Examination of Witnesses (Questions 140
- 159)
THURSDAY 9 NOVEMBER 2000
SIR RICHARD
BRANSON, MR
JOHN JACKSON
AND MR
SIMON BURRIDGE
Derek Wyatt
140. I asked this of the previous group. Can
you just tell us what your overhead costs are?
(Mr Jackson) Overhead costs excluding retailers' commission
are 2.8p in the pound.
141. How much is that a year?
(Mr Jackson) Give me two minutes and I shall work
that out.
142. Did you say that your rollout would be
10,000 terminals in the first year?
(Mr Burridge) On the day that the new licence comes
into effect we should have rolled out 25,000 online terminals
and 11,300 Instants-only verifiers.
143. How much time do you need to do that?
(Mr Burridge) There are two ways of answering that
question. We would be rolling them out over a three-month period
but from the award of the licence to guaranteeing that they are
all in place, working, tested, functioning, we are asking for
12 months. That 12 months allows for the last terminal being installed
a month prior to the switchover from one licensee to another.
144. In the position you were put in where you
thought you were President of America or perhaps had the contract
for the Lottery, what were you actually told? Were you told by
letter or told on the phone?
(Mr Burridge) No, we were told face to face.
145. What? Congratulations, here is the champagne.
(Mr Burridge) No, no, no. Sadly we were called in
to the National Lottery Commission where the full Commission and
their advisers were present. Dame Helena Shovelton then took us
through pretty much the same text as she communicated to the outside
world some three quarters of an hour later, in which we heard
that these were the good points of our bid and that there were
some aspects of the bid which they felt needed additional work.
In the absence of that additional work, they felt unobliged to
award us the licence and therefore they were not in a position
to proceed under the current bidding phase. They then went on
to say that Camelot had also failed to meet the agreed criteria
and that they were therefore drawing this bidding process to a
close. At which point we felt sickened. They then went on to say
that, however, in their opinion and this coincides with the evidence
given in court, the defects, if I may call them that, of our bid
were relatively easy and could be solved within a month, whereas
they did not think that the Camelot defects could be solved within
a month. Therefore they proposed to start an entirely new bidding
process, the old bidding process having closed, and they would
proceed with us as a sole bidder. There were no congratulations
and as they left the room they asked whether we would like five
minutes to consider whether or not we were prepared to accept
this.
(Mr Jackson) To give you the quick answer to your
previous question, we average out at round about £215 million
per year.
146. As against £150 million for Camelot,
although they are going to confirm this. I just make that point.
(Sir Richard Branson) One of the reasons they asked
whether we would consider whether we wanted to continue was because
of the cost of continuing which has been some millions of pounds.
It has not been inconsiderable. It was worth continuing if we
felt we could succeed but it has not been easy.
147. I think we are aware of the £30 million
argument but apart from that what are the other "i"s
and "t"s?
(Sir Richard Branson) That was principally it.
(Mr Burridge) There were two. There was the £50
million, irrevocable, unconditional, without recourse to The People's
Lottery. The other one was the complete segregation of players'
prize funds so that in any eventuality the rights of the players
either to receive the prizes they had won or in the event of a
failed draw to get back their original stake were absolutely safeguarded.
The difficulty that is inherent in that position is that the easiest
way to resolve it in the event you go bankrupt is to make a full
charge of your assets to the receiver. As a debt financed bid,
and we received permission from the Commission before entering
into the competition that they would accept a debt financed bid
if we were to be the winner, you are unable in the first 18 months
while your loan is still being repaid to give 100 per cent charge.
What it involves is the very detailed drawing up of some quite
complicated trust deeds and trust programmes which is effectively
what Camelot did after being awarded the licence last time. We
were of the opinion, based on precedent, that we could catch up
with that once the licence had been awarded. That was the position
that we had taken and that was the position that the Commission
told us they were not prepared to accept in the original licence
competition.
148. If you are unlucky this time round probably
that is the last time anybody will be able to bid against someone
who has got a 14-year licence. Would you accept that it is pretty
unlikely that anybody will come through unless the state decides
it is going to do it itself?
(Mr Burridge) I should say it is extremely unlikely.
The costs of mounting this bid, if you include all the foregone
income from the suppliers who contributed and the running costs
which we have incurred, are about £20 million in total. It
has involved a colossal amount of work over an extended period
of time. When we joined the bid we were very keen to try to make
sure that the playing fields were as level as they could be. The
incumbent always starts with an advantage and that is recognised.
What we were very keen on, and we wrote to the Commission before
entering into the competition, was to say that if Camelot were
to win, we wanted assurances that they would win because they
were the best bid, not merely because they were the incumbent.
149. If you are unlucky, it would seem to me
that you will quickly issue a writ against the Lottery Commissioners
for the amount of money you have spent. You probably do not want
to say this in public and you probably want to reserve your position
but it would not be an unreasonable position to take, given the
precedent you have established and set before. What will your
view be about this?
