UK: THE GREAT LOTTERY LINE-UP.

UK: THE GREAT LOTTERY LINE-UP. - As the deadline for entry to the National Lottery stakes nears, Jim Levi looks at the form of those jostling for the brand of the century.

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Last Updated: 31 Aug 2010

As the deadline for entry to the National Lottery stakes nears, Jim Levi looks at the form of those jostling for the brand of the century.

The runners and riders are at the starting gate for the Great British Lottery Race. Bids for what has been described as 'the most hotly contested contract in recent commercial history' must be in to Peter Davis, director general of the National Lottery (Oflot), by 14 February - St Valentine's Day. He is then expected to select the winner by the end of April. The winner is obliged to start selling the first tickets early next year though one bidder claims to be able to have the lottery up and running within 90 days of winning the contract.The contract will run until March 2001.

Ostensibly, it appears to be an eight-horse race. However, some insiders say there are just two thorough-breds with enough staying power to survive the hurdles and ditches that Davis and heritage minister Peter Brooke will put in front of them. Others even dare to suggest there is only one horse in it: the whole bidding exercise being an elaborate charade to cover up that simple inescapable fact.

What is certain is that the Government cannot afford any kind of failure when the lottery is launched. A technical fiasco or the merest whisper of fraud would severely dent credibility. 'There won't be any chance to have a dress rehearsal,'comments De la Rue's David Rigg of the Camelot consortium. 'That is what makes it so daunting. If it goes wrong at the beginning it is difficult to see how it can be relaunched.' Anthony Fry, who is organising the Rothschilds bid, says: 'The key question is how many realistic contenders are there in the race? The Government knows it cannot afford for it to go wrong in any way. Davis will be looking for evidence from each bidder that they know how they will run the lottery and already have extensive experience of running them. He will want to know that they can fund the launch costs and he will want all bidders to offer him a minimum guaranteed amount per year.' Anyone making a close examination of what the lottery entails is soon overwhelmed by the superlatives. There is every possibility that the National Lottery could become the biggest of its kind in the world. There is talk of it attracting £6 billion of revenues annually, though even a more realistic figure of £3 billion implies an involvement of perhaps two-thirds of Britain's population over the age of 16 (40 million people) regularly purchasing lottery tickets. For the winning operator it could mean annual profits of £100 million - paying back the estimated £200 million start-up costs inside three years. Tim Holley, the Racal Electronics man seconded to be chief executive of the Camelot consortium, forecasts that the lottery 'will soon be Britain's biggest single-selling product', even outselling giant brands such as Coca-Cola and Mars. His prediction is based on an estimated weekly sale of around 40 million tickets worth £1 a time - and that looks conservative, particularly as Brooke hopes the face value of tickets could be £2 as well as £1.

Fry points out that Tattersall, the Australian lottery operator, which will run the Rothschilds consortium if it wins, manages to raise about £2.50 per person per week in the State of Victoria, where it has been running lotteries for decades. That rate of purchase implies an annual lottery spend of £5.2 billion. Such a figure would be six times the current level of annual spending by the 13.5 million people in Britain who fill in the pools coupon regularly during the football season.

However big the cake, it is expected to be divided roughly as follows: half the takings to the prizewinners; about a quarter to various worthy cultural and sporting causes; and the rest divided roughly 50/50 between the Government and the lottery operator. With the lottery operator looking at the prospect of getting approaching 15p in every £1 of revenue the profits potential for the winning consortium compares with some of the North Sea oil bonanzas of the past.

'In logistical terms this is absolutely huge,' Camelot's Rigg declares. 'It will require a plan of organisation on the scale of Eurotunnel. It will involve the creation from scratch of one of the largest data communications systems in the world - bigger than the combined data networks of all the UK banks.' Camelot itself already has 150 staff working full time on the project and its teams are naturally sceptical about the prospects of some of the late entrants to the race.

Great volumes of cash and vast numbers of ticket sales linked to a computer system (where a customer in any part of the country can receive confirmation of his or her selected number and a ticket is issued instantly) means enormous technical resources will be needed. Tickets are expected to be purchased initially from about 15,000 outlets, rising to more than 30,000 within a matter of months. All of these outlets - petrol stations and other shops with lengthy opening hours - will be directly connected to a series of mainframe computer centres across the nation. Some 50,000 people operating the retail terminal will need to go through a training programme.

It is the scale of the project that makes some of the more formidable and longstanding contenders sceptical of the ability of some of the runners to stay the course.

It also helps to explain why some, such as Richard Branson, are showing uncharacteristic coyness about their plans, or are hesitant about getting involved. It also explains why a giant such as Bass, having examined the possibilities closely, decided not to enter the race.

At the Great British Lottery Company, spokesman David Hughes has divided the contenders into three divisions: in the first division he has naturally put his own consortium, along with Camelot and Rothschilds; in the second division he puts Rank and Rainbow; while Branson, Ladbroke, the Tote consortium and other possible runners, such as Littlewoods, are put in the third division.

The ability to raise the estimated £200 million cost of launching the lottery will be one of the key factors in determining the winner. Fry has the advantage of having been thinking about a British National Lottery almost longer than anyone else involved. Indeed, he could be regarded as the man who triggered the whole race.

A high-flying young merchant banker, he returned to Britain in 1985 from Australia, where he had headed the bank's operation for five years. 'I kept asking my colleagues why we had no lottery in this country as it worked so well Down Under,' he says. 'In the end they agreed to let me research the idea and put it to the Government.' His original submission of the case for a National Lottery was put to the Treasury in December 1986.

Two others followed in 1987 and 1988 but gathered dust because Margaret Thatcher was against it. When John Major arrived at Downing Street the issue was quickly put on the front burner. Fry was well prepared.

