The Government's plans to sell the Tote are in disarray only days after the Chancellor said he wanted to flog off the state-controlled betting group.
Gordon Brown said in the Budget that the Tote was one of a portfolio of state assets - including stakes in British Energy and uranium group Urenco - that would be sold.
However, behind the scenes, the Government is being forced to find a new way to sell off the Tote after privately conceding defeat in its attempts to get a £200m deal past the European Commission.
The Government first announced six years ago that it intended to sell the state-controlled betting group - which was set up in 1929 to offer pool, as opposed to fixed-odds, gambling - to a trust controlled by the British horse racing industry. The sale is a long-held manifesto commitment, with the price set well below the business's open market value.
But it emerged last year that the EC was planning a full investigation into the sale over concerns that it would break strict, state-aid rules. A decision by the EC is expected in the next five to six weeks and, privately, the Government has already accepted that it will not be passed. "It's not going to go through. We know that," said an insider.
A senior source at the Tote added: "There are definitely signs that it's running foul of the state-aid regulations."
The Department for Culture, Media and Sport has therefore started looking at other ways to sell the Tote, which has around 540 betting shops.
A department spokesman declined to discuss what alternatives to the current plan were being considered. But he said: "There are other options beyond merely going to an auction. It's not the only option available."
That, however, is likely to anger rival bookmakers. They have lobbied the Government hard about the sale of the Tote, claiming the decision to sell it to the industry at a knock-down price of £200m gives horse racing an unfair advantage.
Both Ladbrokes and William Hill were thought to be interested in acquiring the business, which could be worth up to £500m in an open auction. Private equity firms would also be interested.
The department spokesman insisted that, despite the EC's likely decision, the Government remained "committed to a closed sale to a racing trust".
Mr Brown confirmed in the Budget that the Tote would be sold off, but did not clarify how. His remarks sparked intense speculation that the Government was planning to auction the assets to the highest bidder instead.
The Tote source rubbished the speculation, however, adding that the department had assured him since the Budget that the Treasury was not seeking to overrule the pledge.
"The situation prior to the Budget was pretty clear, that we're still trying to get the Tote sold to a racing trust. And nothing has changed - it is a manifesto commitment to sell the Tote to a racing trust," he said.Reuse content