(Sir Richard Branson) We would cross that bridge if
it came to that. Our feeling is that the rules which were laid
down by the court were very, very clear, that the fundamentals
of Camelot's bid could not be changed, the fundamentals of The
People's Lottery bid could not be changed. Camelot only had the
right to satisfy the Commission on whether they were right and
proper people to run the Lottery and we only had the right to
change our £50 million from a guarantee to a bank guarantee
and to put the trust position into place. On that basis we believe
that we should have won and we are hopeful that in two weeks'
time that will be the outcome.
Mr Keen
150. Most people who play the Lottery expect
not to get their pound back and not to win a fortune although
they obviously hope. You do not need two pennyworth of brains
to know that to be able to say to people as a publicity argument
that nobody is making a profit out of this and even if you lose,
which you know you are going to do most of the time, it is going
to good causes. That is the strength of your bid. I am talking
to Sir Richard directly when I say you have such a good reputation,
which you must be very proud of, but are you not terrified that
if you do not succeed with this—not with the bid; if you
succeed with the bid but then the income drops away—you
are taking away sporting facilities from people with disabilities
and all sorts of things? Do you not have sleepless nights? Can
you explain why you are still willing to do it? I should be terrified
frankly.
(Sir Richard Branson) I have felt passionately for
13 or 14 years that this is the way it should be done. There are
obviously risks involved in anything one does in life but we believe
that we have the expertise to set up and run companies and get
excellent people around us and you have met Mr Burridge and Mr
Jackson. Mr Burridge has given up a superb job to come and run
it and will do it extremely well. We know that the public want
to see it run on this basis and all the polls have indicated that
something like 90 per cent of the public would like to see it
run on this basis. In our £1 billion extra for good causes,
we have not taken into account the fact that market research indicates
that the public would play a little bit more if they knew all
the profits were going to good causes, that some of those people
who are lapsed players would come back and play again if they
knew all the profits were going to good causes. We believe we
can make it work. Yes, there are risks involved in doing anything
in life but this is as important a task as I have ever set myself
and as important a task as any of us involved have ever set ourselves
and we shall give it everything we can to make it a success.
151. I know you answered the question about
the 6/49 and 6/53 but do you not feel it is taking more of a risk
to change the basis of the game? Do you know whether the present
software system in the terminals can cope with Camelot making
a change or were they forced to stay the same or have they looked
at it and decided that it was not a good thing to do?
(Sir Richard Branson) The risk is actually staying
with a game which in our opinion does not work in the long run
for the size of population we have. The current game gets very,
very few rollovers and the game we are introducing will get three,
four, five triple rollovers a year and that is what gets the excitement
going with the Lottery. We believe that the game needs to be changed.
We believe that the new game we are introducing, which will make
many more millionaires and will reduce the odds of becoming a
millionaire from 50 million to one against to three million to
one against, is something which will be popular. It will be easier
to become a millionaire playing the Lottery now than premium bonds
or the horses, so the odds of becoming a millionaire would be
increased.
(Mr Burridge) One of the things you need to do, looking
at the risk of changing the game, is to look at the overall balance
of what the game can offer to various people. A fundamental requirement
of successful lotteries throughout the world is the frequent incidence
of rollovers. Rollovers happen very rarely under 6/49 because
it is a small game designed for the largest jurisdiction in the
UK. We are proposing to do a number of things, one of which is
a 6/53 move. That will increase the statistical probability of
the rollovers to 18 double rollovers and three treble rollovers
a year. There have been something like six or seven double rollovers
in total in Camelot's six years. That undeniably makes the odds
of winning the jackpot and odds of winning the prizes slightly
more difficult because it increases the odds of so doing. What
we have proposed is to add another game called a millionaire's
game where for an additional pound you get an extra number. That
reduces the odds of winning £1 million down from 14 million
to one as is currently the case, down to 3.2 million to one and
therefore is a much more accessible £1 million which is a
much more socially responsible level than some of the higher jackpots.
The other area which is really important is that there is a thing
within lotteries called the prize reserve fund which takes five
per cent off all the prize money and aggregates it for use elsewhere
by the Lottery operator. Camelot, in order to create artificially
high jackpots, used that money to guarantee jackpots or for super
draws which are particularly large ones. Because our lottery matrix
is self-fulfilling in terms of creating that level of excitement,
we are then able to use that money to create a whole tier of new,
smaller prizes from time to time such as, for example a £10
prize for getting no numbers, which will create a huge additional
number of winners at the bottom level. So there will be many more
winners as a result of our redeployment of that cash than would
be the case in the current situation.
(Sir Richard Branson) People will not mind losing.
