West Ham Football Club vice-chairman, Baroness Karen Brady. Although exact figures remain unclear, it seems that each endeavour has been the

subject of unprecedented funding.

Recently, reports have emerged that the Gambling Commission has already picked its ‘preferred bidder’ said to be incumbents Camelot. As part of its regulatory role, the organization is empowered to present, to the Department for Digital, Culture, Media, and Sport, who they feel is the best-placed candidate to assume control. In order to mitigate against the threat of hostile competitor reaction, as has unfortunately been the case in previous years’ bidding rounds, the Gambling Commission has orchestrated an ‘objective’ score card in which to grade participants.

In 2007, Indian lottery operator Sugal and Dumani intimated they were prepared to take legal action over the award of Camelot’s third consecutive term. Although this eventually didn’t materialise, it wasn’t the first time a lottery tendering process had heard rumblings of discontent. In 2000, as Sir Richard Branston built his Virgin empire, the mogul looked set to add the national lottery to his considerable business portfolio. However, this bid was kiboshed after a ministerial review, and summarily again awarded to the current contract-holders.

The hope is, by grading this year’s contenders on transparent scoring criteria, the threat of any legal action will be suitably mitigated. However, rumours of potential High Court activity emerged long before news of an established regulatory favourite. Indeed, this only served to further fuel the fire.

Although the claim that a preferred bidder has already been selected is proactively refuted by the Commission, it adds another de-stabilizing impact to a race already infused with considerable volatility. The sums up for grabs were always going to preempt conditions for unpredictability and hostility, and this latest development has certainly not helped the cause for cordiality.

Furthermore, the inclusion of a ‘solution risk factor’ measure within the assessment strategy has led to increased agitation amongst the chasing pack. It’s likely that any judicial review will be based on this metric, with the three challengers likely to suggest that this measure heavily favours the existing tender. As this scoring accounts for 15% of the whole decision-making process, it’s argued that this could be the determining contributor to a another victory for the Watford-based firm. This sentiment is shared by a number of government ministers, with Tory MPs within the Culture Committee particularly vocal about the potential harm this aspect has to the integrity of the competition. Indeed, in a recent interview with the FT, Julian Knight, chair of the aforementioned group, asserted his view on proceedings,

‘’I would like the Gambling Commission to make clear precisely its methodology and how much weight it gives to incumbency. If you give so much weight to incumbency, you could end up giving Camelot a 10m start in a 100m race and that would raise the question of what the point is of the whole process?’’

Giles Watling, MP for the Clacton borough, has also expressed concern, emphasizing that certain rival bidder capabilities have been overlooked. Watling stresses the group’s cumulative experience in running lottery programmes in other states, a factor that has seemingly been omitted from the Gambling Commissions evaluations. However, Secretary of State Nadine Dorries, confirms that the regulator has made no formal declaration of ‘preferred bidder’ status to her department. Ultimately, Dorries will hold most political influence over Prime Minister Boris Johnson on the matter, the man empowered to cast the final vote. Therefore, the road to resolution still feels ambiguous.

A fourth contract award on the bounce would of course reap high financial rewards for parent company Ontario Teachers’ Pension Plan (OTPP). The pension fund management firm stands to accrue £0.05p for every £1 of business turnover, resulting in prospective aggregate profits of around £400m. As events have been so secretive, it’s been difficult for analysts to objectively critique the merits of Camelot’s own efforts. Therefore, there is little available commentary on how the regulator will score the remaining 85% of the current lottery operator’s bid.

Regardless, given how the high stakes are, it seems events are hurtling towards the court room. Komarek’s Allwyn Entertainment, previously branded as SAKZA Entertainment AG, has already mobilized legal partners Freshfield and Bird & Bird. Industry big-boys Flutter Entertainment, committed to the takeover of bidder Sisal, are also anticipated to go down fighting. They’ve already made an eleventh-hour plea to the Gambling Commission to revise any concrete conclusions made to date.

Yet, the regulator continues to stress the credibility of its approach. Speaking recently in the media, the organization’s ‘Fourth National Lottery Licence Competition’ (4NLC) executive director, John Tanner, stated, ‘’Our job is to run the best competition we possibly can- one that is open and fair and results in the best outcome for players and good causes’’

Furthermore, in reaction to a Telegraph report released on 9th February, which suggested that the regulator had already arrived at a conclusion on their favoured candidate, a spokesperson for the group said,

‘’The competition process has yet to conclude. The Gambling Commission Board of Commissioners make the final decision and will inform the Government when that decision is made.’’

Whatever the outcome, the legal wrangling between parties could be a messy, protracted outcome. Due to the coronavirus pandemic, the original announcement for tender, due to take place in Autumn last year, was postponed five months. We’ve now passed that timeframe, which could be both an indication of decisionmaking nervousness, and a metaphor for how a possible legal feud may pan out. Industry experts do anticipate that the winner will be notified at some point in March, but this won’t close the book on what could grow to be a particularly poignant episode in the lottery’s 28-year tenure.

Sisal, Northern Shell, and Allwyn Entertainment are not exactly consigned to defeat, but the evidence in circulation does suggest a triumph of retention for the Camelot Group. The market waits to see whether political lobbying, legal pursuit, or indeed a shock twist in the final stages wrestles the contract away from its stubborn custodians. One thing is for sure, whichever suitor emerges victorious will certainly be taking the jackpot home……