Examination of Witnesses(Questions 40-59)
MS SUE
STREET AND
MR MARK
HARRIS
WEDNESDAY 22 MAY 2002
40. You did mention the possibility of helping
the bidders with their costs next time round. What cost would
that mean as compared to the take in the longer term? You might
have to spend a month's take by giving the bidders their costs
or a year's take?
(Mr Harris) It would be a very small amount. The flows
of the Lottery over the life of the Lottery this time round are
about £11 billion. If one had three or four bidders that
you were supporting, it would be a very small proportion.
41. Why was this not more seriously considered
last time round? I should have thought it was an obvious way to
increase competition, particularly when you mention the fact that
one of the reasons competition is so low is because people might
lose money.
(Mr Harris) The Commission was seeking to get competition
started as soon as possible. It had two concerns. Firstly, that
in order to demonstrate that this was done properly it considered
that it would need to devise a whole scheme whereby it could specify
what costs it was prepared to meet and make sure they were properly
audited so that it was not paying what is public money over without
being absolutely sure that it was being properly used. In addition,
the Commission was concerned that it would really require a two
stage process in order to meet costs, in order to be sure that
the bidders who came forward were serious bidders and that would
add to the time taken. One of the other things the Commission
was looking at doing in order to level the playing field as far
as it could was to make sure that there was a maximum hand-over
period because hand-over was of particular concern to the people
we spoke to. Indeed, it was more of a concern than cost, so the
Commission decided that it could get a competition and indeed
it did get a competition.
42. Of a sort.
(Mr Harris) A competition of two bids. Although they
did have fundamental problems, at the end of the day, it was a
strong competition that produced a good return for good causes.
43. Are you going to make it part of your consultation
to ask potential operators whether it would make a significant
difference to them if their bidding costs are paid?
(Ms Street) We will be having extremely wide consultation.
That will certainly be one of the matters on which we are consulting.
Everything in table three in the report which reflects some possibilities
will be reflected in the consultation.
44. What advantages do you see to society as
a whole in the Lottery operator being not for profit as compared
to a normal profit-making operator?
(Ms Street) From the government's point of view and
probably from the Commission's as well, the status of the operator
is not a determining factor. The determining factor is to maximise
the return for good causes. That is the position that the Commission
took.
45. You do not think whether or not the operator
is not for profit could make a significant difference to the return?
That is your one criterion?
(Ms Street) That is a hot debate. In the end, it is
about sales revenue and that would be one of the ways to project
whether a not for profit would generate more sales, but you have
to usually set that against the efficiency of the profit-making
companies. At the moment, we are third best in the world for generating
money from the Lottery. That is quite a good record.
46. Will you be considering that question any
differently in the third Lottery licence bid?
(Ms Street) We would take any views that this Committee
wishes to express into very careful consideration. Only having
six and a half years means we cannot look at everything, but there
would have to be strong reasons for departing from the view that
the purpose of the Lottery is to generate maximum revenue for
good causes.
47. Was there any consideration paid to the
possibility that the Lottery might lead to gambling addiction
and what help might be given to gambling addicts?
(Mr Harris) That is a very important part of our duties.
We have a division that monitors that. We have supported research
and there was a large independent study done on all forms of gambling
in the UK fairly recently, the gambling prevalence study, and
that indicated that levels of concern for Lottery players are
extremely low compared with other forms of gambling. Equally,
we deal quite regularly with Gamcare who have a helpline and they
keep us informed. They report that there is a very low incidence
of Lottery players who have problems with gambling. Usually those
people have problems with other forms of gambling as well.
48. You say it is part of the Commission's duties
to look at that; to what extent did that play a part in the licence
process and to what extent will it next time round?
(Mr Harris) I think it is an important part of the
licence process because one of our fundamental duties is to look
at arrangements for player protection. We ask the bidders to set
out exactly what steps they would take and if they have the proper
strategies in place to ensure that games did not encourage problem
gambling. The Commission made it quite clear that it was not prepared
to accept more extreme forms of games such as very rapid draw,
high jackpot games because these are likely to encourage problem
gambling and so the Commission was unlikely to license those.
We also made it clear, although it is more to do with age limits
which again are very important to us, that we expected high levels
of testing of retailers to make sure they were complying with
the law.
49. Was there any significant difference between
the two bids as far as that issue is concerned?
(Mr Harris) I do not think so. Camelot's bid had a
better understanding of the issues, particularly having been involved
in running the Lottery for seven years. The other bid was not
unacceptable in those areas.
