SUBMISSION 3
Supplementary memorandum submitted by
Intelligent Gaming Solutions
This written evidence seeks to demonstrate two
main points:
1. Raising the cap on society lotteries
will allow UK charities to provide for themselves a sustainable
source of reliable funding.
2. The introduction of a large "society
lottery", as detailed in this document, would not impinge
upon the activities and profit of the UK National Lottery. We
believe this for two distinct reasons:
(i) A society lottery of this kind is not
designed to compete with the National Lottery: it is a smaller
operation, based on entertainment rather than gambling and aimed
at a new audience.
(ii) Even if it were perceived as competition
in the lottery market; this "perception" is likely to
have a very positive effect on the commercial success of the National
Lottery operator (currently Camelot).
AN INTRODUCTION
TO IGS
Intelligent Gaming Solutions was formed in 1989
and is registered in the Netherlands. IGS UK Ltd is its wholly
owned registered subsidiary. IGS combines innovative interactive
gaming products with non-profit and commercial partners to generate
major contributions for broad based social aid. This document
refers to IGS' current work with a non-profit television lottery
in Sweden.
THE SWEDISH
EXPERIENCE
The Charities
In Sweden, the member charities of the IGS lottery
are able to provide themselves with regular and reliable funding,
by selling tickets for a weekly television lottery game show.
The lottery is organised so that the individual charities determine
their own levels of funding according to the number of tickets
they sell. This is done by a system of proportionality. The vital
difference between this system and that of individual society
lotteries is that the member charities are buying into a product
which effectively sells itself—the interactive television
programme markets the lottery—all the individual charities
get involved in is the distribution and a share of the funds raised
by the lottery.
The IGS concept—how it works
The IGS lottery in Sweden is staged nationally
(it was originally a regional television show) but its fundraising
methods are at grassroots level. People may choose from which
charity or not-for-profit organisation to buy their ticket. The
membership bases of the individual organisations are likely to
take out long-term subscriptions to the lottery tickets of their
chosen charity.
The IGS television show is the driving force
of the charities' lottery—it is not simply an entertaining
method of broadcasting the results of the weekly draw—but
is an entertainment in itself. People in Sweden watch the television
show in order to "play" the interactive games it offers
(although you do not have to watch the programme to win); it is
the process of the game show that interests the viewers, not the
promise of a life changing prize. For this reason, the Swedish
National Lottery and the IGS lottery co-exist and complement each
other—each accentuating the other's unique quality by clearly
demarcating its own territory. (See Figs 1 and 2) [not printed].
THE RESPONSE
FROM THE
SWEDISH NATIONAL
LOTTERY
Sweden's national lottery (Svenska Spel) has
just posted its record year to date. [1]The
IGS lottery also celebrated its 10th anniversary last year. The
Prime minister of Sweden, Goran Persson, took part in the celebrations
and featured on an anniversary broadcast endorsing the IGS lottery
and praising the good work it has achieved for grass roots organisations
and charities.
Figure 3 shows that in Sweden the national lottery
increased its sales following the introduction of the IGS lottery.
The two lotteries exist side by side as two distinct games that
have increased the overall lottery market in Sweden, not detracted
from each other's success.
Understandably perhaps, the Swedish government
was initially sceptical of the IGS concept, but the Swedish experience
was that, although the IGS lottery did not represent direct competition
to the national lottery, the national lottery learned from the
innovative techniques used by IGS and the result was that it "picked
up its game". Figure 3 below shows the trend in national
lottery and society lottery sales since the introduction of the
IGS lottery. It demonstrates that national lottery sales were
quick to respond to the changing market.
Figure 3
THE CASE
IN THE
UK
The problems for Charities
Introduction of the National Lottery—effects
on UK charities
The UK National Lottery 's impact on the funding
of good causes in this country is phenomenal. It has enabled projects
that previously simply would not have been possible. However,
an unfortunate side-effect of the introduction of the National
Lottery was that the self-funding capabilities of the not-for-profit
sector in the UK were significantly damaged, as revenues fell.
