Examination of Witnesses (Questions 80
- 97)
THURSDAY 9 NOVEMBER 2000
SIR GEORGE
RUSSELL, MR
TIM HOLLEY
AND MS
DIANNE THOMPSON
80. Am I right in thinking that apart from South
Africa most lotteries are state owned and state run?
(Mr Holley) There are some in Australia, Austria and
one or two other countries which are for profit but the majority
are state owned.
81. Forgive me, but why do we not just run this
like we did the premium bonds and all the other things? I know
that is not your answer but why did we decide to go a route most
other countries have not taken?
(Mr Holley) That is a matter for Parliament. Parliament
decided to set up the Lottery in the way that it has been set
up and we bid originally in line with the Act and that is really
a question for others. When I am asked that question I have always
answered and I shall now, that it is quite legitimate to have
a lottery which is run by governments; perfectly legitimate. A
lot of them are very good and we have talked to a number of them
about working together for the future. For example, in our bid
we have said that we would introduce an international game. This
is not something which is new. There are examples in America where
lotteries combine to have a single draw; the same thing happens
in Scandinavia, in Australia and in Germany. I personally have
talked in Europe to the head of the French Lottery and the Spanish
Lottery and we have an agreement in principle that at some stage
in the future, if we are successful with our bid, we shall introduce
a European game which will cover at least those countries. Clearly
if there is a common currency that would help that particular
draw. We have also been approached by a lottery in the US and
one in the Pacific who would also be interested in doing the same
thing with us. This is another example of an innovation. We happened
to have an argument with the National Lottery Commission on this
subject because it was ruled out of our bid due to doubts around
the legislative approvals, whether we would be able to get agreements
from the other countries. Obviously if you agree with them you
are going to do it, they get agreement in their countries, so
we hope the National Lottery Commission will take this into account.
That is expected to yield something in excess of £1 billion
for good causes in the next seven-year licence if we are running
the Lottery.
82. You said you originally had 35,000 terminals.
Is that what you intend to have in your next bid or do you expect
to have more or fewer?
(Sir George Russell) We were not planning to change
the number of terminals. One of the things we have committed in
this bid which has not been announced is that we are going to
maintain 1,000 of them as community terminals which will continue
even though they cannot be justified on any profitable basis.
83. Is there any band-width space in the terminal?
If you had them in rural areas or sub post offices could they
be used for e-mails? Is there any way in which this could be developed
into a national grid, beyond just delivering the Lottery?
(Mr Holley) Yes, is the answer; it could. May I answer
in two parts? The terminals with the games we have introduced
are getting full of all the software and we plan, if we are successful,
to put in new terminals which will have more capacity. Then it
becomes a matter of the communication links and whether there
is capacity on the communication links and the answer is yes.
We have always felt that here is a national asset which could
be better used. The difficulty is that we should have to convince
the National Lottery Commission if we were running other applications
across the whole network that we could do so without taking the
eye off the ball and disadvantaging the Lottery and therefore
the money for good causes. Technically the answer is yes.
(Sir George Russell) I had a dream about this sort
of thing. It was a very simple one that it was quite logical to
have any election run through the Lottery terminals. The obvious
point was that people would turn up on Saturday and buy their
tickets and vote. It is a very simple way of running a referendum
or election. As soon as I pointed out that might mean there were
30 million voters going to vote, it became a little less popular.
It is still the kind of thing that is genuinely possible if you
say it is not a national lottery but a national network. Do you
want cash points, dispensers? They are all there. When you have
a focused situation like we have it is quite difficult to do much
about it which is why we turn to overseas as a way out for ourselves.
84. I am sure the Florida electorate will be
looking at that with interest.
(Sir George Russell) My concept might
not be so clear now.
85. May I confirm that you have put additional
usage of a national lottery infrastructure but it is the decision
of the Commissioners as to whether or not that can be used for
anything else other than lottery, not Parliament?
(Mr Holley) Yes. May I explain the present
position under the National Lottery Act. I referred earlier to
ancillary income. If we are to put any other application across
the network we have today, we have to go first and seek permission
of our regulator and they will then ensure all the safeguards
I mentioned a moment ago.
86. Last year in 1999 there were 550 million
text messages across mobiles, largely from 18 to 30-year-olds.
I assume that in your bid you have a text type of game but are
there any data protection issues which would have to be changed
or altered in order to play or participate in a two-way game on
a mobile?
(Ms Thompson) There are many issues around
that. One of the biggest concerns we have is actually the prevention
of sales to under-16s. At the moment when all sales are being
done on a face-to-face basis at a retail outlet even that is not
foolproof but at least it is far safer than things which have
been done remotely. In our bid there is a very detailed registration
procedure which obviously takes all the issues of data protection
into account. The only way we should be really safe on the under-16s
issue is when we get to the more sophisticated technology like
iris recognition or thumbprint recognition. Yes, there is a very
detailed section in the bid on that.
Mr Keen
87. You said you did not contemplate ever going
and trying to get work abroad separate from the National Lottery
until 1997 and you did not do it earlier because you thought it
would look bad and OFLOT were asking questions. Were there no
other restrictions other than OFLOT saying they were not too happy?
Were no restrictions put into the agreement before you started?
(Mr Holley) As far as I can remember, no, there were
none.
88. That is very strange.
(Sir George Russell) The restriction was, as we said
with these other ancillary things, that we could not do anything
without their approval. You cannot start a new game without their
approval. That is the fundamental restriction.