50. There seems to be a bit of difficulty as
far as the hardware is concerned. The advantage of the incumbent
is that they have all the hardware in the shops and so on. Does
the Commission have any control over that at all? Can you, for
example, next time round insist that the hardware should be transferred
to the next bidder?
(Mr Harris) What we have agreed—and it is included
in the next licence—is that the next bidder should have
the option to purchase at a fair market valuation the terminals.
It will be possible to have continuity of terminals.
51. Are you talking about the licence that has
just started or what you are going to be doing in seven years'
time?
(Mr Harris) The licence that has just started, so
that at the next competition the Commission put in a number of
elements into the next licence to help the hand-over. One of those
was that the next bidder will have the right to purchase the terminals.
52. That was not in the original licence so
you could not insist on it this time?
(Mr Harris) It was not and we did seek to negotiate
with Camelot to find out whether or not they would be prepared
to give that undertaking before the competition, but they thought
they may have other uses for the terminals and therefore they
were not prepared to give that undertaking until after a decision
had been made as to who the successful bidder was.
53. Is that the most significant advantage that
an incumbent has? Have you in other words managed to remove any
incumbency advantage?
(Mr Harris) That is one of the incumbency advantages,
although there is still an issue about how one puts together the
whole network if one has this whole range of terminals. One still
needs to make that work with whatever software the person taking
over would have. We have taken steps to make sure that intellectual
property can be transferred and that, in particular, information
on retailers can be transferred. The People's Lottery considered
it very important to the construction of their bid. We have also
secured an undertaking from Camelot, which is within the licence
and therefore can be enforced, that they will cooperate fully
in the case of a hand-over. We have taken a number of steps. Whether
or not those are all the steps is an issue we need to consider
carefully and feed into the consultation in due course. I am sure
there are further things that can be done.
54. In answer to Mr Williams, you said you decided
not to negotiate with Camelot because they could not rectify the
propriety problem within the month you thought you had, so you
went for an extension of their licence in practice. Why did you
not immediately think of going for an extension of the licence
simply in order to give both bidders the chance to negotiate with
you and thus to retain some of the competition?
(Mr Harris) The reason we turned down Camelot's bid
was because we were uncertain that they could continue to operate
with all due propriety.
55. What you said, I believe, in your first
answer was that you did not think they could satisfy that problem
or overcome that problem within the month you had. You did not
say you thought they could never overcome the problem. Are you
now telling me you thought they could never overcome the problem?
(Mr Harris) No. We thought they could overcome the
problem and satisfy the Commission but it would take time. The
Commission thought it would be very difficult, because it only
had a month to run, to start negotiations with Camelot about an
interim licence at that stage.
56. Yet you were able to do so later.
(Mr Harris) We were able to do so as a result of the
outcome of the court case, where Camelot gave an undertaking to
the court. That was very important to us. Camelot gave an undertaking
to the court that they would accept an interim licence and therefore
we had a means by which we could make sure that happened and enforce
it. In the period before then, we did not have that undertaking
and therefore we could not take those steps.
57. Had you gone to them and said, "If
you want to continue in this business you are going to have to
have an interim licence" you would have put a hell of a lot
of pressure on them, would you not?
(Mr Harris) We had one month, we believed, to convert
the People's Lottery bid to a bit that would be accepted. We had
doubts about Camelot's propriety and we had some difficulty in
going to Camelot and saying, "We have doubts about your propriety
so we will not give you a seven year licence, but nonetheless
we are willing to negotiate an extension to your licence to allow
proper competition to take place."
Mr Rendel: In order to allow you to overcome
those doubts, which seems fairly straightforward to me.
Mr Gardiner
58. What is your definition of strong competition?
(Mr Harris) The definition that the Commission uses
is that you have two or more bids. Obviously the more bids the
better, as long as they are credible bids that push hard against
one another to produce good returns for good causes.
59. If two bidders—paragraph 2.11—is
strong competition I would like to know how many fewer than two
constitutes weak competition. Two bidders does not seem to me
to be that strong. On the conclusion on page six, I attract your
attention to paragraph 23. In assessing the bid, risks of transferring
the operator and new terminals are in effect being weighed against
the value realised for good causes. How did you do that?
(Mr Harris) The Commission looked at a whole range
of criteria that it said it would evaluate both bids against.
What it sought to do was firstly to determine on balance which
bidder it believed had a game plan that would generate more sales
and then to take account of their generosity in order to assess
which of them it judged was most likely to produce the best return
for good causes.
| 