At the moment if you lose and you do not feel good about the Lottery,
you do not like losing. If you know that all those profits have
gone to good causes, that will mean that losing will not be quite
so painful; we hope.
Mrs Golding
152. I find this fascinating. Yes, good causes,
people like to give to good causes, but they like to win as well.
I went to Melbourne Races last month and I went through the card.
To me that is really gambling and real excitement. How are you
going to get people like me who really want something else for
their gambling other than putting a pound down and hoping with
3.2 million chances of winning £1 million? How do you get
at people like me?
(Mr Burridge) I certainly would not back a horse at
those odds. In a sense the portfolio of lottery products is designed
within our bid to provide different things for different people.
It is limited in a sense to the formats we can employ. Just on
the online, there is this chance of fulfilling a dream and winning
large sums of money and lower sums of money all the way down.
We are also going to revolutionise completely the entire scratchcard/Instants
market with a range with a more generous payout structure and
a much more targeted range of scratchcards to suit individual
interests. The research into scratchcards from around the world
indicates that what people are interested in is not scratching,
it is the theme they are scratching. If, for example, you had
a sport related theme, it is more likely to appeal to a young
male. What has currently been the case is that no-one knows.
153. It depends on the sport.
(Mr Burridge) We have designed a programme of specific
themes to be more inclusive to specific sections of society, both
geographically, socio-economically and in terms of age and sex.
Within that we propose to market them individually. We did some
research into who knew what scratchcards are currently available
in-store at the moment, given that a lot of them are there for
18 months. Only one per cent knew 20 per cent of them. People
have no idea what is out there. If it is a theme-based interest,
Camelot have made it very difficult for them to go in and indulge.
Those tend to be much smaller prizes with a £25 here or £50
there. I am not sure it equates with going through the card in
terms of excitement.
154. I would not know any of the scratchcards.
I do not buy scratchcards.
(Mr Burridge) How could you know about them?
155. I still feel that you are going to have
to generate more people, give them more excitement. What levels
of payment? They must feel they want a return on the money they
are paying now. If you go through a whole year like Mr Fearn who
from the beginning keeps getting the same one number, how are
you going to do it?
(Mr Burridge) I shall make a note that it is 49.
156. Are you going to pay extra money for people
who get three numbers or four numbers?
(Mr Burridge) In our proposals, from time to time;
that is one of the flexibilities in that we can use the prize
reserve fund to do it.
157. Are you going to inject more money into
prize money? How will that affect the money going to good causes?
(Mr Burridge) No, 50 per cent of all lottery sales
will go to good prizes. That is enshrined within the Act and within
the licence. You have the ability to vary that from time to time
and game to game but overall within the year you must be looking
at 50 per cent payout. The inevitable fact of the Lottery, which
one just has to accept, is successful lotteries are based on failure.
Most people who play the Lottery will not win; the economics of
it cannot escape that conclusion. What we think is very important
and why the not-for-profit area is very interesting, is that we
need to give people permission to lose and to feel good about
losing again and again. We did some research recently which indicated
that of all the people who used to play the Lottery once, but
no longer do so, or who have never played the Lottery, 75 per
cent of those would play again if, one or a combination of these,
all profits went to good causes, there were better odds of winning
a million and there were more smaller prizes. We believe that
our bid offers all three of those conditions and therefore we
would look to expand the base and the way in which we market it
to involve more people.
Chairman
158. Perhaps I should clarify the declaration
of interest I made at the beginning by saying that I only came
to Virgin to help the family of the disabled boy in my constituency
after British Airways had refused to help.
(Sir Richard Branson) You should try us first next
time.
159. Mr Holley told us that the BBC paid Camelot
£1 million a year for broadcasting the Lottery results. In
the Republic of Ireland it is the lottery which pays RTF for televising
the lottery results. If you were to get the franchise, would you
ask the BBC to pay you or would you pay the BBC or would perhaps
some completely unfinancial arrangement be arrived at?
(Sir Richard Branson) That very thing illustrates
one of the problems of a company which is making vast profits
running what is in fact a monopoly and a licence to print money,
the National Lottery. The Lottery should go with the BBC but actually
what the BBC are doing every single week is promoting twice a
week, and even paying for the privilege, a private company which
is making tens of millions of pounds out of the Lottery. I do
not know whether I can answer that, but my own feeling on this
is that we should charge the BBC as much money as possible because
our principal duty is to maximise the amount of money for good
causes; but I am not sure.
(Mr Burridge) That is not entirely the approach we
have adopted.
(Sir Richard Branson) I am just one of seven votes
here.
(Mr Burridge) We would propose it to go to the BBC
because we think the BBC is the natural home for a national lottery
and we are keen to continue that. We have had a number of discussions
with them before and afterwards and it was suggested, and we were
happy to accept on the same basis as Camelot. We have not been
aggressive with them but they are proposing to pay us £1
million in the event we are successful.
|
