Examination of Witnesses (Questions 270
- 286)
THURSDAY 16 NOVEMBER 2000
PROFESSOR IAN
WALKER AND
MS JULIET
YOUNG
270. You do say that lotteries are not good
vehicles for taxation because they are a larger part of the spending
of the poor than the rich. Is that true just of lotteries or is
it true of all forms of gambling? Have you done any research on
this?
(Professor Walker) It is certainly true of expenditure
on the online draw. If you look at the raw data then you might
get the impression that households in the top decile of the income
distribution spend approximately the same proportion of their
income as households in the bottom decile of the distribution—indeed,
I remember Virginia Bottomley saying such in the House six years
ago—that is true. However, the raw data can be misleading
and, in particular, people who are at the top of the distribution
are different types of people than the people at the bottom distribution.
People at the bottom of the distribution are much more likely
to be young or old. Young people do not play this game very much
because they have better ways of having fun. Old people do not
play this game very much because they are too old to enjoy the
winnings if they do win. Once you adjust for the characteristics
of individuals and isolate the impact of income on playing behaviour,
it turns out that the probability of participating in the game,
of buying a ticket at all, is a strongly decreasing function of
income. The richer you get, you are much less likely to play this
game. However, if you do play the game, the amount that you play
increases slightly with your income.
271. However, having said that, would it not
be true, and this is purely experience and not based on any hard
evidence, although I take your point the wealthier you are the
less likely you are to buy a Lottery ticket, you actually are
considerably more likely to buy a Lottery ticket than you are
to put money on the horses or to do the football pools. Is it
not the case—if you listened to the last witnesses they
spoke of the massive decline in the football pools income, which
largely came, in my view, from the poorer classes—the poorer
classes have transferred their gambling from football pools to
the Lottery but, on top of that, we have had gambling from a larger
percentage—not a large percentage but a larger percentage—of
the better off?
(Professor Walker) Yes. I think your intuition is
correct. This product development in the industry has moved expenditure
higher up the income distribution than it previously was. Playing
the football pools is only attractive to people who find football
an interesting game, presumably. My guess is that does not extend
as high up the income distribution as some other activities might.
I am pretty sure your intuition is correct and would be borne
out by the data.
272. Can I just shift on. You say, also, that
this is not necessarily the best way of raising money for good
causes. Essentially you say it should come out of taxation. As
a politician I have to tell you that the money the Lottery has
raised and given to sports clubs, to arts foundations or arts
generally throughout the country, most of my constituents, particularly
those who are poorer, would have found it very unacceptable if
that money had come out of general taxation and out of their pocket
when they are perhaps seeking a better health service, a better
education service or whatever.
(Professor Walker) I understand that entirely and
that is consistent with what we know from history, that lotteries
have been used in times and places where governments have found
it difficult to finance particular forms of expenditure from regular
sources of income. When the Quakers in Pennsylvania had the Red
Indians at the door even they ran a lottery to fund their defence.
It is clear that the game was introduced in the UK to fund forms
of expenditure which would be difficult to fund through regular
forms of taxation. That is the paradox of good causes, that if
it truly were good causes then you should put it in your manifesto
and people could vote for whether or not they wanted to fund this
activity. If it is not a good cause then the implication is that
the social return to expenditure on these activities might be
quite low. You do not have to go very far down river from here
to find an example, and I do not mean Westminster Bridge, which
was also funded by the Lottery.
Mr Maxton: Some of us happen to think
the building itself of the Dome is a wonderful building but there
we are.
Mr Keen
273. It is a complicated issue. You studied
this from a mathematical point of view, also from a psychological
point of view. I am like you two, really, if the odds are a million
to one, I do not care whether it is 14 million to one or 20 million
to one, you might as well just go and put the money straight into
the good cause without going through all the elaborate procedure
of helping to fund retailers and everything else and Camelot.
How many people think like us three?
(Professor Walker) There is some survey evidence on
this issue. The British Social Attitude Survey asked people about
their attitudes to a wide variety of things, not just political
parties but also to what might constitute a good cause. In recent
years I remember they were asked to rank causes in order of their
own preferences and it was interesting to note that the arts actually
came lowest down the ranking of potential good causes, even more
unpopular than ex prisoners and I did not know that there was
anything that was more unpopular than ex prisoners when it came
to charitable funding. Of course the most popular were things
like children in need and medical research, things that the Government
naturally funds through the normal exchequer and not good causes.
