Examination of witnesses (Questions 300
- 319)
THURSDAY 23 NOVEMBER 2000
LORD BURNS,
MS HARRIET
SPICER and MR
MARK HARRIS
300. Is the most important factor, in your consideration
of this, the amount of money that each of the licence bidders
says they are going to raise, or is it, in fact, whether or not
they technically can carry out the Lottery without any break whatsoever,
and with a guarantee that there will not be any weeks in which
no Lottery takes place?
(Lord Burns) The legislation makes clear the criteria,
in terms of the responsibility of the Commission, both in terms
of propriety and in terms of protection of players. And it says,
subject to that, to maximise the returns to good causes. Clearly,
if there are interruptions, if there are periods when the Lottery
is not operating, that will have an impact upon levels of sales,
and that will feed into the whole question of the return to good
causes. You have to look at the whole set of risks that are involved,
in terms of both bidders, over the whole lifetime of the next
contract period, and to take that into account. Inevitably, it
feeds through into levels of sales, it will feed through into
the reputation of the Lottery, and it will feed through into the
amount of money that ultimately goes to good causes. So I do not
think there is a conflict, in other words, between an objective
of returns to good causes and some of the issues that you mention.
301. No, but there may be a conflict between
the two different bidders as to their technological abilities
to carry that out; that, presumably, is a very important part
of your consideration?
(Lord Burns) It is, but what I am saying is that,
if there are big differences between them, I would expect that
partly to show up in terms of the return to good causes, via the
whole question of the levels of sales, the reputation of the Lottery,
and the inclination of people to take part in it.
302. It is just there have been questions in
the press as to the technological abilities of, in fact, both
of the bidders?
(Lord Burns) That whole area is one of the areas that
has to be examined in this bidding process.
303. Lastly, on that, on the technology, are
you also considering the impact possibly that doing the Lottery
on the Internet may have, and even maybe on your own television
sets at home; is that one of the factors, again, you are taking
into account?
(Lord Burns) Yes. Both bidders do make proposals and
discuss the issue of new media. And, obviously, that too becomes
an issue in terms of future levels of sales, which in part is
going to be affected by competition from other forms of gambling.
304. Are you insisting, in terms of that, that
they must have, before they can do it, some means of ensuring
that those who are doing it on the Internet or by those means
are not under age?
(Mr Harris) Yes.
305. You are; and that would be part of the
criteria that will be used?
(Mr Harris) Yes; it is made absolutely clear in the
invitation to apply, which is the basis of competition, that we
would expect to see plans in the bid at this stage which set out
how the bidders would avoid and prevent under-age play, and that
before any game was licensed, and there would be a further process
to license individual games, we would want to look at that in
more detail and see that that would work properly.
Chairman
306. What expert technological advice do you
have, and is it in-house; if not, to whom do you go?
(Lord Burns) We have appointed consultants who are
giving us advice on technology. We have appointed consultants
on a range of issues.
307. Are you able to tell us who they are?
(Mr Harris) Yes. The consultancy is a firm called
Hedra.
308. Thank you. Perhaps you could provide us
with some written information about this?
(Mr Harris) Certainly.
Ms Ward
309. Perhaps, before I start, I can place on
record that my Register of Members' Interests includes the following
entry: "In my Christmas card competition for children last
year, three local companies made a donation towards the costs;
one of those companies was GTech. The sum involved was £250.
After paying the bills, there was a small surplus, which was donated
to a local charity." We heard, Lord Burns, from the bidders
when they came before us, that, on the level of operating costs
for the current bid, Camelot have operating costs of around 4.3
per cent and The People's Lottery at around 2.8 per cent. What
information have you looked into, at the moment, in comparison
with lotteries around the world, to consider what would be the
normal level of operating costs, and what is the criterion that
you are looking for, is it best value for money, or is it the
cheapest?
(Lord Burns) This questioning begins to get me into
the territory which I regard as sensitive, because inevitably
it begins to get into the analysis in the discussions that we
are having. We are, of course, looking at the cost structures
of both bids. We are comparing them with experience in other parts
of the world, where there are other lotteries. The criteria that
we have to focus on, in this part of the analysis, is the whole
question of the amount of money going to good causes, what the
risks are involved with that, and what the likely returns are.
We will be looking at the cost structures in detail, in order
to throw light on that process. We will be doing the best we can,
in terms of using analysis and information which exists both in
terms of other lotteries but also, of course, in terms of the
detail of the cost structures of both bids. But I cannot get into
the analysis itself, I am afraid.
310. I am trying to think in what other way
I can phrase this then that would make life easier, but perhaps
I can ask about the level of operating costs in relation to profits,
or not profits. If, in the case of The People's Lottery, operating
costs increased, as they are a "not-for-profit" bidder,
they cannot pay those increased operating costs out of profit,
whereas Camelot, we assume, would pay it out of profit. What happens
in those circumstances, if the costs increase, does it come out
of the good causes, or does it come from some bond, or guarantee
that is required?
