Shot in the dark for lottery bids: Millions being spent to win national licence

THE CORPORATE video produced by Camelot, one of the high-powered consortia planningto bid for the national lottery, is a lavish affair, extolling the virtues of the group's expertise in security printing, lottery technology, confectionery and the like. Camelot - backed by De La Rue, Cadbury Schweppes, Racal, ICL and the US group GTECH - has spent a fortune on presentation, with a prancing lion logo and expensive-looking publicity material.

At its offices in Windsor, 100 people are beavering away preparing Camelot's assault on the Government-sponsored national lottery. A few miles down the road, at Stockley Park near Heathrow, a team 30 or so strong is also burning the midnight oil, but this time for one of Camelot's chief rivals, the Great British Lottery Company. The consortium's backers - Granada, Vodafone, Hambros Bank, Carlton Communications and Associated Newspapers - have all lent staff to bolster the bidding team and the chairman is Gerry Robinson, Granada's chief executive.

Elsewhere in the UK, other bidding teams are being put together by - among others - Rank Organisation, NM Rothschild (which is working with the Australian group Tattesall's), Post Office Counters, Ladbroke and the Tote. In fact, many hundreds of people spending millions of pounds are preparing bids for Britain's first national lottery.

But there is one problem. The runners and riders may have lined up, but they don't know how long the course is, what twists and turns there might be, whether there might be hurdles and how large they might be. The National Lottery Bill has yet to complete its passage through Parliament, and the terms of reference have yet to be decided.

To be fair, the bill is expected to win Royal Assent in the next few weeks,and it is anticipated that Peter Davis, the vice- chairman of Abbey National who has been appointed director-general of the lottery, will be able to issue detailed invitations to tender before the end of the year. These will specify the length of the lottery contracts; what percentage of the bets will go in winnings, to charity and to the people who run the lottery; the cut-off ages under which people will not be allowed to buy lottery tickets; and what sort of games might be precluded.

The lottery bidders who have spent the most money on preparation say not knowing these facts is no problem - that the only things still to be decided are mere detail.

'There are not many outstanding issues - it is just a matter of fine tuning,' says David Channing Williams, managing director of the Great British Lottery Company. 'There will be preferences on style and presentation, for instance. But if I didn't have a pretty good idea of what is going to be said, I would be disappointed.'

David Rigg, director of communications at Camelot, agrees: 'The basic framework and structure is in the bill. When a group makes a bid, it can factor these into fairly sophisticated computer models into which the variables - like the tax rate or the length of franchise - go when we see the document. It's just like bidding for any other government contract.'

But Automated Wagering International (AWI), the US group that provides lottery services and is allied to two bids, Rank and Great British, is more cautious. 'We do not want to make a decision as to a single bidding process because we don't know what the rules are,' says Dennis Mahoney, the group's senior vice-president.

Ladbroke, rumoured to be making a joint bid with the French lottery and IBM, is also keeping its powder dry. 'It is logical for us to be involved in bidding in a consortium,' says Steve Devaney, Ladbroke's head of corporate communications. 'But we have not put our hat into the ring yet because there is not enough information to decide whether this is interesting commercially.'

And Anthony Fry, who heads the Rothschild consortium, says there are many variables which could not affect not only whether people bid, but also the nature of their bids.

He has indentified at least three factors that could deter potential bidders. These include the length of the franchise - for instance, a four- year franchise would not be economic given the pounds 200m or so of capital investment needed. Second, there is the debate on how much should be ploughed back in winnings - it is generally accepted that at least 50 per cent of the bets should go back in winnings, 35 per cent to charity and the rest to the company running the lottery - and whether these would be paid out instantly or at a later date. And third, there is the thorny issue of the timeframe - if the Government wants the lottery started quite quickly, some bidders might be put off.

Some mea sures might also force changes to the make-up of the consortia. For instance, the Government might set a limit on how large a stake one company can take in the lottery, or preclude foreign investors. It might ban repetitive games. It might insist on having on-line terminals at all outlets - so pushing up the cost - or push for as wide a spread of outlets as possible, causing a potential security problem.

There is also the question of public and official perceptions of the bidding companies. As reported in last week's Independent on Sunday, there are clouds hanging over both GTECH and Video Lottery Technologies, the parent company of AWI, as a result of regulatory investigations in the US and Australia. GTECH has tried to dismiss these as scaremongering and part of a smear campaign. However, Mr Davis has to decide whether he is willing to approve any bids where there might be any question marks, however minor.

The attitude of the regulator, an unknown quantity despite his prominent position in the banking industry, will greatly affect the operation of the lottery. For instance, it is not known whether he favours a heavy-handed structure, with strict adherence to the letter of the tender and the regulations, or whether he will take an interpretive, laissez-faire approach that allows bidders to work within the sprit of the legislation. If any bidder wants to know how regulators can cause problems, they should ask British Gas.

The Heritage Ministry is aware that some measures might limit the number of bidders, and is expected to circulate a consultative document - a sort of draft licence - before finalising the rules. But given how keen the Government is to get the lottery off the ground, the consultation period is going to be short, perhaps only three or four weeks. The bidding period is also likely to be truncated - a maximum of eight weeks is anticipated so the award can be made in February or March.

Though few arewilling to articulate it openly, there is a deep-seated fear that something might go terribly wrong with the bidding process and produce the sort of problems thrown up by the bidding for ITV franchises. In worst-case scenarios, there would be legal challenges to the bids (as TSW attempted in the TV auction), or the winner would run into financial problems (as TV-am did after winning its ITV licence), or the consortium would run into internal problems (as happened with British Satellite Broadcasting).

The structure of the national lottery is not unique - a similar structure exists in Australia - but it is unusual. The US versions work on the basis that the state runs the lottery and sub- contracts for services such as terminals and tickets, but the national lottery will have a lottery company as the contractor. The trouble will come if the contractor is not up to the job.