Potential bidders fear the provision in the draft lottery licence could bring the sort of problems caused by the Independent Television franchise auction two years ago, in which some companies bid so much that they have run into financial problems.
The draft licence, issued on Thursday by the new director-general of the National Lottery, Peter Davis, says that 'applicants may find it useful to offer a fixed minimum payment', which will be interpreted as showing how confident bidders are of their business plan.
Mr Davis, a former deputy chairman of Abbey National, said he would not necessarily give the licence to the bidder offering the highest fixed payment, but that this would be taken into consideration. One bidder argued Mr Davis would find it hard not to accept the bidder with the highest minimum payment. 'If he chooses someone who is guaranteeing less, he could be accused of cheating charities of money they should be due,' he said.
The fixed payment would be a guaranteed amount that the charitable causes would receive from the lottery operator.
For instance, if the lottery achieved pounds 4bn of revenues, charities would receive around a quarter of that. A bidder confident of achieving this might be tempted to make a guarantee of pounds 1bn. But if the revenues achieved were only pounds 3.5bn, the amount due to the charities would be only pounds 875m, leaving the lottery operator to find pounds 125m from its own pocket to fulfil the guarantee.
The risk could deter many bidders, as may the emphasis on experience, which favours bidders such as the NM Rothschild/Tattersalls group and Camelot, which include a company with a lottery background. 'The draft licence plays to the strength of the people with lottery experience,' said Anthony Fry, who heads the Rothschild team. 'It will knock people out rather than bring people in.'Reuse content