This is the paradox of good causes, if it really is a good cause
then we should be funding it from taxation, if it is not a good
cause then should we be funding it at all.
274. I was tempted to intervene when Mr Maxton
was asking. The problem is with electors they tend to change their
mind when it comes to getting close to election day because people
are forced, often because of their circumstances, to act in a
selfish way. Although I have more faith in human nature maybe
than I may be indicating now, you need a government to take those
decisions. People think short term as against long term and that
is very difficult to judge through the electoral process.
(Professor Walker) Yes.
275. It needs some intervention. Although I
am a great fan of letting the public make more decisions through
the electronic systems that we are developing we ought to leave
it to politicians. I was saying at the beginning, if it is a million
to one, to me it might as well be 20 million to one, if the odds
of my winning are so low, it does not matter if the prize is seven
million or if it is a rollover of £30 million, I still would
not do it, I would not buy a pound ticket for that purpose, it
just does not make any sense. Do people think like that?
(Professor Walker) The attitudinal data that we have
suggests that people do have preferences over the way in which
the game is designed. People might say that they would like it
to be run by a not-for-profit operator, for example, or they might
say the money should go to a particular good cause or not. It
turns out those individuals whose preferences are reflected in
the actual game design do not play any more than those people
who find that the game design does not concur with their own preferences.
In other words, people play not in order to lose money to charity,
but they play to win.
276. We have had this reading material from
you, could you tell us a little bit about the 6/49 versus 6/53?
(Professor Walker) Juliet was responsible for much
of this work, so maybe she will take that.
(Ms Young) Sure. What we found basically was that
if you changed it from six out of 49 to six out of 53 and kept
everything else the same, sales would probably drop. What you
would need to do is to fine tune it. When you are changing to
a 53 ball game, what you are doing is you are making it meaner.
For a regular draw less money gets paid out on average because
there is more chance of a rollover. You are changing that. It
also means that the people who do win tend to win more. What you
are doing is you are changing the entire probability distribution.
With no further changes, for instance, to the amount of money
that you allocate to the different prizes, that will probably
lead to a loss in sales. What you would need to do is to tweak
the game, perhaps by changing the amount of money dedicated to
the jackpot, to balance it out. You would get more rollovers of
course because of the game but the increased sales from rollovers
would not compensate for the loss of sales.
277. Why do you think The People's Lottery have
gone for 6/53 against the 6/49 then, is it basically they want
to see bigger prizes, they thought that would be the big attraction?
(Ms Young) Yes, more rollovers, more excitement.
278. Yet you are saying it is not the case.
(Professor Walker) I do not think The People's Lottery
have really understood the interactions between the different
parameters of game design. They appreciate the idea that people
like the long shots, that they are attracted to a small probability
of a large prize and, therefore, think "Okay, we will just
make it longer because that must be better". In fact that
is not necessarily the case. People might like a long shot but
making it longer may not necessarily be more desirable. Think
of the limit of making the game very, very, very difficult to
win, if you made the game almost impossible to win then of course
it would be a very unattractive game to play. Making the odds
longer does not necessarily make it a more attractive game. It
is true that rollovers do generate more revenue when they occur
but one danger of rollovers is that, like Harrods sale, which
happens once a year, people go crazy in that time but spend less
at other times. You buy your china in Harrods sale because once
a year it gets cheap, therefore you do not buy china at the regular
price the rest of the year. The idea here is that what rollovers
do is they encourage people to keep their hands in their pockets
during regular draws, so it reduces sales in regular draws, and
then the money comes out of their pockets in the rollover week
when the jackpot has accumulated. You have to balance big sales
in rollover weeks against smaller sales in regular weeks. It is
a difficult balancing act. It is not the case that you can simply
tweak one parameter and expect the game to necessarily grow.
Derek Wyatt
279. Do you think we have made a bit of a pig's
ear of this Lottery, having half awarded it to The People's Lottery
and then one step back and then a high court case? Is this a wise
move for the Commissioners to have made, do you think?