(Lord Burns) I think, first of all, it will come from
good causes, because part of the secondary contribution will be
lower than it otherwise would be if the level of costs are higher
than they were predicted. And, insofar as there is not room within
that, it will have to come from the reserves in the form of the
guarantees that have been given.
311. So that fundamentally would be a difference
between the two bidders, which is that, if operating costs estimated
are wrong for either Camelot or The People's Lottery, Camelot
would pay it from profits, The People's Lottery would have to
pay it from good causes?
(Lord Burns) I think part of the Camelot proposal
is also that part of their contribution above a certain level
is related to the level of profit, so there is also some feedback,
in terms of their bid, in relation to the contribution to good
causes. But, to a greater extent, I would expect that the changes
in costs would feed through into good causes from the TPL bid,
yes.
312. So what was the guarantee that was asked
for from The People's Lottery over the summer, when the Camelot
bid was rejected and The People's Lottery was asked to rework
the figures? What was the basis of the guarantee; was that only
a guarantee for a prize fund, not a guarantee for miscalculations
on operating costs?
(Lord Burns) I think it was to cover both, the whole
question of the financial structure at lower levels of sales than
those that were predicted, and also to guarantee the prize fund.
(Mr Harris) But I think it is important to say that,
at that time, it was The People's Lottery who said they would
make an additional £50 million available, it was their figure,
but at that time the Commission could not see that that figure
had actually been made available, that there was a clear and unambiguous
facility available from a bank to them for the full seven years
of the licence. And what was asked by the Commission at that stage
was that they confirm whether or not that was truly available,
committed and the Commission could rely on it being there, should
it be needed.
313. So that would cover prize fund and miscalculations
on operating costs then, effectively?
(Ms Spicer) It is not narrowed down to those two points;
it is the financial resources of the operation, in their widest
sense.
314. We understood, from the press, at the time
of the statements by your predecessor, Lord Burns, that you were
looking very clearly at the levels of sales of tickets; is that
a direct comparison of the two bids, will there have to be the
same levels of sales in order to gain the same revenue? How is
it that you are assessing the criteria for sales of tickets?
(Lord Burns) Part of the analysis is to seek to assess
what the levels of sales will be over the period of the licence
from both bidders, given the game plans, given the marketing plans,
given the general approach that they are taking. It is true that
the statement that was made in August said something about contributions
to good causes at equivalent levels of sales. But, in terms of
taking this exercise through to completion, we will not be assuming
that levels of sales are the same. It will be part of our analysis
to seek to judge what the levels of sales will be under both bids;
because this becomes a very important part of the analysis of
the contribution to good causes.
315. We took some evidence last week from a
Professor, who is an expert in lotteries, although he admitted
that he had never actually bought a ticket, which I thought was
rather interesting.
(Lord Burns) He had met somebody on an aeroplane.
Ms Ward: Yes, he had met somebody on
an aeroplane; it is strange who you meet in aeroplanes.
Chairman: That is what "expertise"
means, actually.
Ms Ward
316. However, clearly he had done quite a lot
of work and had found funding for this research. He says that
he has submitted his evidence to the Commission; have you read
it?
(Lord Burns) Yes.
317. Would you like to comment?
(Lord Burns) I read it last weekend, in some detail.
I thought it was a very interesting piece of work. He had employed
a large amount of analysis to it, and he certainly helped to clear
my mind about some of the complications that are involved in the
whole question of the design of the game. There are a lot of different
factors that have to be taken into account, and I thought he laid
that out with great clarity. I also noticed that, as one got to
the end of the paper, and if you got into the Annex, it also said
that there were, however, still quite a lot of problems with the
model, in terms of some of the statistical work that had been
done. I think the implication being this was probably not the
final word.
318. And what do you think about his comments
on the game matrix?
(Lord Burns) I do not wish to comment on the question
of which of the matrices is likely to lead to most sales, but
I thought that he set out some of the issues quite clearly, both
about the importance of the rollover and the skewness, in terms
of increasing interest, but also pointing out that there comes
a point where if you take that too far you diminish the interest
in the regular weekly game when there is no rollover. These various
factors interact together in a very complicated way. Therefore,
there is no simple statement that you can make such that the more
rollovers the better, or the least rollovers the better. I thought
that his paper brought all this out in an interesting way, without
commenting upon the conclusions that he reached.
319. And are you taking his submission as expertise,
or are you using any other advisers who are experts in lotteries?
(Lord Burns) We are looking at this as part of the
process. Clearly, I think, all of the people engaged in this process
have read the paper, but we are also looking at a number of other
issues, too. What happens in other countries, what experience
has been elsewhere, and, in the end, we will have to make our
own judgements.
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