Losing combination in a game of high stakes: Gail Counsell focuses on the charities, bingo halls and betting shops set to be the losers in the National Lottery

FORGET the winners of the National Lottery stakes, it is the potential losers who should be the real focus of interest.

Over the next seven years the successful Camelot consortium expects the lottery to have sales of some pounds 32bn. Half of that money will be recycled to the consumer as prizes. But where the other half will come from is the key question.

Ironically, the biggest loser, at least initially, is likely to be a sector the National Lottery was supposed to benefit - charities, especially those that rely on street donations.

Figures produced by BZW, the broker, but based on research by the National Council for Voluntary Organisations, suggest as much as pounds 270m a year could be diverted from charitable donations to lottery tickets.

But gaming and gambling, and impulse purchases such as sweets, magazines and cigarettes, will also suffer as people switch spending - or even draw on their savings - to buy lottery tickets.

In its early days, the annual turnover of the lottery is expected to be at least pounds 1.5bn. At that level, with half the money returned in prizes, the lottery would need to attract about pounds 750m in spending from other areas.

With a pounds 4bn turnover - roughly the annual sales over the seven-year life of the licence as envisaged by Camelot - around pounds 2bn would come from transferred spending. Although charities will get some of their lost donations back from the lottery via the National Lottery Distribution Fund, it may not be enough to cover their losses, especially in the early years.

The National Lottery Distribution Fund, responsible for distributing the 25-30 per cent of lottery turnover to good causes, has five beneficiaries, only one of which is charities. The others are the arts and sports councils, the National Heritage Memorial Fund and the Millennium Commission.

So on a pounds 1.5bn first-year turnover, charities would lose about pounds 270m but gain only pounds 75m, BZW estimates.

But they will not be the only losers. Many commercial companies will be affected. Other forms of gambling, especially the pools - which return only a quarter of their receipts as prizes - are likely to be damaged. BZW believes that the amount of money switched from the pools to the National Lottery will rise to pounds 120m after three years - almost 19 per cent of their current revenues. It concludes the lottery may well sound the death-knell for the pools.

Small-scale lotteries, which are often used by charities and which currently raise about pounds 50m, are likely to shrink to almost nothing, BZW claims.

Arcade-based amusement machines will probably also suffer, losing pounds 40m, or about 4 per cent of current turnover. Off-course betting, which suffered severely in Ireland when a national lottery was introduced, could lose a similar amount.

Bingo clubs are likely to see about pounds 3m, or 4 per cent of turnover, disappear. But the impact on premium bonds is expected to be modest.

All of which would leave a shortfall ranging from pounds 205m in BZW's pounds 1.5bn-a-year turnover scenario up to pounds 1.45bn if the turnover was pounds 4bn.

Most of this would have to come from consumer spending on such things as confectionery - hence the defensive presence of Cadbury Schweppes in the Camelot consortium - cigarettes, soft drinks, newspapers and magazines. The impact on such products could be from 0.7 per cent of total annual expenditure up to 8.4 per cent, BZW estimates.

Confectionery sales were badly hit in the early months of the lottery's introduction in Ireland, but later recovered.

There may, of course, be a 'multiplier effect'; the extra activity generated by the lottery, as it takes on 500 employees and distributes money to good causes, could feed back into the economy and lead to a higher level of consumer spending.

As far as the corporate sector is concerned, yesterday saw the success of the Camelot consortium only modestly reflected in the share prices of its members - and not only because the City had widely discounted a Camelot win.

Cadbury Schweppes, which will lose on confectionery sales as well as gain from Camelot profits, ended the day down 13p at 479p.

Smith New Court, the broker, estimates that in the long term the lottery could benefit Cadbury's 1995 earnings per share by about 3 per cent.

De La Rue, whose shares rose 3p to 830p, and Racal, up 13p at 238p, are expected to gain much more in the longer term from their positions in the consortium because they are likely to supply tickets and communications to Camelot.

Smith New court estimates the benefit to De La Rue's earnings will be 9.1 per cent and 21.6 per cent for Racal. Japanese-owned ICL, which will supply terminals to the consortium, will also benefit.

But the shares of another consortium member, US lottery operator GTech, saw no benefit from yesterday's announcement. They plunged on an ill-timed profits warning. The UK lottery will, in any case, probably be less significant for their earnings than for the UK companies.

On the down side the lottery is bad news for Ladbroke, which was also a bidder. As the UK's largest betting shop operator, it faces lost profits of up to pounds 8m from lower betting shop spending. But it is also the owner of Vernon's Pools, from which it makes pounds 14m in profits a year, most of which might, in due course, disappear.

Rank Organisation, with a presence in bingo, casinos and amusement machines, will also see some impact - although lost profits will probably be less than pounds 2m.

Yet the biggest gamble for investors are companies that draw their income from general consumer spending - especially that which takes place alongside lottery sales. That includes magazine publishers such as EMAP and cigarette companies such as BAT. It is here that the lost spending may hit hardest. But it is also here where the odds are the most difficult to call.

----------------------------------------------------------------- Gaming and gambling turnover (pounds m) ----------------------------------------------------------------- Amusements with prizes . . . . . . . . . . . 1,029 Bingo . . . . . . . . . . . . . . . . . . . . . 76 Casinos . . . . . . . . . . . . . . . . . . . .398 Lotteries . . . . . . . . . . . . . . . . . . . 33 Off-course betting . . . . . . . . . . . . . 1,160 On-course betting . . . . . . . . . . . . . . . 78 Pools . . . . . . . . . . . . . . . . . . . . .643 Total . . . . . . . . . . . . . . . . . . . .3,417 ----------------------------------------------------------------- Source: Gaming Board, HM Customs & Excise, BZW ----------------------------------------------------------------- (Photograph and chart omitted)