The Big Question: Do we need Richard Branson to run the National Lottery?
Tuesday 10 November 2009
Why are we asking this now?
Sir Richard Branson has twice tried to gain control of the National Lottery, but lost both times to Camelot. It could be third time lucky, however, because this time Camelot itself is up for sale – or rather, 80 per cent of it is – and Branson, the man behind the Virgin empire, with a net worth of an estimated £1.5bn, is expected to be one of the bidders. Initial bids have to be in this month.
Is Camelot in trouble?
If there is one firm that has not suffered during the recession, it is Camelot. In these troubled times, when credit is scarce and people fear for their jobs, more of us than ever are willing to dip into our pockets and hand over a £1 coin to buy the dream that the astronomic odds will work for us, and solve all our financial problems in one lucky break.
Last month, Camelot published their annual report for the year 2008-09, which showed that they had achieved sales of £5.1bn in the year ending 31 March 2009. That figure, representing very nearly 100 million tickets sold every week, is up 3.6 per cent on the previous year's turnover of £4.9bn. It is Camelot's best sales figures for 10 years. The company's chief executive, Dianne Thompson, was rewarded with a pay package which, including bonuses and pension contributions, came to an eye-watering £1.8m.
So why is the company up for sale?
Camelot has five owners, and running a lottery is not the core business of any of them. They are Cadbury Schweppes, the printers De La Rue, Fujitsu Services, Thales Electronics, who are specialists in hi-tech military hardware, and the Royal Mail.
Royal Mail has a strategic interest in the company, because of the large number of lottery tickets sold in post offices, and is holding on to its 20 per cent stake for now. That does not rule out the possibility that they will sell their stake to the highest bidder later.
The other four agreed in April to appoint the investment bankers Greenhill and NM Rothschild to organise a sale. It is reported that Cadbury and Thales were determined to pull out, and the other two partners agreed. Cadbury is currently trying to fight off a takeover bid by the US food giant Kraft.
Will the Government get involved?
The National Lottery is a monopoly created by an Act of Parliament, and therefore any new owner would need to be approved by the Government. Besides, the Department of Culture, Media and Sport has a special interest in Camelot's future, because the company has promised to contribute £2.2bn to the 2012 London Olympics. They will want to be very sure that whoever owns Camelot makes good that promise.
How much is Camelot worth?
Despite having a customer base of more than 30 million people every week, Camelot will be a lot cheaper than a normal firm of that size. There are two reasons. One is that its millions of customers are not big spenders. In terms of its total turnover, Camelot is operating the sixth largest lottery in the world, but measured by the average amount spent by each customer – £3 a week in Camelot's case – it is 66th in the world league table. This is not something they are embarrassed about. They cite it as evidence that they are not getting people to gamble sums that they cannot afford.
What about its profits?
These are also very small for its size. When Camelot successfully renewed its license to run the Lottery, in April 2007, the current shareholders agreed with the National Lottery Commission to cut costs to 5 per cent of turnover, and profits to between 0.3 and 0.4 per cent, down from 0.5 per cent. It therefore keeps about £30m a week in profits, with the rest donated to good causes. For that sort of money, the sale is likely to fetch £250m.
But should Camelot be making a profit at all?
It is an old source of controversy that Camelot is and always has been in the business of running the Lottery for profit, albeit a modest one in relation to its total income. No other private company enjoys a government-protected monopoly, and free prime-time television publicity every week as Camelot does. Many people have asked why they need to keep any of the takings, apart from what they need for their operating costs.
How does Branson enter the picture?
You have to go back to the founding of the National Lottery in 1994. The Conservative government that introduced it did so in the teeth of considerable opposition, especially from other gambling interests like the pools and the unions who represented their staff. Others argued that it was immoral for the Government to sponsor gambling At the very least, the Labour Party argued that the Lottery should not be run for private profit, and included that policy in the manifesto on which they won the 1997 election.
Taking them at their word, Branson headed the consortium called the People's Lottery, who promised to be non-profit-making. They lost the original bid to Camelot, but tried again when the licence first came up for renewal, in 2000. The woman who then headed the Lottery Commission, Helena Shovelton, seemed to be of the same mind as the Labour Party and decided that Camelot should be barred from bidding again, which would have handed the contract to Branson's consortium. But Shovelton's decision was overturned in a High Court, and she resigned.
The commission then looked at the rival bids, and decided that since Camelot already had 24,000 terminals in place from which to sell Lottery tickets, awarding the licence to any other bidder would risk a fall in sales. Having almost had the National Lottery in his grasp, Sir Richard was understandably frustrated, and did not enter the bidding in 2007.
What does Branson know about running the Lottery?
Branson originally made his fortune selling records, but he has turned into something of all-rounder. Virgin Group's most visible businesses now are its airlines and trains. He launched Virgin Airways in 1984, Virgin Trains in 1993, Virgin Mobile in 1999, and Virgin Blue (his low-cost Australian airline) in 2000. He has been regularly voted the most admired entrepreneur by the British public, and over the past few years burnished his green credentials by devoting millions to tackling climate change. His repeated – and often very dangerous – attempts to break world records have also met with admiration, and his 1998 autobiography was a bestseller.
All of which may or may not recommend him to the Lottery. There are actually very few private firms anywhere in the world with the relevant experience to run a national lottery. One is the giant Indian firm, Sugal & Damani, which bid for the National Lottery two years ago, and may now join the bidding for Camelot. With that exception, Sir Richard is probably just as well-qualified to run a lottery as, for example, a chocolate manufacturer, or an arms company, or the private equity firms that are currently showing an interest in buying Camelot.
Should the Lottery be the next venture for the man behind Virgin?
*Branson's bids for a role in 1994 and 2000 show his commitment to the idea of a lottery
*His track record in business suggests he has more than enough know-how to be successful
*Few other investors have been as willing to invest capital in a national lottery
*None of his business ventures have given him experience of running a lottery
*His previous attempts to run the lottery failed
*With all his trains, his planes, his music, his mobile phones, and much else, hasn't Branson had his finger in enough pies?
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