Memorandum submitted by Camelot
1. EXECUTIVE SUMMARY
Camelot acknowledged the need for a review of existing gambling legislation but expressed concern about the implications of any changes on the National Lottery.
Of the 176 recommendations in the Gambling Review Report research suggested that the National Lottery would be most seriously impacted by changes to three gambling sectors. Camelot's response therefore concentrated on the following three areas; the proposed liberalisation of societies' lotteries, the introduction of side betting and the deregulation of bingo. The cumulative impact was estimated at around £400 million per annum in steady state.
Although Camelot's response to the Gambling Review Report focused on liberalisations in three sectors of the gambling industry, the wholesale deregulation of the industry which has been proposed will inevitably impact on the National Lottery's ability to maximise returns to the Good Causes.
Camelot welcomed the Government's decision in the White Paper not to introduce side betting on the National Lottery.
Camelot remains concerned about proposals in the White Paper to liberalise society lotteries and to deregulate bingo as this will enable operators to more closely engage with the National Lottery.
the National Lottery has a unique role in returning money to the Good Causes. The Government proposals to desegregate a number of other sectors in the Gambling Commission maintain the National Lottery's position at the "soft" end of the gambling, distinct from the rest of the industry. Consequently, the National Lottery should continue to be regulated separately as any single regulator would experience a conflict of interest between the need to maximise returns to Good Causes and the commercial requirements of the rest of the industry.
In order for Britain to become a global gaming centre, on-line regulation must be introduced as soon as possible. However, high standards of player protection must be maintained in order to avoid excessive or under-age play.
Camelot is committed to the development of new methods of distribution via new technologies in order to increase player choice where appropriate. However, Camelot remains committed to supporting and investing in the existing National Lottery retail network.
Camelot as operator of the National Lottery welcomes the opportunity to respond to the Select Committee Inquiry into the proposed changes to gambling legislation, A Safe Bet for Successmodernising Britain's gaming laws. 
During the first seven year licence period, Camelot has raised over £10.5 billion for the Good Causes. During the same period, Camelot paid more than £4.2 billion in lottery duty. Consequently, the UK National Lottery has for the past six years ranked as one of the most successful lotteries in the world in terms of returns to Good Causes and the Exchequer.
The success of the National Lottery in raising money for over £11.3 billion to date for the Good Causes can be seen through the allocation of over 97,000 grants, benefiting a diverse range of projects. The connection between the amount spent on the Lottery and the awareness of where it is allocated is important to the health of the National Lottery brand. Camelot has recently undertaken a campaign, which it has been working on for some time, along with its partners, the National Lottery distribution bodies, to raise public awareness of this Good Cause funding. This campaign included television advertising, extensive activity with National Lottery retailers and stakeholder receptions in each of the four countries. It is anticipated that this campaign will be repeated in the future. Camelot has also restructured the brand architecture so that the main game has now been renamed "Lotto", allowing the National Lottery brand to be promoted independently of the games.
Around 60 per cent of the adult population play the National Lottery with the average spend per week on the National Lottery Game of £3.32. The UK National Lottery is ranked 34th in the world in terms of per capita spend which has been achieved with lower levels of problem gambling than elsewhere in the world.
Now, in the second licence period, Camelot will continue its commitment to maximising sales and returns to the Good Causes. This will be achieved through a £1 billion investment programme over the second seven year licence period. This will include investment in new technologies in order to offer players a greater choice of games and methods of play whilst maintaining the highest standards of player protection and social responsibility.
Whilst committed to the development of new methods of distribution in order to diversify player choice, Camelot remains committed to its existing retail distribution network throughout the next licence period. This network has ensured that around 94 per cent of the population live or work within a couple of miles of a lottery outlet. It has also provided additional income for a large number of independent retailers. Camelot has embarked on a review of its retailer estate following a year long consultation with the Retailer Forum in order to ensure that sales of National Lottery products are being maximised whilst maintaining high levels of accessibility. This policy has several components, all of which have been agreed following extensive consultation with retailers and with reference to the Office of FairTrading (OFT);
A minimum weekly sales target (MWST) of £1,500, which is half of the £3,000 per week which is the average level of sales for National Lottery retailers.
