A rival to the National Lottery that styled itself the "draw for the unlucky" when it launched four weeks ago has proved to be even unluckier for the investors who backed the company behind it.
Chariot, which operates the Monday charity lottery, yesterday dropped a bombshell on its shareholders when it revealed it was close to collapse less than four months after listing on AIM, London's junior stock market.
The company admitted it was running out of money and warned it was planning an urgent cash call at a vast discount to the value of its stock. It blamed a lack of interest in Monday, which had hoped to attract players by offering them much better odds on much smaller prizes than the National Lottery. It also promised the internet-based lottery would be much more generous than its bigger rival, paying 30p of every £1 waged to its charity partners, or 2 per cent more than Camelot.
In February, Chariot raised £9.6m from investors including Fidelity International and New Star Asset Management to fund the high-profile launch of its new lottery. Its shares listed on AIM at 115p and quickly soared to a peak of 210p, which gave the company a market valuation of £29m.
Yesterday it said it would be issuing an unquantified number of new shares at 5p a throw - 77 per cent less than the level its shares closed at on Thursday. The stock fell from 21.5p to 8p, valuing Chariot at a shade over £1m. It is not clear how much money the company will need to raise to stay afloat.
City traders have been watching the company's plummeting share price with growing alarm over the past few weeks. Even before yesterday's announcement, the stock had fallen by three-quarters in the past two weeks, yet the company had not provided any explanation.
In a stock exchange statement yesterday, Chariot said ticket sales and income generated were way behind expectations, which meant it could not fund its original business plan. In the four lottery draws held since 8 May, it has sold 1.68 million tickets. This compared with expectations at its launch it would sell 5 million a week. At a minimum, it needed to sell 2 million weekly tickets to break even.
Its promises of raising £150m a year for its 70-odd charity partners, which include Barnardo's and the National Autistic Society, have also fallen far short of expectations. It has raised £520,000 for the 20 charities participating in its four draws so far, yet on its original maths it should have raised almost £12m for them by now.
Chariot spent £8m marketing the Monday lottery in a national television advertising campaign. Monday has been plagued by disappointment since its launch when technical problems - ironically due to higher-than-anticipated demand - hampered ticket sales. On that first draw, some 9,800 winners shared around £250,000 in prize money.
Peter Jones, Chariot's deputy chairman, who also chairs the Tote, said the draw on 5 June would go ahead as the money waged by players was ring-fenced from the company's finances. "The consumer is not affected by this whatsoever," he added.
The past month has seen several huge jackpots on offer from Camelot of up to £18m, which industry observers believe has sucked dry all lottery appetite among prospective punters.
Chariot is meeting its investors to gauge whether they will back its attempt to concoct a new business plan. Not backing the cash call will effectively pull the plug on the business.
April 2003: Suzanne Counsell, a charity worker, founded Chariot with the aim of giving more money to charities than the National Lottery.
6 February 2006: Chariot listed on the Alternative Investment Market, selling 8.4 million new shares to investors at 115p per share.
21 April 2006: Shares peak at 210p, valuing Chariot at £29m. More than 50 charities are signed up to benefit from the new game.
8 May 2006: First lottery game suffers technical problems. Ticket sales disappoint. Shares begin to slide amid a dispute over the grant of free shares for directors.
2 June 2006: With its shares at 21.5p, Chariot admits it is running out of cash. Prepares to ask investors to subscribe to new shares at just 5p.