Select Committee on Culture, Media and Sport Minutes of Evidence



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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