[2]Although
the National Lottery is generous in its funding of a number of
charities, this funding is distributed on a "project by project"
basis, and does not constitute a reliable source of core funding.
[3]The
Community Fund, responsible for distributing National Lottery
money to charities has an unofficial policy of limiting funding
to six year periods. As a result, many charities have found that
funding has been withdrawn at crucial times[4]
and have been left without the necessary income to continue with
their most basic work.
The problem for charities is therefore two-fold:
— The main problem is that the introduction
of the National Lottery meant that players gained the "feel
good" factor of donating to a good cause from their weekly
flutter and as a result many stopped contributing directly to
their previous charity of choice. Charities therefore saw a notable
decline in revenue.
— This problem is compounded by the
fact that the Community Fund, set up by the National Lottery,
distributes money on a "project by project" basis, neglecting
to recognise the need that charities have for an ongoing and reliable
source of base funding.
Charities have become increasingly dependent
on National Lottery funding at a time when there has been a significant
collapse in the core funding for smaller charities. [5]
The inherent problems for charities have recently
been exacerbated by the fall in sales of National Lottery tickets.
This led to an estimated reduction of £40 million in funding
for good causes over the year-long period from 2000-2001. [6]
Regulations and logistics for society lotteries
In addition charities have to contend with the
organisation of their own individual (and restricted) lotteries.
One charity estimated that it cost £250,000 just to ensure
that lottery tickets were returned[7].
Barnardos currently has to run two annual lotteries to abide by
regulations on society lottery turnover, causing a huge burden
on their time and resources. [8]A
recent survey by the Institute of Charity Fundraising Managers
found that 61 per cent of charities believed that regulations
for lotteries added costs to their fundraising activities.
IGS OFFERS A
SOLUTION
There is no doubt that a serious obstacle for
society lotteries is the logistics involved in staging one. From
our research and contact with charities we understand that the
resources expended in running a lottery of this kind are enormous
and represent a serious obstacle and financial risk, particularly
for smaller charities.
IGS provides the infrastructure for society
lotteries, relieving individual charities of the costly burden
of staging lotteries, as well as the inefficiencies of running
individual lotteries, particularly where turnover is small. The
IGS lottery allows charities to generate an income which is more
flexible and easy to distribute.
Moreover, we do not see that this process and
the work that the National Lottery carries out for the good causes
would be mutually exclusive. In fact, we believe that they can
complement each other: once charities are able to secure their
core, basic funding, they will be better positioned to apply for
the National Lottery grants that are so vital for the projects
they carry out.
Figure 4 [not printed] shows a projected
income distribution "model" of an IGS lottery which
might operate in the UK. The diagram is of a "top up"
model, whereby the charities themselves determine their own administrative
costs, according to their efficiency. Crucially, charities' income
levels from the lottery are entirely proportional to their sales
of lottery tickets. There is a clear correlation between effort
put in to the process and rewards accrued by the individual organisations.
Moreover, the IGS television show gives a unique
opportunity for the charities to raise their profile on a national
stage. In short, IGS offers the vehicle for lotteries to secure
their own long-term funding and the charities remain autonomous
in their fundraising activities.
BUDD AND
THE NATIONAL
LOTTERY
Sir Alan Budd and his advisory team recommend
that: "the limits of the size of prizes and the maximum annual
proceeds should be removed for societies' lotteries." [9]Having
considered this recommendation however, the Government decided
to take heed of Camelot warnings that revenue for the National
Lottery good causes could be cut by up to 30 per cent, should
this recommendation be implemented. [10]
While Camelot argue that there simply isn't
"room" for any more lotteries in the UK market place,
we would argue that this viewpoint does not seem compatible with
Chief Executive Michael Grade's recent enthusiasm for a daily
National Lottery draw. [11]There
is often the potential for an expansion of a market, and as the
Swedish case has demonstrated, this general rule extends to lottery
markets—in Sweden, the market expanded to accommodate the
society lottery. In addition, a positive "side-effect"
of its introduction was the national lottery's response to the
perceived competition and subsequent increase in national lottery
sales.
