Outside View: Good causes will be lucky if they ever see this £1bn

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The Independent Online

The clock is ticking on the current contract to run the UK Lottery; time runs out late in January 2009. The lottery operator, Camelot, promised £15bn for the UK's good causes and the lottery regulator made clear its expectations of at least £10.5bn to match the first licence, which expired in 2001. By my analysis Camelot is nowhere near either sum, and good causes, Olympics and all, are set to be short-changed by at least £1bn.

There are all sorts of gremlins lurking. Over time, international practice has been for lotteries to pay out more and more in prize money to boost sales. This explains why the proportion of sales being returned to good causes by the UK Lottery is a mere 26.3 per cent for the most recently reported six months. In its first licence, Camelot gave back 30.6 per cent.

Camelot would no doubt argue that sales would be even lower if it had not paid out more of its proceeds to players. But that does not mean the strategy has worked. The most serious problem for this licence has been the ailing flagship game, Lotto. For many players, Lotto is the Lottery – they can take or leave the other eight games. So far this year, average weekly Lotto sales are £52.4m – a new low since the game started. Lotto is on target to dip more than £2bn below its highest level exactly 10 years ago.

As Lotto sales fall away, fewer winning combinations are covered, and the jackpot rolls over more often, so that triple rollovers are now emerging. These lead to big spikes in sales.

Ironically, this accidental pattern means Lotto now resembles something like Sir Richard Branson's plans for the game, which were deemed too risky to accept. He would have had higher base sales to work from, and looking at the way players are now responding, there is an argument for saying he should have won the contract.

Lotto is in a trough and is overdue a radical overhaul. Camelot has already secured the Lottery operator's contract for 10 more years to 2019, and the future of funding for the good causes until then depends largely on what Camelot does with this game and how well it works.

I calculate that good causes had, by September, earned £7.6bn, £2.9bn short of the minimum £10.5bn requested by the regulator. This is based on figures for the first 295 weeks of the licence, the latest data published by the regulator. This payout represents 28 pence for every pound staked by players.

In estimating how much the lottery will contribute to good causes until week 353 (when the licences will have lasted the same amount of time), I make two assumptions. One is that good causes will receive that same 28 per cent proportion for the remaining and unreported weeks (last year it was 27.1 per cent so this may be generous), the other that sales stay at the level for the quarter just reported (£96.2m per week – again, a generous assumption, because the average this year as a whole is £93m and the licence average so far is £92.1m). That raises £1.6bn more for good causes and leaves Camelot short by £1.3bn.

Fortunately for the operator, the current licence is 11 weeks longer than the original, giving it time to raise its contribution by £300m to just under £9.5bn, which is where I came in. The good causes will be more than £1bn short of the target.

Mark Slattery was formerly head of communications at the National Lottery Commission