Any retailers performing below the MWST will receive a full 24-week support package from Camelot to help them to achieve the target.
In the event that retailers are unable to achieve the higher level of sales, terminals will be reallocated using the Optimum geo demographic mapping system. This system compares the lottery demand in an area to the number of terminals and is used in conjunction with local knowledge to ensure that player accessibility is maintained whilst maximising returns to Good Causes.
Camelot has ensured that up to 1,000 lottery outlets will be designated as "community" outlets. These are outlets which are located in an area where there is no other on-line outlet within two miles and which, if removed, would result in an increase in the number of households that were more than five miles from such an outlet. The "community" outlets are being introduced in order to ensure that rural and some urban communities' are adequately served and will be excluded from the review.
3. THE NATIONAL LOTTERY AND THE GAMBLING REVIEW REPORT
Camelot recognised the need for modernisation of gambling legislation in the UK in view of the development of new technologies and changing social attitudes to gambling.
In Camelot's response to the Gambling Review Report, it was acknowledged that many of the 176 recommendations in the Gambling Review Report would have no individually measurable impact on the National Lottery. However, there was concern that the report did not recognise the potential implications of individual proposals or of the full set of recommendations on the National Lottery. Evidence from other international jurisdictions has shown that deregulation in other sectors of the gambling industry has had a significant impact on Lottery sales.
In presenting the implications of the recommendations for the National Lottery, Camelot drew upon independent research commissioned from the Henley Centre ("Henley") and PricewaterhouseCoopers ("PwC") both of whom developed models to predict the impact of the recommendations on the National Lottery. The reports estimated that if all of the recommendations were implemented there could be a detrimental impact on returns to the Exchequer and the Good Causes of up to £400 million per annum in steady state.
Camelot concluded that there were three main areas of concern in terms of the recommendations from the report and the detrimental impact on the National Lottery; the proposals relating to the introduction of side betting on the National Lottery, the liberalisation of societies' lotteries and deregulation of bingo were considered the most harmful for the National Lottery.
Research examined to what extent the liberalisation would impact on Treasury revenues, it was estimated that over the next seven year licence period the Exchequer would experience a loss of £2.8 billionlosses of £2 billion to the Good Causes and £800 million to the Treasury.
In addition to the detrimental impact on returns to Good Causes and Government, Camelot expressed concern about the impact on the 120,000 jobs supported by the National Lottery.
The Impact of Sidebetting
The Gambling Review Report did not acknowledge that sidebetting on the National Lottery would be a substitute for playing the National Lottery and, as such would impact on the ability to maximise returns to Good Causes. Sidebetting is currently illegal in other jurisdictions with the exception of Ireland, where it was estimated to have reduced sales by as much as 20 per cent. According to PwC, this measure could reduce returns to the Good Causes by £425 million and the net impact on Government could be as much as £510 million throughout the second seven year licence period.
If side betting were to be introduced, bookmakers would be able to offer products with potentially life altering prizes in competition with the National Lottery offering whilst trading on the National Lottery brand. This would damage the brand.
It would be wrong for commercial operators to have the opportunity to trade on this public brand when they have not made any investment in its success and may potentially bring the brand into disrepute. Camelot has invested heavily in the brand during the past seven years and intends to continue doing so throughout the next licence period. This investment has included:
The installation of 25,000 new lottery terminals around the UK completed in January 2002 at a cost of £68 million.
£5 million in new alpha gols technology.
£72 million investment in re-launching the brand in the first year of the second licence as committed during the bidding process, of which £29,700 was spent of brand redesign.
£45 million investment in interactive technologies.
£3.2 million in the Nations Lottery campaign an ongoing initiative to raise public awareness of lottery funding.
Liberalisation of Societies' Lotteries
The report suggested that the market should be opened up to alternative lotteries despite the fact that current legislation recognises that the National Lottery is the most efficient method of raising money for the Good Causes. As operator of the National Lottery, Camelot was opposed to changes in this area because of the potential for cannibalisation of demand, which would be exacerbated by the proposed removal of prize limits, and the introduction of rollovers.
The proposals offered larger charities the opportunity, perhaps in partnership with major retailers, to move into this area at the expense of some of the smaller good cause recipients that currently receive funding.