This information, however, needs to be set against
the fact that the Swedish national lottery, much like the UK National
Lottery, is a far bigger operation than any potential IGS society
lottery. Currently society lotteries have a total turnover of
around one fiftieth of that of the National Lottery. The IGS concept
would look to increase this turnover five-fold—a significant
increase for the charities—but still only one tenth of National
Lottery turnover and potentially smaller if, as we believe, the
National Lottery responds in the way the Swedish state lottery
did.
To look at the relative sizes of the National
Lottery and the society market in more detail: For the year up
to 31 March 2001, the Gaming Board reported that sales of chances
in society lotteries amounted to just £107.1 million from
the 5,049 lotteries registered. In the same period, Camelot sales
were £4.983 billion. [12]
We do of course understand that the UK Government
wants to ensure the National Lottery's pre-eminent position as
the UK's No.1 lottery. However, we think that Camelot has vastly
overestimated the effects of competition from a larger society
lottery.
We see no reason why people would substitute
a national lottery ticket for an IGS lottery ticket any more than
players would make the choice between the national lottery and
a bingo game. In Sweden, the two lotteries exist happily side
by side, and both flourished, simply because they are both secure
in their unique appeals to the Swedish public. The Budd Report
itself doubted whether "punters" could view other forms
of gambling as substitutes for the National Lottery, which has
the unique appeal of offering a very small chance of a life changing
prize. Budd therefore came to the conclusion the "the National
Lottery," as currently designed, is reasonably well insulated
from other gambling activities." [13]
The kind of lottery that we envisage is not
on such a scale that it can provide an alternative to the National
Lottery: its prizes are smaller, its appeal is different: it is
based on the interactive component of a family television show
and the "grass roots" base of the lottery's organisation.
We also believe that, given the deregulatory
thrust of Budd, and the likely increase in the frequency of other
forms of gambling, to continue to constrain society lotteries
may well lead to increased competition without the good causes
benefiting from it. Surely this is not the route the Government
wants to take.
We believe that, as in Sweden the IGS lottery
will attract new players into the lottery market. We concur with
Michael Grade, that there is room for more lottery games to be
played on a weekly basis. The Swedish experience has shown that
despite a very successful national lottery, there was a gap in
the market: many people play the IGS lottery because they do not
see it as a "one in a million" chance but as an evening's
entertainment.
REINVIGORATING THE
LOTTERY MARKET
IN THE
UK: THE ECONOMIC
CASE
The case in Sweden demonstrates that the introduction
of a new and exciting lottery game actually bolstered the lottery
market as a whole. People's interest in the lottery was re-awakened
and they chose to play both games, for entirely different reasons.
The IGS lottery provides an entertaining and compelling family
game show and the opportunity to give to specific charities, whereas
the state lottery, like the National Lottery in the UK, lured
players by its promise of life changing prizes.
We believe that by introducing a similar, tailored
concept to the UK, expensive (and unpopular) revamps of the National
Lottery brand will become extraneous. In fact, it is a widely
held opinion the "revamps" occurring within the vacuum
of a monopoly are likely, in the long-term to simply be "cosmetic"[14]
and are not long-term solutions to a market that needs reinvigorating
structurally.
We predict that changes in the UK lottery market
will raise the National Lottery's profile and remind players exactly
why they played the National Lottery in the first place; as was
the case in Sweden. We see this only as a "win-win"
situation. We would like to introduce a new gaming concept to
the UK, to build on what has already proved to be one of the most
successful lottery markets in the world.
WHAT WE
SEEK
We understand the Government intends to double
current limits, presenting us with the limits of £2 million
total income per lottery, and £200,000 total prize money
per lottery.
