Scrutiny of the Draft Public Bodies (Merger of the Gambling Commission and the National Lottery Commission) Order 2013

 

Written evidence submitted by Camelot UK Lotteries Ltd [GLC 003]

Background

Camelot has been the licensed operator of The National Lottery since its introduction in 1994 – winning three licence competitions in the process – and has over 18 years’ experience of operating a national institution responsibly. It is one of the most successful lotteries in the world.

Camelot manages the lottery infrastructure, designs and promotes new games, develops the marketing support for lottery products, provides services for players and winners, and runs the network that sells tickets to players in partnership with over 36,000 retailers UK-wide – as well as on the internet and mobile telephone. Camelot is not responsible for the distribution of lottery funds.

We welcome the opportunity to comment on the proposed merger of the Gambling Commission and the National Lottery Commission (NLC).

We have a strong working relationship with the NLC and have collectively worked productively to progress a better regulation agenda, including a number of initiatives aimed at delivering a more efficient and proportionate regulatory structure. We hope that this work will continue under the merged arrangements.

Merits of the merger

Camelot’s priority is to ensure that there is an effective, fit-for-purpose regulatory environment for The National Lottery. In the context of increasing pressure on public sector finances and the need to make cost-savings we understand the logic behind the merger of the NLC and the Gambling Commission. However, from Camelot’s perspective the more important issue is the merged regulator’s approach to regulation, rather than the identity of the specific regulator.

The regulatory framework adopted over 18 years’ ago when the lottery began as an unknown venture does not reflect all the years of experience (of operator and regulator) that have contributed to its present successful operation. Honesty, transparency, efficiency and public and political confidence in the lottery’s operation are all well established.

Camelot believes the merger provides the opportunity to continue and accelerate the good work made to date with the NLC on better regulation – moving towards a simplification of the licence (with appropriate regulatory measures in place) and improved ways of working with the regulator.

In recent years, for example, Camelot and the NLC have worked closely together on the NLC’s Regulating with Excellence (REx) initiative which was set up in 2009 ‘to avoid tying up the operator in unnecessary red tape’ and to make progress in better focussing and streamlining lottery regulation. Camelot and the NLC continue to take forward this agenda. For example, we have agreed to work together to determine the appropriate level of NLC involvement in, and engagement with, the approval process for new game proposals. The NLC and Camelot are looking at how the licensing process can be streamlined to ensure that effort is focused on providing only information that is relevant to the NLC’s licensing decisions. In addition, Camelot is also exploring the possibility of providing the NLC with greater visibility of Camelot’s governance structures and processes to avoid duplication of effort.

We would also like to discuss with the regulator moving from a ‘regulation by approval’ model, to a ‘regulation by licence to operate’ model (see Appendix) and therefore make the duties of the merged body consistent with the current wider approach to regulation adopted by many other regulators, including the Gambling Commission. This seems to be consistent with the Government’s preferred approach as indicated in the Queen’s speech and the announcement of a draft Deregulation Bill.

Historically, the modus operandi of the NLC and the Gambling Commission have been very different, reflecting the fact that the Gambling Commission licenses a large number of varied operators, whereas the NLC regulates only one, albeit very large, licensee. One very clear result of this has been that the NLC’s approach is more detailed and hands on, whereas the Gambling Commission’s approach is more retrospective and arm’s length. The challenge for the merged body will be to meld and dovetail these two approaches into something that meets statutory obligations and which is consistent and transparent.

In sum, we believe that there is further scope for reform of the way in which The National Lottery is regulated that would provide an enhanced level of flexibility and, consequently, enable the operator to further maximise returns to society – i.e. returns to The National Lottery Good Causes and the Exchequer.

We therefore hope that the merger will allow us to benefit from the best regulatory practice from both the Gambling Commission and the NLC.

The competitive landscape

Camelot believes that the merger also provides a good opportunity for the merged regulator to consider issues that affect both the gambling and lottery sectors in a holistic manner.

The competitive landscape of the lottery sector has changed dramatically in recent years. Developments such as the expansion of society lotteries and the introduction of lottery-style betting games have not only made the marketplace more crowded, but have also generated concerns from a regulatory perspective. Camelot has raised a number of issues with the Gambling Commission and hopes that the merged body will address these concerns in the round, taking into account the impact of market developments on The National Lottery.

Lottery-style betting games

For example, for a number of years we have expressed concern about mainstream gambling companies, especially (but not exclusively) those operating off-shore, potentially leading players into thinking they are playing a lottery when they are actually betting on its outcome, in what are known as lottery-style games. The most recent examples that have been flagged to the Gambling Commission include its licensees Arsenal Lotto, MyLotto and Lottoland.