(Professor Walker) I think if they could turn the
clock back they may well do things differently. Hindsight of course
is a—
280. —real gift.
(Professor Walker) Yes. I think the process by which
the contract is awarded is rather more fundamentally flawed than
recent events would actually indicate. The reason I think that
is that it is essentially a beauty contest. Contestants parade
their attributes before a panel of well meaning, intelligent people,
and those people really have no basis on which to make comparisons,
they have no scientific methodology by which to make choices between
the alternatives that they are offered. So they make choices on
the basis of other criteria which they can understand. For example,
because the Commission does not really have the methodology for
evaluating the revenue implications of alternative game designs,
they have focused their attention on is on things that they can
understand and evaluate more easily, things like probity issues.
When Camelot did not put sufficient distance between themselves
and GTech then I think the Commissioners just felt exasperated
by this and made the logical choice.
Ms Ward
281. I notice from your submission that you
say there is little support in the surveys that you have done
for people playing more because it is a not-for-profit operator?
(Professor Walker) Yes. Again that is based upon the
attitudinal surveys that we have access to. People do express
an opinion on whether or not they would like a not-for-profit
operator. It is actually pretty evenly divided. If you look at
the distribution in the chart, it is actually pretty even, people
do not really care that much. More importantly, those people who
would actually like a not-for-profit operator but do not have
one do not play any less than people who do not care or prefer
a profit orientated operator. I would not agree with Mr Branson
when he says that a not-for-profit operator will necessarily generate
additional spending because people feel warmer towards such an
operator. There is no empirical evidence to support that, it is
just wishful thinking.
282. This is, of course, because people, as
we know, buy Lottery tickets, not essentially because they wish
to give money to good causes but because they want to win?
(Professor Walker) That is right, yes. It does not
matter really who operates it, the only question is who gives
better value. Camelot, of course, although one of the very few
private sector operators in the world, seem to have managed to
have run an operation which has, if not the lowest costs, then
pretty much close to the lowest costs in the world. Of course
it is a big game that they are running and there are economies
of scale in this game so you would expect their costs to be lower.
But even comparing their costs with other big games in the world
they seem to be running a fairly tight ship.
283. On that basis, then, would you say that
people would, when playing the National Lottery, play any less
because of the circumstances surrounding an operator? So, for
example, would players fall off because they were unhappy about
where the money went, whether that be to the Millennium Dome or
to the Opera House, whether or not it fell down because of issues
around the operator's pay or any other controversial areas?
(Professor Walker) As I said, the attitudinal evidence
suggests that where the money goes is basically irrelevant to
people's decisions. However, I think there is evidence internationally
to suggest that games which are not even handed would be very
unpopular with players. If it was the case that the game fell
into disrepute because of worries about the fairness of its operations
then it would die very quickly. For example, there is evidence
from Italy where games have been subjected to a certain amount
of undue influence, and as a result the public sector operator
in Italy actually had to hand over the operation to a private
sector operator because their reputation was so tainted by events
that had occurred. It is very important for the success of the
game that it is seen to be fair. It is clearly important it is
easy to play, you can do it electronically, and perhaps this discriminates
against other forms of gambling, that is true. It is very important
it is easy to play and it is perceived by the population as being
fair. If it was felt that somebody had an undue advantage then
I think that would be very dangerous for overall sales.
284. One final point, have you made any of your
findings available to the Commission?
(Professor Walker) We have seen the Commission. I
visited the original regulator, Mr Davies, early on in our research
to explain to him the kinds of things that we were thinking of.
He was very encouraging and actually provided us with quite a
lot of useful data. Recently we have seen one of the Commissioners
and tried to explain an early version of the methodology that
we were thinking about, and which Juliet successfully implemented
to see, whether they wanted to use that as part of their evaluations
but I had no particular feedback from them. Perhaps they thought
I was just a mad professor.
Mr Maxton
285. No answer.
(Professor Walker) Perhaps I am.
Chairman
286. I think that is a stimulating note on which
to end. Thank you for giving us as near an objective appraisal
of this contentious issue as it is possible. We are most grateful
to you both for coming.
(Professor Walker) It is a pleasure.
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