We wonder what the basis for the decision to
double limits was? From our cursory research on this point, we
surmise that perhaps this level was set on the original advice
of the Lotteries Council. However, we also know that the Lotteries
Council revised this figure, once it had grasped the issues (and
funds!) at stake. It seems that this move was indicative of an
understandable reluctance, on the part of the UK charity sector,
to involve in the political process.
The charity sector in the UK is largely apolitical,
and this reluctance to become involved in the political process
has meant that charities did not present their case to the Government,
(or indeed in many cases, completely grasp the potential opportunity
presented to them by recommendation 118 in the Budd Report). We
therefore feel that the relative "silence" from the
charitable sector may mean that the UK Government has somewhat
underestimated the levels of support existing amongst charities,
for significantly raising the cap on society lotteries. Indeed,
having been in ongoing discussions with a number of large UK charities
we know that there are huge levels of support of this recommendation.
We are pleased that in this report, the Government
recognises the importance of lottery income to charities and not-for-profit
organisations. What we do ask however, is that the Government
reconsiders what we suspect to be an arbitrary decision on the
amount by which the cap is to be raised. We have carefully considered
the amount by which we need the cap to be lifted in order to achieve
our aims.
In order to successfully achieve our aims we
need to operate a lottery which generates income of over £5million
per week (although our gameshow would be seasonal with several
breaks during the year), and occasionally offers prize money on
up to £500,000. While we recognise and understand the Government's
wish to retain a degree of control over the size of society lotteries,
we ask it to reconsider its initial intention to "double"
limits. In essence, we ask for the current proposals to be increased
by a further 200 per cent—to arrive at a figure which retains
the "special status" enjoyed by the National Lottery
while allowing sufficient manoeuvre for non profit organisations
to be able to make a serious impact on their own fundraising capabilities.
CONCLUDING REMARKS
We are not presenting the case for the introduction
of a second national lottery. We simply argue that there is room
in the UK gambling market for the lighter regulation of society
lotteries. Indeed we believe that without an increase in the current
limits, over and above the proposed doubling, charities cannot
update and innovate their fundraising methods, as their European
counterparts are able to do.
We do not see this as a battle with Camelot.
We wholeheartedly support the good work that the National Lottery
facilitates for the good causes. However, we do feel that the
effect of removing the cap on society lotteries has been vastly
overestimated. We do not think that it is realistic to talk in
terms of a society lottery competing "head to head"
with the National Lottery, for the reasons we have discussed.
Charities need the ability to better use lotteries
as a fundraising method and we believe that, as in Sweden, allowing
them to do this would not pose a threat to the established state
lottery. Indeed, as we have discussed here, we believe that a
move to raise the existing caps on society lotteries to a more
reasonable level will be beneficial to the UK lottery market as
a whole.
3 May 2002
1 See Appendix 1. [not printed] Back
2
Hansard, 5th March. Back
3
While we recognise that recent changes provide for a certain amount
of administrative funding it is nevertheless still the case that
"We [the Community Fund] are absolutely not covering general
core costs. We're in the business of project funding." (Richard
Buxton, Chief Executive of the Community Fund, quoted in The
Guardian newspaper, 17 April 2002). Back
4
See Appendix 3 [not printed]. Back
5
Hansard, 5 March. Back
6
The Express newspaper (28 November 2002). See also Appendix
4 [not printed]. Back
7
See Appendix 2 [not printed]. Back
8
Although current proposals to double the limits on society lotteries
will mean that Barnardos can stage one lottery per annum in order
to achieve current funding levels, they do not allow for expansion. Back
9
Recommendation 118, Budd Review, July 2001. Back
10
Camelot response to the Budd Review, 31st October 2001 Back
11
The Observer, 4 February 2002. Back
12
Hansard, 5 March Back
13
Budd Review, section 35.7, p187. Back
14
BBC News online, 29th April. Back
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