Societies' lotteries do not pay duty, whereas the National Lottery pays duty of 12 per cent. In addition, society lotteries deliver a minimum of only 20 per cent to Good Causes, compared to up to 32 per cent from the National Lottery. Indeed, research from both the Henley Centre and PwC suggested that these proposals could result in losses of up to £1,280 million to the Good Causes and £1,090 million to Government over the second licence period.
The Deregulation of Bingo
The Gambling Review Report proposals suggested allowing the bingo industry to offer higher jackpots and rollovers enabling more direct competition with the National Lottery. These proposals potentially encouraged substitution away from the National Lottery in turn reducing returns to the Good Causes and Government. The total impact of the bingo recommendations on National Lottery revenue over the course of the second licence period was estimated at a loss to the Good Causes of around £153 million.
4. RESPONSE TO PROPOSALS IN THE GOVERNMENT WHITE PAPER "A SAFE BET FOR SUCCESSMODERNISING BRITAIN'S GAMBLING LAWS"
Camelot welcomed the Government's decision, in the Gambling White Paper to recognise the unique position of the National Lottery in raising funds for the Good Causes and the need to ensure the ability of the National Lottery to continue to maximise these returns. A position which was endorsed by the Rt. Hon Tessa Jowell MP, Secretary of State for Culture, Media and Sport in a speech on the 20th March, "But I can assure you now that we shall not be gambling with the future of the National Lottery . . . I am clear that it would not be right to proceed with measures which would significantly harm the ability of Lottery to raise money for Good Causes."
The Government's proposals in the White Paper recognised some of the risks to the National Lottery, which were highlighted in the reports commissioned by Camelot as part of the submission to the Government's initial consultation.
Side betting on the National Lottery
Camelot welcomed the Government's announcement regarding the proposed introduction of side betting on the National Lottery ". . . the Government considers that the benefits of removing the remaining restrictions are not so great as to justify running the risk." Camelot remains concerned that sidebetting would not be complimentary to the National Lottery but would be a substitute for it. On that basis, the potential impact on the National Lottery and its ability to maximise returns would be devastating.
Proposals on Society Lotteries'
Camelot welcomed the acknowledgement in the White Paper that,
"Competition would probably reduce total income for Good Causes; prize pools would each potentially be smaller and therefore less attractive to people seeking a life changing winning amount . . . There is also a clear risk that charities with the most direct popular appeal would benefit at the expense of smaller charities now supported by the National Lottery".
The decision to double jackpots for society lotteries is an issue which Camelot will continue to monitor in terms of the impact on the National Lottery's ability to fulfil it's licence commitments.
Changes to the Bingo Sector
Camelot retains some concerns over Government proposals to abolish existing prize levels in bingo games and to abolish rollovers. The proposals will allow bingo operators to offer life-changing amounts effectively bringing the bingo sector into more overt competition with the National Lottery with a subsequent negative impact on returns to Good Causes. Camelot will continue to monitor liberalisation in this sector.
Liberalisation of Casinos
Camelot recognises that a number of the measures relating to the liberalisation of casino legislation are necessary and overdue in a changing gambling environment. However, it is essential that this area is approached with caution in order that any changes to this environment take account of the need to ensure high standards of social responsibility.
Camelot also believes that the regulatory framework must ensure that the Gambling Commission has adequate powers to regulate effectively in this sector.
In Australia the proliferation of gaming machines, almost 190,000, machines for a market of less than 20 million people, in casinos led to vastly increased numbers of problem gamblers, as a result of relaxed legislation and difficulties in enforcement. In New South Wales, which has more than 100,000 gaming machines a freeze has been imposed in order to avoid any further problems.
Changes to the Legislation on Pools Competitions
The White Paper recommends that "... pools competitions should be allowed to have on-line entries and be able to pay out winnings to the same levels as the National Lottery ... pools competitions should be allowed to offer unlimited rollovers". Camelot is concerned that this will allow the pools operators to move into the same territory as the National Lottery in terms of offering potentially life changing prizes.