'I had kept in touch with Tattersall and I had learned a lot about lotteries. It was very keen to be involved. The appeal of our consortium is the clean two-tier structure, which is devoid of any conflicts of interest apparent in some of the rival bids,' he claims. 'There is a clear split between the owners of the operation and the operators themselves.' Fry has been busy 'warming up' about a dozen major financial institutions - the list is secret but big life companies such as the Prudential, pension funds such as Postel, and venture-capital groups such as 3i come to mind. All can be guaranteed to be names above reproach. Rothschilds Group itself is not short on capital, with a reputed asset base of its own of £5 billion.

In the running of lotteries, Tattersall also has a formidable reputation for efficiency and fair dealing that goes back to the last century. Ownership, rather like Guardian Newspapers, resides with a charitable trust set up in 1904 on the death of Tattersall's founder, George Adams. It is the only privately-owned lottery in the world, apart from the one now being set up for Britain. All the rest are run by state or national governments.

'When faced with our bid,' Fry says, 'the director general will have to consider only one issue: does he like the way Tattersall operates lotteries? If he does not, that is the end of it as far as we are concerned.' Fry's take-it-or-leave-it approach has a subtle power. It would be difficult to find another lottery operator in the world with a higher reputation than Tattersall. It has enabled it over the years to extend from its original base in Tasmania to Victoria, the Northern Territory and even to Christmas Island and the Cook Islands. It has also attracted the punters on a scale that few state-or government-run lotteries have matched. In the past 20 years its lottery sales in Victoria have risen from £10 million to approaching £400 million.

Rothschilds' is clearly a well-prepared bid but, even so, it may fall down on Tattersall's lack of marketing know-how in Britain, where neither consortium is known for its skills in mass-marketing consumer products and services. Other runners in the race stress the importance of that aspect of their bids. Says Rigg: 'It is not just a question of getting the operation up and running on the first day or the first week, difficult and daunting though that may be, it is also a question of sustaining that interest over an extended period.' He visualises a brand-building exercise on a hitherto unforeseen scale, which might require an annual advertising budget of £45 million to £50 million - at a conservative estimate. If the revenues run above £3 billion annually then advertising spend will rise even higher than that.

'Building and sustaining a brand is going to require the understanding of tens of thousands of retailers all over the country. To the man or woman in the street it is Mr Patel in the corner shop who is the lottery, not the person behind the scenes.' The enormous advertising spend perhaps explains why advertising agency Leo Burnett has organised the Rainbow bidding consortium, whose chairman is Sir Patrick Sheehy of BAT, the tobacco and insurance giant. It also explains Saatchi and Saatchi's presence as adviser to the Camelot consortium.

Above all, it explains the presence of Cadbury Schweppes as one of the key players in that same consortium. 'Lottery tickets will be an impulse buy and Cadbury has the skills to handle that. It also knows about handling massive ad budgets: none of its chocolate or confectionery brands individually is on the scale of the lottery but when you add them up and consider it also handles Coca-Cola for the UK, you understand it has demonstrated its ability to cope with these big advertising budgets,' Rigg explains.

The whole Great British Lottery consortium is predicated as much on the need for mass-marketing consumer products as on anything else. Indeed, it claims that apart from Cadbury Schweppes, its great rival Camelot is 'woefully lacking' in such expertise. Groups in the consortium, such as Carlton Communications, Granada and Associated Newspapers, eat, sleep and breath the mass-consumer market. It is no coincidence that two rival ITV contractors are in the consortium. Granada's Gerry Robinson believes television will be the cornerstone of the marketing of the lottery as fun: a harmless form of entertainment rather than serious commercial gambling, and something that will not damage the pools, on-and off-course betting or charity giving. It is thought that the big-prize-draw event on prime-time Saturday-evening television could generate an audience approaching 25 million.

Vodafone, meanwhile, has the unique experience of demonstrating it can take an untried product, the mobile phone, and successfully make it a mass-market success over a short time frame. The company used its own technical expertise to conduct a survey of all the world suppliers of lottery equipment and decided that Associated Wagering International, a Montana-based company that runs lotteries in Florida, Norway and New Zealand, was the pick of the bunch. Associated Wagering has linked with GBLC as its 'preferred partner' but having set up a headquarters operation in West London, it will be looking to offer its services to whoever ends up with the contract.

Many believe, however, that Guy Snowden, the former IBM engineer who founded GTECH in 1980, is the key figure in the complex struggle to win the game, if only because his company has an amazing record of grabbing lottery contracts around the world. GTECH is involved with 60 lotteries on five continents.

A beefy Rhode Islander, whose ancestors allegedly landed in Providence with the Pilgrim Fathers, he got engaged to his wife Diane in London and regards it as his 'lucky city'. His formidable presence on the Camelot team alongside other players of high reputation places their consortium as the team to beat. If they win, Snowden is in no doubt it will be 'the pinnacle of my career'. He and GTECH chairman Victor Markowicz have been applying computer technology to lotteries for 20 years.

Snowden and GTECH's success in what he describes as 'a very contentious business' has attracted some unsavoury publicity but none of it seems to have stuck. On 1 October 1993, the day Camelot launched its consortium bid, an unmarked brown envelope packed with scurrilous allegations of GTECH's underworld connections was delivered to a Sunday newspaper. It is part of a dirty tricks campaign that has plagued the company for years but which has not prevented it becoming involved with an estimated 80% of the world's lotteries. Last year the company - set up with a $1,500 loan - generated sales of $500 million. Snowden's personal stake in the business is put at more than $500 million. After next April it could be quite a bit more if, as many expect, Camelot's offer is one the Government and Oflot find they cannot refuse.

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