Camelot's on a rollover but it can't rely on lucky numbers

Sales may be up, but as new games fail to pull in the punters, Mark Slattery says the operator must keep its eye on the balls

The National Lottery Commission's annual report, ominously published on Friday 13, is a mixed blessing for Camelot. On the surface, the report suggests that life is good for the National Lottery operator. It registered growth in ticket sales of just under 1 per cent in April - the first for five years.

The National Lottery Commission's annual report, ominously published on Friday 13, is a mixed blessing for Camelot. On the surface, the report suggests that life is good for the National Lottery operator. It registered growth in ticket sales of just under 1 per cent in April - the first for five years.

Lotto had its first ever triple rollover on 29 May, causing a huge sales spike of £68.4m. Its first quarter shows sales up nearly 6 per cent on last year. But close reading of the report raises doubts about whether the operator's game strategy is truly working; in fact, the upbeat sales figures may mask serious underlying problems.

Camelot needs at least to match the £10.2bn it raised for good causes in its first licence period. By my projections, on current sales it could be at least £500m short of that.

So this could be make-or-break year. Fortunately, Camelot is forecasting more sales growth. Given that last year saw the second-lowest full-year sales on record (£4.62bn), it will need much more than a 1 per cent increase. Jobs could be on the line if sales were to decline again.

Ironically, one reason for the present healthy sales is a run of good luck. Lotto sales are heavily influenced by how many rollovers there are: sales increase by around 10 per cent in response to them. Last year there were 27 (including four double rollovers). This was 50 per cent more than the next-best year on record, which had only 18. Since April, the run has continued, with 11 rollovers (including two doubles and that triple).

Can this luck hold? It needs to because, over the long term, sales for the Lotto game have been in decline. Lotto remains important as, despite this decline, it still forms 70 per cent of total sales, and any downward trend drags with it total sales for the whole portfolio. A significant difference between the lotteries in the UK and in other countries is that our Lotto is dominant. Abroad, Lotto sales have likewise declined but the Lotto game itself usually forms less than 50 per cent of the portfolio. That means falling sales overseas are more easily offset by the introduction of new games than in the UK.

Diversification aims to attract new players while creating renewed interest among disaffected and lapsed players. But not counting Scratchcards and Thunderball, other games currently form a meagre 8 per cent of total sales.

Not only has the new games strategy had limited success so far; it also poses problems. For one thing, the portfolio of games (eight games, 13 draws a week) is now looking perilously crowded. There is evidence that this is causing player confusion. Last year the game's regulator, the National Lottery Commission, carried out research into players' attitudes and found that 69 per cent felt there were too many games. The NLC is either indifferent to this or impotent, because since then, it has licensed at least two more draw-based new games.

Not only is there now less room for more games, but the disappointing reality is that few of the new ones have worked as well as they need to. Where is the room for growth? Lotto Extra, currently in a rare hot flush, was launched amid hype of £50m jackpots. But seldom have they crept towards £20m. The new EuroMillions game is being given jackpot support after only weeks on the market; such artificial resuscitation is a distressing sign. And after a promising start, Hot Picks has declined rapidly. Interactive games make a nigh-invisible contribution. It seems players are simply not that interested in new games.

Another problem diversification brings is how to manage the marketing spend. By splitting its marketing effort between several games, some of them with relatively small sales, Camelot risks failing to maximise the benefits of its budget. The money might be better spent boosting big jackpot games that provide the crucial rollover sales.

One response could be to withdraw some games and concentrate on core products. Daily Play and Lotto Extra look most vulnerable but as yet there are no signs they will be dropped.

Camelot is scoring well with Scratchcards and Thunderball, although Scratchcards have been helped by price increases in many cases. But this recovery will not be lost on Camelot's rivals for the next licence, who will have noticed, too, that the commission plans to invite separate bids for Scratchcards, if the Government allows it.

So what options are left? Could the higher prices charged for EuroMillions and Scratchcards work for Lotto, or would that erode sales further? Some decline could be withstood if income increased overall. But it is a risk. More promising are Camelot's plans to provide greater access to games, for example online and at supermarket cashpoints.

As people play Lotto less often, so we are seeing more frequent rollovers; this pattern looks to have achieved by accident what was proposed by Sir Richard Branson's consortium.

UK sales of EuroMillions may be small, but the game is designed to grow as more countries join in. On present sales, this is the thinnest of silver linings. And large jackpots could compete with Lotto, com-promising total sales.

This problem of over-reliance on Lotto is difficult to overcome without taking big risks, and a diverse portfolio is proving difficult to manage without a withdrawal strategy.

For now, sales are buoyant, but there is a lot riding on diversification, and rollover luck is playing its part. It may not be enough; underneath it all, the options are running out.

Mark Slattery was head of communications at the National Lottery Commission between 1999 and 2004