The GTech cover-up that left Camelot exposed

The Downfall
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The Independent Online

Camelot's loss of the lucrative public sector contract can be traced to one decision, the day in July 1998 when executives at GTech, the US firm that provided the technology for the National Lottery, decided to cover up a minor software glitch. It was disastrous.

Camelot's loss of the lucrative public sector contract can be traced to one decision, the day in July 1998 when executives at GTech, the US firm that provided the technology for the National Lottery, decided to cover up a minor software glitch. It was disastrous.

Since Camelot won the first seven-year National Lottery contract in 1994, it has simply had a licence to print money. Its executives saw annual profits as high as £77m a year, awarded shareholders dividends of £18m and shared pay rises and bonuses worth nearly £3m.

What worried those GTech executives, however, was the discovery that their lottery machine software had been miscalculating a tiny number of lower-level lottery winnings ever since the Lottery had its debut in November 1994.

They discovered that if any of their 27,000 ticket machines were opened during a transaction, that lottery entry was recorded twice. It did not alter the donations to "good causes", but it did affect the payouts to winners below £50,000, if only by £2 to £3 per win. About 78,000 people got too little, and 35,000 winners received slightly too much.

Although it only affected 0.0007 per cent of National Lottery transactions, GTech still decided to cover it up.

It was extremely foolish, but the firm had already endured a tough few months, not least because of Sir Richard Branson's allegations that its then chairman, Guy Snowden, had tried to bribe him to pull out of the 1994 licence race.

GTech had endured revelations about FBI investigations into its dealings in the United States, rows over free flights to the then lottery regulator, Peter Davis, and Mr Davis's disclosure to MPs in 1996 that he did not believe GTech could be entirely trusted.

As the world's largest lottery operator, GTech did not want any further embarrassment to mar its already shaky reputation. In the early Nineties, a former national sales manager was convicted and imprisoned for paying kickbacks to lobbyists who had helped the company compete for the New Jersey state lottery contract. This time, in Britain, one GTech employee turned whistle-blower.

In April this year, nearly two years later, that GTech engineer, David Armitage, wrote to the National Lottery Commission. As his actions became public in May, Mr Armitage revealed that, in July 1998, after correcting the software error, GTech had considered contacting those affected. He said: "We knew it would be complicated, and the meeting broke up without any decision. A week later I was told we wouldn't be doing anything. I was stunned."

At the time, it seemed highly embarrassing, but not necessarily disastrous. Last month, GTech attempted to reassure the commission by ousting its chairman and chief executive, William O'Connor, and its president and chief operating officer, Steven Nowick. That dented its profits and share price, which fell $3 (£2) to $19.75 (£13.50), and Camelot's credibility, vulnerable at the best of times, was affected.

The commissioners had two questions: If Camelot knew what GTech had discovered but suppressed it, that raised questions about Camelot's suitability; If, as Camelot strenuously insisted, it did not know, that raised doubts over whether GTech, a major partner in the company, was keeping it properly informed.

The leak had come at a crucial time. Camelot was being challenged by Sir Richard Branson's People's Lottery for the next seven-year licence, which begins on 1 October 2001. After enduring long-running attacks over its "fat cat" executives, Camelot had secured the Post Office as its main partner - a move that at last gave it some moral authority to pitch against Sir Richard's "not for profit" bid.

The commission had to consider the new disclosure about GTech's probity and it needed some answers. As The Independent disclosed in June, the commission was not yet satisfied about Camelot's assurances and extended the licence competition for two months. Over the following weeks, Camelot was unable to satisfy the commission that it could be trusted with GTech on board.

It was also made clear yesterday that the software failure, and the suppression of the glitch, breached Camelot's legal and contractual obligations under its licence. The commission's investigations are continuing, and Camelot now faces a heavy fine.

For Sir Richard Branson, stranded, on perhaps the best day of his business career, by Hurricane Debby on his Caribbean island retreat on Necker, the decision vindicates his bitter campaign against Mr Snowden and GTech. The scandal erupted on the evening of Monday 11 December 1995, when the BBC current affairs programme Panorama broadcast Sir Richard's bribe allegation. During a lunch at Sir Richard's house in Holland Gate, west London, on Friday 24 September 1993, Mr Snowden apparently made a subtle but startling offer.

According to notes Sir Richard took immediately afterwards, in his toilet, Mr Snowden asked: "I don't know how to phrase this Richard. There is always a bottom line. I'll get to the point and in what way can we help you Richard?" The Virgin chief later claimed he added the word "personally" to that offer.

GTech accused Sir Richard of lying, and the Virgin chief hit back, issuing a writ against Mr Snowden. Nearly a month later, Mr Snowden counter-sued. Supported in court by the celebrated libel lawyer George Carmen, Sir Richard won.

Mr Snowden was told to pay £20,000, with GTech liable for £80,000 and the £2m legal costs for both sides. Despite his defeat, Mr Snowden, flanked by his wife DeDe, stood outside the Royal Courts of Justice on the Strand and announce his resignation.

Sir Richard claimed this meant Camelot should be stripped of its licence. His victory ended the toughest two years Camelothas endured. As the game gripped the public's imagination, Camelot became embroiled in a series of long-running stories.

There were accusations that it was to blame thousands of job losses among pools companies, church leaders launched attacks over the game's morality, and then there were the 'fat cat' stories of big salaries and big bonuses.

These events will be all the more bitterly recalled by the 800 Camelot staff who are now likely to lose their jobs on 30 September 2001. Their only chance is that Sir Richard and The People's Lottery will be unable to satisfy the commission over the remaining questions.