Examination of Witnesses (Questions 160-179)
MS DIANNE THOMPSON, MS SUE SLIPMAN OBE AND MR TONY JONES
TUESDAY 25 JUNE 2002
160. Have you tried to make an analysis and forecast of what damage may be done to the total income when gambling is relaxed?
(Ms Thompson) We have.
(Mr Jones) We looked with interest at the Government's own paper actually which suggests that the original initial recommendations in respect of society lotteries and side betting (which are our key concerns) may be diluted. The paper actually suggests that the impact could be between 0 and 70 million per annum. At this stage we do not have any evidence which would suggest otherwise. We think there will be some impact but clearly significantly than would have been the case had those two sets of recommendations gone ahead.
161. The point you made earlier about the decline in the National Lottery, your creation of Thunderball and the other games, has that not taken money away?
(Ms Thompson) You are absolutely right. With the exception of the Christmas Millionaire Maker which is our Christmas £5 game it has been totally incremental. There is always some cannibalisation as there was when we launched the mid-week draw; there was cannibalisation from Saturday. But overall those games have actually satisfied players' needs.
162. Is there evidence that it is coming straight from the money that would have been invested in the National Lottery?
(Ms Thompson) Not entirely. We have not done any games where there has been total cannibalisation or substitution, but there is a small element in every game, apart from Christmas Millionaire Maker which satisfies a different need. But we have a mix of players. The vast majority of our players want to win the life changing jackpot, but I have peopleparticularly old age pensionerswho write to me to say they would be frightened of winning millions and what they would like would be to win something like £10,000 or £50,000 which would see them comfortable for the rest of their lives. They do not want to play the big game but they would play Thunderball where the top prize is £250,000, but the odds of winning are better.
163. On that basis the profits should have increased. Has it?
(Ms Thompson) The problem we have here is that the National Lottery game Lotto is so significant that as you actually see decline there it is hard to get other big games that will actually replace that spot. That is what something like Keno would do. But, as I said earlier, the decision has been taken that we will not have Keno in the UK which is fine. But that is what other lotteries would do, they would replace their declining Lotto sales with a big game like Keno and then have other games. But Thunderball does £250 million a year so it is quite a significant game itself. The instant scratch cards are now back on an incremental growth curve and we are doing an average about £11.5 million a week there from an all time low of £9.5 million a week. There are signs of growth coming back, but the problem is the main Lotto game because it was such a big game. I think even now it is still the third largest Lotto game in the world.
164. Evidence to the Committee has noted that the new Hotpicks game that you are going to introduce in July is the equivalent of a fixed odds bet on the main Lottery draw. What is your rationale for producing this lottery product when side-betting has been rejected by the Government for the rest of the gambling industry?
(Ms Thompson) Hotpicks actually satisfies a need from our players. The most common criticism I get from playersand we get millions of calls from players each year and I get thousands of lettersis that they feel they should win more than £10 for matching three numbers. In fact, you may have seen some comments I allegedly made which were taken out of context about a month ago. What I was trying to explain to the journalist at the time was that it is very difficult to pay out more than £10 for matching three because far from having to be lucky to match three numbers, in fact 1.3 million people do that every single week. If I was to pay £20 out for matching three numbers there would be no money left to pay a match for four or five or even the jackpot. It is in response to requests from our players that they should win more money for matching few numbers. Why I feel very strongly about it is also that it is actually building on the main Lotto draw which is a brand which we have invested millions and millions of pounds in over the last eight years. Our players are saying they get confused by too many games and they are confused with too many different draws. Therefore againthis is actually based on the Saturday drawthey will actually be watching that draw anyway and that is what they want.
165. It is based on the
(Ms Thompson) Demand from players.
166. And on the Saturday draw?
(Ms Thompson) Yes.
167. A couple of weeks ago we had some very interesting evidence from GamCare and we talked quite a lot about problem gambling. With regard to the National Lottery I note that you have given money to the Trust but you have said that you do not want to be a permanent part of it. Can I ask you to elaborate on your views and assessments that you may have made of problem gambling as it pertains to the Lottery.
(Ms Thompson) I will ask Sue to take that in a second, but I would just like to preface that by saying that player protection is something that we take incredibly seriously. We have spent significant sums of money and worked very hard with GamCare and with a whole variety of organisations to make sure that we prevent problem play. We believe in prevention of problem play rather than treatment of problem gambling as a preferred strategy. Obviously we have to help problem gamblers, but we have put most of our efforts into prevention of problem play. I will now ask Sue to take you through the details.
