Page 1: Introduction
Most UK citizens are familiar with the National Lottery and its potential for making millionaires of people who manage to select the ‘winning’ 6 numbers out of the 49 available, at odds of around 14 million to 1. Of course, many people win the smaller prizes; each week there are usually more than 1 million winners from among the 29 million participants.
The National Lottery was launched on 14 November 1994, with the first live draw five days later. Under the Act of Parliament that set it up, the National Lottery is operated under licence by a private sector company. The original 7 year licence to operate the Lottery was awarded to the Camelot Group plc. It then succeeded in winning the licence for a further 7 years in December 2000, granted by the National Lottery Commission.
Under the terms of its licence, Camelot is required to operate the National Lottery in an efficient and socially responsible way, protecting both players and the integrity of the lottery, and to ensure that it generates the maximum amount of money for the Good Causes which are designated by Parliament.
Camelot does not determine which charities and Good Causes receive the revenue it raises. These are The Community Fund, The Millennium Commission, The Sports Councils, The Heritage Lottery Fund, The Arts Councils and New Opportunities Fund. Every week, Camelot passes the money for the six Good Causes, to the National Lottery Distribution Fund, which allocates funds to the 15 distributing bodies. These bodies assess applications and decide what awards should be granted. Nor does Camelot have ‘a free hand’ in running the lottery. The company is answerable to the National Lottery Commission, which acts as regulator.
Most other developed countries have had a national lottery for many years, so the UK National Lottery is a comparative latecomer. Ever since it began, it has had to compete for players with a range of established national gaming activities such as football pools, bingo and horse race betting. However, because of its association with very big prizes and also with raising money for the Good Causes, it quickly captured the public imagination.
Unique place in the market
Research shows that around 60% of the UK’s adult population take part in the National Lottery at least once a month. Of the people who buy National Lottery tickets, 70% do not currently participate in other forms of gaming. This suggests that the National Lottery has a unique place in the market; it is a clear, distinct product. However, it does not have a captive market. People can choose not to participate, and, like any other product, the Lottery faces the challenge of changing consumer tastes, and needs to be ‘refreshed’ and given a new look from time to time. There are many beneficiaries of the National Lottery, including:
- the various prize winners, who share 50% of the total revenue raised
- the Good Causes, which receive around 28%
- the government, which takes around 13% in tax revenues
- 35,000 retailers who sell the tickets and keep 5% of revenues as commission
- Camelot’s shareholders (five companies, each with a 20% stake who take around 1% in profit - reducing to 0.5% in January 2002).
As at 1 October 2001, the National Lottery had generated over £10.5 billion for Good Causes, and more than £4 billion for Treasury funds. It had also created 1,222 millionaires. Since its inception, participating retailers have received more than £1.7 billion in commission. For many small retail outlets, this income (averaging £7,700 each per year) has been the difference between survival and ‘going under’ in the face of intense retail competition. Clearly, the National Lottery is ‘big business’. There remains the thorny question of just how far, and in what aspects of its operation, it needs to be regulated by government. This case study considers that question.