5. THE PROPOSED REGULATORY FRAMEWORK
The Gambling Commission and the National Lottery
The Government recognised in the White Paper that "while the National Lottery involves gambling; the unique support which it provides for Good Causes has led the Government to conclude that it should not operate on the same playing field as other kinds of gambling." Camelot believes that this unique role in returning money to Good Causes requires a separate regulatory structure, which ensures that this role can be fulfilled. On this basis, Camelot would continue to argue that the National Lottery requires a separate regulator and should not be regulated by the proposed Gambling Commission.
A single regulator for the whole industry including the National Lottery, is likely to experience a conflict of interest between the legislative requirement on the National Lottery to maximise returns to the Good Causes and Government, and the aims of the rest of the industry. Camelot is concerned that the requirement to maximise returns to the Good Causes and the interests of other sectors would be irreconcilable, making it impossible for a single regulator to fulfil all of the obligations placed on it.
The Government proposals mean that the National Lottery will be segregated at the "soft" end of gambling meeting the highest possible standards of player protection and social responsibility. The rest of the gambling industry however will be desegregated, with operators able to offer both "hard" and "soft" gambling products on one premises. It is essential that in such an environment regulation does not use the "softer" products as a benchmark for regulation, effectively regulating all products at the level of the "softest" offering regulation must be proportionate to the potential risk posed to consumers and society of the "hardest" product on offer. The softest products must not be used as a defining point for standards of player protection. Unless the Gambling Commission employs proportionate regulation in this area there is a danger that the National Lottery will become isolated at the softest end of the market.
6. PROBLEM GAMBLING AND PLAYER PROTECTION
Camelot's Player Protection Strategies
Camelot is required under the conditions of the licence to develop and implement strategies to prevent excessive and under-age play of the National Lottery. Camelot has therefore, after extensive liaison with its stakeholders, developed a formal set of procedures for game design, marketing and sales in order to underpin the strategies for the prevention of excessive play which extend beyond regulatory requirements. These include:
The development of a game design protocol which is a framework for risk management and socially responsible game design. This is a research tool designed to allow Camelot to classify a new game in terms of having high, medium or low potential for there to be excessive levels of play amongst vulnerable players. Vulnerable groups are described as children under 16 years, low-income groups and those with a tendency to gamble excessively.
Responsible approaches to marketing and sales. A marketing policy of "think 18".
Continued support for proof of age initiatives such as citizencard that can provide much needed assistance for retailers.
During the second seven year licence period, Camelot has committed to carrying out 10,000 visits each year (an increase from the current figure of 5,000 each year), across the UK as part of Operation Child. This is a test purchase initiative that uses young people aged 16 or over who look younger, to carry out test purchases at National Lottery retailers. The scheme tests that "reasonable safeguards" against under-age sales are in place combined with sanctions for those who fail on a "three strike" and out basis. During the first licence period this initiative provided effective in dramatically reducing the number of retailers selling during undercover test purchases.
Education and awareness raising amongst young people and adults of the dangers of problem gambling. After consultation with a number of leading gambling charities, including GamCare, Parentline Plus, the Parental and Education Support Forum and the National Family and Parenting Institute, Camelot recently launched a parental awareness campaign in order to highlight to parents the dangers of gambling to children.
There has been extensive consultation on the development of our strategies with our stakeholders the public, pressure groups, retailers and suppliers through our annual social and ethical audit.
Over the past three years Camelot has invested over £1.2 million in player protection strategies. This includes support for GamCare and Gordon House. This financial commitment to these organisations is an additional charitable contribution over and above a profound commitment to the high standards of social responsibility, which operate within every function of the National Lottery operation.
the National Lottery Commission (NLC) understands its role as ensuring the integrity of the National Lottery and player protection, subject to the fulfilment of these first two duties the maximisation of returns to Good Causes is required. This means that although the National Lottery is at the least harmful end of gambling is the most heavily regulated.
The Gambling Industry Charitable Trust
Camelot has worked with the rest of the gambling industry in setting up the Gambling Industry Charitable Trust. However, because of the unique nature of the National Lottery, Camelot has decided that it not be appropriate to be a permanent member of the Trust at this time as the National Lottery remains differentiated from other gambling products. The White Paper suggests that the main thrust of the Gambling Industry Charitable Trust should be the treatment of problem gamblers whereas the priority for the National Lottery will continue to be the prevention of problem gambling rather than the treatment of problem gamblers. Camelot will however, continue to work positively with the Trust and will share best practice where appropriate. In addition, Camelot will also continue to make contributions to the preventative and treatment work of GamCare and Gordon House.