(Ms Slipman) It was our one fear about the review that it was suggesting a kind of elevation of the treatment of problem gamblers, of the prevention of problem gambling. For the last four years in particular we have been working very hard on this issue I have to say in close cooperation with GamCare and others who have a concern, particularly some of the NGO's and church organisations, about the harm that an ill considered lottery operation could do to vulnerable people. The three strands of our policy are to promote responsible playing of the National Lottery, to prevent problems and also to support treatment. Those are the three strands. Education and research has played a very big role in looking at and sizing problem gambling and looking at triggers for problem gambling. We have taken what we have learned from that through to our marketing strategies where, for example, although we can sell to 16 year olds and above our strategy is to think 18 in everything we do with marketing so that we are not appealing to even younger age groups in what we do. We have run a major parental awareness campaign as well this year again with GamCare and with parenting organisations. One of the growths of sales to the under-16's has been from adults and parents buying tickets for their children; we try to prevent that.
168. Can I just ask you there, is it something that you either know from research or have discovered that there is actually a problem with the under-18's or the under-16's? What I am driving at is that if people are going to have a problem is it something that comes because they are young or is it something that comes to them at any age? I am not criticising that you try to protect children from problems, but I am interested to know why you focus on children. If you look, for example, at alcohol use and abuse, there is a school of thought that says if you introduceas the French dochildren to an appreciation of wine at an earlier age then they actually become responsible. I am not sure if that is true or not. What research have you done to find out if being young is the problem?
(Ms Slipman) Our starting point is a legal duty. It is illegal to play the National Lottery if you are under 16. That has to be an absolute point for us. We do not have the leeway to look at a gradual induction of young people into playing the National Lottery. But most of this researchas I understand itsuggests that there is a problem for particularly young men in gambling and that is where a lot of people have problems later in life. Their gambling addiction has started. Certainly GamCare would say that about 50 per cent of their calls are from the under 25's I think and a lot of those are 18 and under. There are issues there. There is clearly a parental view that parents should exercise choice and protection and guidance for their children. But that goes rather beyond our remit. We do not only concentrate on the under-16's; we do an enormous amount of work to ensure prevention of problems with low income families and potential gambling addicts. One of the big things we have done this year is to develop a research tool that measures the potential risk to the vulnerable groups and then to look for corrective strategies for those risks so that by the time we take a game to our regulator we are very confident that it is not going to cause problems. Our effort has been prevention. We spent £1.7 million in investing in that over the past three and a half years. I have worked very closely with the Gambling Industry Trust and helped to set it up. We took the decision that we would not join the trust on the basis that its area of concentration was on treatment; ours is on prevention. Although we are very happy to work with them, to share best practice and I am still involved in discussions with the Trust. We will go on working with it and sharing what we have learned with Trust members. We have a funding relationship with GamCare that is independent of the Gambling Industry Trust at this stage.
169. I think you got your retaliation in first, Ms Thompson; I wanted to ask the question about your recent reported remarks. But I will ask them anyway because I think it is helpful for clarification. You were effectively accused of doing a Ratner on the Lottery and pointing out the opportunities to win, something like 14 million to one for the jackpot and smaller figures for the £10 prize. Can you explain a little what the chances are of winning on the Lottery and why you made your remarks.
(Ms Thompson) I will, absolutely. The odds of winning the jackpot are, you are right, 13.99 something, something, so we round it up to 14 million to one. The odds of winning any prize on the Lotto game is one in 54. The odds of winning £10 is one in 57. We have a variety of other games, as I was saying earlier. Thunderball, the odds of winning any prize there are one in 19. What I was actually saying to this particular journalist were two comments, one of which was taken out of context and one totally misunderstood. The comment that was taken out of context was about "It probably couldn't be you" which is I think what ran as the headlines on the Saturday. I was explaining at a marketing lecture why we changed strategy in terms of our slogan. You probably remember the National Lottery was launched with "It could be you" and what has happened over time was players fed back to us "Ah yes, but it probably won't be me". So every time a player heard an advertisement that said "It could be you" they were saying "Ah, but it won't be me". We had to move the slogan. We went from "It could be you" to "Maybe, just maybe" and now "Don't live a little, live a Lotto". I was explaining that in a marketing context about how slogans sometimes can work well for you but you cannot stand still. That was taken out of context. The comment that was misunderstood was what I was answering to an earlier question about what our players were saying. Our players were saying "I don't think it's great when you win £10 when I match three numbers". In fact, quite often in taxi driver conversations you have, people will say to me "I have never won". I say, "Not even £10?" "Oh yes, I have had the odd £10". Of course, what has happened over the time is that people do not see that as a win; they see they are getting their stake back really. That was the point I was trying to make which obviously went on to be reported as "She said you would be lucky to win a tenner".