In the case of Lottoland and MyLotto24.co.uk we also believe that certain of their games need to be carefully considered in the context of the betting licence condition mandated by Section 95 of the Gambling Act 2005, which prohibits the taking of bets on the outcome of a lottery which forms part of The National Lottery. As regards Arsenal Lotto, we are concerned that the name of the product and the way in which it is marketed create an impression as to the nature of the product which is inconsistent with the relevant licensing objectives in the 2005 Act.

While it seems that the Government’s proposed Gambling (Licensing and Advertising) Bill will provide a fresh opportunity to reassess off-shore lottery-style games which comprise taking bets on the outcome of The National Lottery, Camelot will continue to monitor and, wherever appropriate, question the operation of lottery-style games generally.

Society lotteries

Another area of concern involves the licensing and regulation of some larger, multiple society lotteries under a single or connected brands, for instance the Health Lottery, which in our view would pose a very significant threat to the long-term health of The National Lottery. Our fear is that other potential entrants, basing themselves on the Health Lottery model, could further undermine The National Lottery’s position.

The Committee’s report on the Gambling Act 2005, ‘A bet worth taking?’ (24 July 2012) concluded that: ‘229. … the Health Lottery appears to us to accord with neither the spirit nor the intention of Parliament as set out in the National Lottery Act 2006 and the Gambling Act 2005…’, going on to say that ‘230. The government should provide clarity one way or the other as to what constitutes a national lottery and what constitutes a local lottery connected to other local lotteries. If the Government decides to allow more than one national lottery then it should ensure fair competition by requiring any new national lottery provider to pay lottery duty and meet the same legal requirements as the existing National Lottery operator.’

Camelot welcomes the Government’s announcement that it will consult on the minimum contribution that society lotteries are required to give to charity, but this unfortunately does not address the issue of precedent set by the Health Lottery. We will therefore continue to urge the Gambling Commission, especially under the merged arrangements, to exercise its powers to ensure that the Health Lottery is appropriate regulated and, as always intended by Parliament, The National Lottery’s unique role is fully upheld and protected by the enforcement of the statutory limits on society lotteries.

Potential conflicts that might arise from the merger

The Gambling Commission and the NLC currently have a number of similar statutory objectives – in particular a shared duty to protect players. However, as noted in the Department for Culture, Media and Sport’s (DCMS) consultation document on the merger, in some ways the roles of the Gambling Commission and of the NLC are different. The main difference centres on the NLC’s third statutory duty, which is to maximise returns to Good Causes, which the document describes as ‘a key mechanism for protecting the public interest in the Lottery’. DCMS states that: ‘The NLC’s client role may raise a concern that the requirement to maximise good causes would (or would be perceived to) give the Lottery operator preferential treatment over other gambling operators. This might lead to suggestions that certain regulatory decisions were unfairly favourable to Camelot in an increasingly competitive and crowded market.’

Camelot recognises that the NLC’s duty to maximise returns to Good Causes may give rise to a perceived tension in how the merged regulator undertakes its duties. Under the existing arrangements the Gambling Commission has no direct obligation to protect the interests of The National Lottery or maximise returns to Good Causes, whereas its future responsibilities will involve balancing its duties to all of its licensees, including The National Lottery. However, in this context we note that it is the Gambling Commission’s responsibility to enforce the limits on the size of society lotteries prescribed pursuant to the Gambling Act, which were intended by Parliament to prevent society lotteries from competing head-to-head with The National Lottery. [1]

In Camelot’s view the merged body will need to ensure that it operates in a transparent manner to minimise the perception of potential conflicts of interest. Given that the Gambling Commission already has to balance the interests of a broad range of licensees with widely varying objectives and/or remits, from large gambling operators that are wholly commercial, to small society lotteries raising money for charity, we believe it should and indeed must also be able to protect the unique role and remit of The National Lottery.

Other questions

The readiness of the Gambling Commission to integrate the NLC into its own structure; and

Camelot has no comment.

The accuracy of the projected savings which would result following a merger.

Camelot has no comment.

Appendix

Regulation by approval

This is the form of regulation currently governing The National Lottery. In essence, under The National Lottery Licence, a large number of operational issues need reference to the NLC for consideration and approval before they can be implemented by The National Lottery operator. This form of regulation is more commonly seen in circumstances where the actions of the regulated body have immediate implications for life and safety.

Regulation by licence to operate

This form of regulation is increasingly common, and is practised in some of the most significant areas of regulated activity. Under this model, any detailed assessment of the capabilities, approach, quality control systems and methods of working of a regulated organisation are made at the time an assessment of permission (i.e. licence to operate) is made and granted.

As detailed assessments have already been made as part of the licence award process, afterwards it should only be necessary for the regulator to check that the licensee is working according to its commitments under the terms of its licence. This is essentially the approach that the Gambling Commission takes.

14 May 2013