7. REGULATION OF ON -LINe GAMBLINg
Camelot welcomes the Government's recommendation in the White Paper that there should now be moves "towards legalising the provision of the full-range of on-line gambling services by operators located in the UK, including gaming."
Camelot accepts that as the gambling market develops players will expect to be able to play the National Lottery by alternative methods including the Internet and 3G technologies in the near future. However, any developments must be balanced against the need to protect players. Camelot recognises that the reliability of the National Lottery must not be undermined by any moves to develop new methods of distribution.
According to a survey on Internet Gaming by the Gaming Board in 2001 only one per cent of those who responded had gambled on-line during the previous month. It is likely that these participation levels will increase rapidly over the coming months and years as increasing numbers of people have access to the Internet.
Camelot is concerned that the Government's proposals in the White Paper are not specific enough to ensure uniform standards and levels of player protection across the industry regarding the development of any future on-line regulation.
A number of European jurisdictions only license operators to offer Internet gambling to domestic residents. This can be controlled using social security details and via bank accounts. For example, in Denmark legislation is being introduced which will make it illegal for banks to make payments to on-line lotteries which are not owned by the Danish National Lottery. Thereby ensuring that this method of play is only encouraged through a recognised company.
The Australian Government along with a number of others including Antigua, the Isle of Man and Alderney has created a regulatory structure whereby operators are licensed to offer their services worldwide. In Australia however, the regulatory system has been criticised for encouraging excessive play and creating more problem gambling. Consequently, the Australian Government has now taken steps to tighten up regulation in this field effectively re-regulating in a number of areas.
In order for Britain to be able to establish a reputation for itself as a global gambling centre as suggested in the White Paper, legislation must be introduced as soon as possible whilst ensuring that the highest levels of player protection are maintained.
Camelot is committed to the development of new methods of play and has invested heavily in order to ensure that the portfolio of National Lottery games will be available in interactive form in the future. However, it is essential that this be achieved with the highest standards of player protection. The basis of any system must be to ensure that underage players do not have access to the games. At the same time, it is important to treat players as adults who are able to make their own decisions about playing. There are a number of ways in which this can be achieved:
"Virtual Wallet"whereby the player is able to set up an account enabling funds from a debit card to go into this wallet. When a player plays a game £1 is deducted from the card any subsequent winnings can then be added to the wallet.
Player warningsa screen display showing how much the player has in their "virtual wallet" this effectively forces breaks in play where players are shown player how much they have spent during that session.
Player limitsa system whereby players can self impose limits, by day and by game. Players can change self-imposed limits but a cooling off period must be in place before the player can use additional funds.
Camelot believes that the introduction of a kite marking for regulated Internet sites as recommended in the White Paper, may be an effective measure in establishing recognised uniform standards across the industry. It would be an effective way of reassuring players that sites are reputable. The absence of a label would be a warning to players that a site is not registered.
Camelot acknowledges the benefits and opportunities a review of existing gambling legislation could bring. However, in a changing gambling environment it is important that the unique role of the National Lottery in generating returns for Good Causes is recognised and safeguarded.
It is paramount that any changes to gambling legislation are not carried out at the expense of player protection and social responsibility. There must be uniform levels of duty of care across the whole industry, which are enforceable by all regulators.
3 May 2002
1 The Government's response to the Gambling Review Report, Department for Culture, Media and Sport. Back
2 La Fleur's World Lottery Almanac. Back
3 PwC figures represent present values whilst Henley numbers are not constant December 1999 prices. Back
4 London Economics, Potential impact of parallel betting on the UK National Lottery 1007. Back
5 Net impact on Government comprises Duty, Good Causes and Corporation Tax. Back
6 International Gaming and Wagering Business-Vol 22, No 8, August 2001. Back
7 According to the White Paper some estimates suggest that annual global on-line gambling revenues could double to around £10 billion by 2005. Back