170. Has it had any noticeable effect on sales?
(Ms Thompson) It is hard to tell. We do not think so. If you had read the press you would have seen there have been some pretty negative comments about the whole relaunch area. The problem with the National Lottery is that you cannot actually judge it week on week. Things like Rollovers or Guaranteed Superdraws sort of have spikes. My average sales curve looks sort of like that with big jackpots coming in having an increase in sales. With a standard Superdraw we would probably see a 20 per cent increase in sales. You cannot judge it like that. We have also had a very disruptive time in the last two months, really, starting sadly with the Queen Mother's funeral but then going into the FA Cup, the World Cup (an England game on a Saturday is incredibly bad news for us and I am sure for a lot of other people who have impulse purchase products because people just are not out there shopping), the Golden Jubilee with two bank holidays (again we lost sales on Monday and Tuesday). I am not trying to duck the answer, it is very difficult to give an honest answer. We do not think it has had much of an impact.
171. So you will be a bit cheered up this week that England are out of the cup?
(Ms Thompson) I would prefer they were in actually, but there you go, you cannot win.
172. As a Scot, I reserve my position. Let me ask you some more serious questions. Reading through your submission it is difficult to escape the view that your whole approach to the view of the gambling laws is that anything that affects Camelot and the Lottery is bad and the rest of it you can cope with because it does not affect you. I can understand that from a commercial point of view. But then you sort of wave the flag of the money that you raise for the Good Causes and clearly a huge amount has been raised for the Good Causes. But there is nothing in here about the effect on Camelot as a company so when I look, for example, at the comments you have made about the Henley report (where they talk about £400 million losses if all the recommendations were implemented), and later on the possible effect of the Society Lotteries could be as much as £1280 million to the Good Causes and to the Government £153 million, the cost of deregulation of Bingo, but nothing on Camelot as a company. I think I would like to hear a little bit more about what all of this means in terms of your own estimate of your company's profits because clearly that is an issue for you.
(Ms Thompson) Of course it is and thank you for giving me the opportunity to perhaps correct the record for a lot of people. A lot of people think that we make very significant amounts of profit in percentage terms. In the first licence which finished at the end of September last year we actually made just less than one per cent profit.
173. What was the actual figure?
(Mr Jones) After tax it was just under £300 million.
(Ms Thompson) Against a revenue of £4.8 billion a year on average. In the second licence period we committed that we would halve our profits and so we have a profit cap in place of 0.49 per cent and a share in agreement with the National Lottery Commission for Good Causes if we actually exceed that figure, although to be frank it is unlikely that we will. To scale it in terms of the £400 million that we were talking about in our submission which would have been the steady run rate had all the recommendations gone through, the loss to Camelot would have been 11 million.
174. Over a year?
(Mr Jones) That was an annual figure.
175. That is obviously a figure we can take into account and assess. That seems a fairly small figure in terms of your profit.
(Mr Jones) It is but it is essentially because of the structure of the Lottery. You have a huge turnover and essentially a very small amount is actually being retained.
176. Can you tell me why the effect on the Good Causes in your paper is so huge when the effect on your own profits is so small?
(Mr Jones) Because the Good Causes and Government actually get up toit depends on the marginal rate of sales44 per cent of sales whereas actually the Camelot retained profit after tax, in the second licence, about half a pence in the pound. So there is a huge difference between the two numbers.
177. I am trying to do some very quick arithmetic. You have figures here of just under £2 billion as a cumulative effect of various effects. I do not know whether it is appropriate even to add them up. You said 40 per cent goes to Good Causes; a fortieth of that would be your profit roughly, on average, one per cent.
(Ms Thompson) An eightieth. Forgive me, but we are on less than half a per cent in the second licence.
178. So minimal effect on the company, but I am still finding it difficult to see the figures you have here as credible. I need some reassurance from you that we can actually take them at face value.
(Mr Jones) Those figures are also referred to within the Henley and the PWC reports.
179. You have mentioned the Henley report, but it is not clear where these come from; the figure on Society Lotteries, which is a huge figure, £1280 million.
(Ms Thompson) The figures that we actually put in our submission were prepared by PriceWaterhouseCoopers and Henley. We paid for research from both of them and they took the figures that were in our bid, projected sales revenues and then calculated what they believed the impact would be. They were independent figures; we actually paid the bill for the research but they were their figures. Then we calculated on that level of sales that an eightieth is what the Camelot loss would be because, as I said, we make less than half a per cent profit.
(Ms Slipman) I think it is worth saying that the work that both PWC and Henley was tested by the National Lottery Commission who had their own consultants looking at the models that they bid and came to the conclusion that they were robust. So it has also been tested by the regulators.