(Mr Holley) May I slightly correct what I said? I
do apologise. What we have done to pursue the business overseas
is to set up a separate company. What we were not allowed to do
by our licence was to use Camelot Group plc which runs the UK
National Lottery to do any other business. That is a single purpose
company and only to run the UK National Lottery.
89. Was there any restriction in the licence
to stop you competing with a possible successor after the end
of the contract? Did you have to sign any agreement that you would
not set up in competition in any way?
(Sir George Russell) I think the answer is no, but
you cannot run a second national lottery, you have to get the
same approval to do it.
90. There are people running lotteries privately
now, are there not?
(Mr Holley) What someone can do is go along to the
Gaming Board and seek a licence to run a charity lottery. That
would, if we lose our licence, be something which would clearly
be open to us to do. If you look at it in terms of scale, then
you are looking at something relatively small.
91. Why is that? Because the public would regard
the National Lottery as something to which they want to contribute?
(Mr Holley) Yes and it has been very successful and
is an established brand and people do identify with it.
92. You said you would keep the terminals and
modify them if you are not awarded the next contract. Would you
consider doing anything which would damage the National Lottery
earnings?
(Mr Holley) We have no plans to do anything and certainly
nothing to damage the National Lottery. We cannot at the moment
see what opportunities there would be. Our focus is all on trying
to win this competition and our staff are tremendously enthusiastic
and keen about what they do for the National Lottery. If we fail,
of course we shall have to see whether there are any small business
opportunities which we can pursue to provide some ongoing employment
for our people.
93. It does seem that few restrictions were
written into the licence, were they not? It seems very strange
to me that nobody thought of putting in restrictions. For instance,
if somebody purchases a business from a private individual, conditions
are always put in that you cannot start up in the same business
within a certain number of miles within a certain period. I know
that is always limited by common law but it is strange that nothing
was put in. No criticism of you. It is a criticism rather of ...
(Sir George Russell) At that time everybody was looking
at getting it running as opposed to what to do when you shut it
down. It was a totally different scene in those days. Now we are
focused on things none of us ever looked at.
94. The profit Camelot makes is small compared
with the total turnover. What is the return on capital invested?
(Sir George Russell) I do not know. Do you?
(Mr Holley) Yes. It is just over 20 per cent.
95. That is pretty high is it not?
(Mr Holley) It is but in this sort of business you
look more at turnover rather than the capital employed. The capital
employed is not that high. It is a people and service type of
business; you have to look at it in that way.
96. I am not enquiring into what you did but
what will happen in the future. Did Camelot ask for competitive
tenders, say for the terminals, or did ICL, because they were
part of the company just take it for granted that they would supply
the terminals and whatever they charged would be okay? Was competition
considered? The same with Cadbury Schweppes. Did Cadbury Schweppes
actually tender for the services they were going to give or did
you just form the company with those individual companies and
then they charged whatever they wanted? I am not insinuating they
charged more than they should have done, I am just asking how
it was done.
(Mr Holley) What happened was that as the shareholders
came together to form Camelot originally, they did so on the basis
they would provide certain services. So in a sense they were guaranteed
those supply contracts. However, in order to put in a competitive
bid, and there were eight bidders at that time, every single area
of supply was benchmarked against industry experience in the lottery
business. The other shareholders went to argue with the one shareholder
who was supplying a particular service to make sure their bid
was competitive. Right at the last round of putting together our
bid, because we wanted to make it more competitive, the then Chairman,
Lord Dearing and I went to see all shareholders and made them
sharpen their pencils and reduce the prices so that we knew we
had very competitive supply contracts.
97. I have been on record in the past saying
I was frightened that the public's view of the National Lottery
had been damaged by the bonuses and high salaries which were paid.
Some very serious discussions must have gone on when you decided
what bonuses and what level of bonuses and salaries to pay. It
did damage the public perception at the time; you can argue about
how much. What sort of consideration did you give at the time?
Did you think it could possibly be damaging? You repented afterwards
so you must have made a mistake.
(Sir George Russell) I do not think anyone thought
that anything we were doing was going to damage the situation.
I was not chairman then. I have spent lots of time looking backwards.
Hindsight is easy, but I made the point three years ago that with
hindsight the bonus ought not to be paid on one day in the middle
of the contract. If the object were to reach a target, every year
there were targets to get there, and it would have been far better
to pay it out in steps, then there would not have been this great
big thing turn up in the middle which embarrassed the hell out
of us, caused enough trouble for the Government, because they
did not know whether to attack us or defend us at the end of it,
which is perfectly fair because it was a big surprise. We did
not see it this way. With hindsight the concept of paying people
this to get them to leave very secure jobs, very major contracts,
because we wanted the best—this was Lord Dearing to me,
because I went to see him about it—was right. I do not believe
they should have been paid any less, but they should have been
paid for getting there, not just when they did get there. I think
that is the point. Since then, equal work has been done because
at the same time the shareholders, the non-executive directors
and myself—none of whom are on any of these bonuses by the
way, you should know that—met to try to decide how to hang
onto people because it became obvious with the not-for-profit
statement, a pretty major attack on us as a company, that it was
going to be pretty difficult holding onto this lottery and everyone
is extraordinarily proud of what they have achieved. As I was
not part of the original team, I can say this very publicly. They
are very proud of what they have achieved, they did not want to
see it get into trouble, but they also realised that to hold onto
people at the end on a loss situation was going to be difficult.
So we took decisions then that there would be a bonus system based
on a win and a bonus system based on loyalty until the end. That
was decided by all the shareholders and the remuneration committee
and then the full board. This was all very deliberately done three
years ago. Nothing has changed, apart from the fact that we may
not have won.
Chairman: Thank you very much. We are
most grateful to you.
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