Sir John Bourn, Head of the National Audit Office, told Parliament today that the National Lottery Commission had a sound basis for its decision to award the second licence to run the National Lottery to Camelot. However, he expressed concerns for the future about the extent of competition and the advantages held by the incumbent operator.
The Commission received two bids and awarded the licence to Camelot on the basis that Camelot was likely to generate more money for Good Causes and on its assessment of the risks associated with the bids. The National Audit Office found that the Commission had provided a clear public statement of its objectives for the competition process and the criteria it would apply in evaluating bids. The Commission conducted a thorough evaluation and critically reviewed the bidders’ forecasts of returns to Good Causes. The Commission also sought independent assurance on its decision-making process.
It is well known that the competition process did not go smoothly and took longer than planned. This delayed the award of the licence and, to allow sufficient start up time for the winning bidder, the Commission negotiated a four month interim licence with Camelot.
There were significantly fewer competitors for the second licence than the first – two compared with eight – although this was comparable with experience in other countries. The Commission sought to address constraints that may have deterred potential bidders (not least the existence of an incumbent operator with an established infrastructure) but was hampered by the inadequacy of its powers under the first licence. For example, the Commission was not able to provide bidders with full details of the location of Lottery retailers. The Commission has therefore strengthened its position in this and other respects under the second licence. It is clear, however, that the incumbent licensee has an inherent advantage because of the risks involved in changing to a new operator. This could deter potential competitors from bidding for the next licence.
The report sets out a number of issues for the future which will help inform the Department for Culture, Media and Sport’s review of the process for awarding the licence, which is to look at ways of increasing competition to maximise the return to Good Causes. The Commission needs to consider taking steps to reduce the cost and burden of bidding, for example by cutting the amount of information it asks bidders to provide and ensuring that its own requirements are clear. Radical changes in the structure of the Lottery would require legislation and the Department and the Commission need to come to an early view on any changes to allow them to be implemented in time for the next competition.