Lottery shareholders profit while returns to good causes stagnate

Shareholder profits at the National Lottery operator Camelot are rising at a much faster rate than returns to good causes, an investigation by the Parliamentary auditor has found.

Whereas returns for the good causes – including the arts and sport – increased by 2% between 2010 and 2017, profits attributable to shareholders increased by 122%.

This is despite Camelot reportedly renewing its license in 2011 on the strength of its promise to increase returns to good causes.

The National Audit Office (NAO) report also relays concern from lottery distributors about data transparency, stressing a refusal by the DCMS to provide up-to-date sales data undermines their ability to budget effectively.

Following the report’s publication, the Public Accounts Committee – parliament’s spending watchdog – said profits increasing while money for good causes goes down “goes against the spirit of the act” and has signalled intentions to hold an inquiry in the new year into “how such huge increases in profits can happen”.

In addition, a senior Labour councillor has urged Government to rebuild public trust by holding a public consultation on potentially re-nationalising the game ahead of the competition for a new operator in 2019.

NAO report

The NAO report, published earlier this week, reviews trends in total sales and returns for good causes across various games.

It follows revelations that lottery returns to the arts fell by £55m last year, and the Scottish Government’s announcement it will increase its arts budget to offset lottery decline.

The report found lottery sales increased by 27% to £6.9bn from 2009/10 to 2016/17, while returns for good causes increased by just 2% (£31m). In the same period, profit attributable to shareholders increased by 122% to £71m, although the report notes profit is a percentage of gross and net sales and does not have a direct linear relationship to income raised for good causes.

The report highlights that half of the six largest lottery distributors, of which Arts Council England is one, increased grant commitments in 2016/17 at the same time as lottery income fell. All model different scenarios of potential income themselves, and have raised concerns that the available sales data doesn’t provide a clear indication of trends.

The lottery fund balance was also found to have become more precarious: it was able to cover 96% of liabilities in 2005, but only 51% by 2017.

Calculating returns

The method of calculating returns for good causes was set in Camelot’s 2009 license and, the report notes, “does not reflect subsequent changes in sales across different types of lottery games”.

In 2016/17, sales for draw-based games fell by 13% and only 2% for scratch cards and instant win games, but returns for good causes range from 34p for draw-based games bought online, to 10p for scratchcards.

Camelot told the NAO the varying rates of returns were because of “the need to offer a higher proportion of proceeds as prizes for instants to encourage consumers to participate”.

Concerns

But Steve Trow, Labour Councillor and a lead researcher on the 2014 PLACE Report, which found “gross imbalances” in the distribution of arts lottery funding, questioned this position. 

He said the emphasis on draw-based games was counter-intuitive, as maintaining thousands of terminals is a costly administrative procedure and people are increasingly purchasing games that are not draw-based. He added that in the absence of detailed sales data, there was no guarantee such decisions were made in the interests of maximising returns to good causes.

Noting that Camelot’s license to operate the National Lottery expires in 2023, and competition for a new operator will begin in 2019, Trow suggested Camelot may simply run down its remaining contract and “take out the remaining profit from the lottery over the next five years”.

“There’s nothing to stop any political party or any government policy which says: we are in danger of leaking public confidence, and if public support collapses, we will not have a national lottery. Who would bid for it in 2019 if it’s a defunct body,” asked Trow.

“The only way to regain confidence is to bring it back into public ownership.”

He continued: “With an election potentially coming up, this could be another time to look at what is potentially a £2bn source for healthy living, arts and sport.”