State hoping for win on lottery

STATISTICALLY SPEAKING, you’ve more chance of being killed on the way to buying a lottery ticket than of winning the jackpot. But, despite having the longest odds of any form of legal betting, the lottery is a weekly ritual for more than two million people in Ireland.

It’s also been a consistent money-spinner for the State over the years, generating €3.9 billion for community projects and charities since it was established in 1987.

Minister for Public Expenditure Brendan Howlin now plans to tap the business for another lump sum by offering an extended 20-year licence in return for an upfront payment, thought to be in the region of €400 million. To attract a payment of this size, however, he must offer the next incumbent a bigger slice of the pie in the form of an enhanced annual operator’s fee.

An Post currently operates the lottery for an annual management fee of just under €3 million or 0.5 per cent of revenue.

Experts believe the fee will have to be upped to about 6 per cent if such an upfront payment is to be extracted from the marketplace.

Since Mr Howlin has already pledged to retain the level of money devoted to good causes at 30.5 per cent of revenue, the bigger fee will have to come from a reduced prize fund, a cut in costs or a combination of both.

Reducing the prize pot from its present level of around 55 per cent of sales will prove controversial with prospective operators, who see it as critical to maintaining sales.

Equally, cutting the business’s cost base may not be easy in light of Mr Howlin’s pledge to maintain the 6 per cent sales commission which goes to retailers, which accounts for a sizeable portion of costs.

It’s unclear at this stage how Mr Howlin intends to square the circle on these numbers. One well-placed insider believes the next operator may move to restrict the number of retailers who sell lottery tickets from the current number of just over 3,000 to 2,000 in an effort to reduce costs.

Such a move is likely to prove controversial with smaller, rural shops which rely on the footfall generated by the trade.

The new licence will be awarded early next year to the winner of a bidding process, scheduled to begin in October.

As part of the process, Mr Howlin has pledged to overhaul the legislation establishing the lottery, which dates from the 1980s, to allow the business operate more freely online.

In a speech to the Seanad in May the Minister said: “Globally, lotteries are doing more business online, and in the context of a 20-year licence we need to provide for this.”

The heads of a Bill dealing with the future regulation of the business and issues around online sales are being finalised by a team of officials in his department.

Up the now the National Lottery has been severely curtailed from operating online, with players obliged to go through a cumbersome offline registration process. It is also forbidden from advertising its internet portal.

As a result, less than 3 per cent of tickets sales come from the internet trade in contrast to other European lotteries where 15-20 per cent of business is now generated online.

The potential to boost sales through opening up the internet side of the business is a strong selling point which Mr Howlin is keen to exploit. However, he has repeatedly stated he wants the online restrictions to be relaxed in a manner that has “sufficient safeguards in areas such as player protection”.

Lottery operators are typically keen to draw a distinction between what they do, namely gaming, and its more socially-destructive cousin gambling. It’s not a distinction that holds much weight with addiction experts, who claim the word gaming has been resurrected from the medieval lexicon solely to soften the industry’s image.

They also point to the sharp rise in addiction problems associated with internet gambling, including lottery-type games.

Regulators in the other countries, encouraged by the European Commission, have imposed strict rules around the granting of the licences, restricting operators from offering casino-type games on their websites and banning the use of credit cards in favour of debit cards.

While operators naturally want to encourage as many people to play the lottery as possible, responsible gaming advocates say this should be done in conjunction with restricting people’s spending to relatively small amounts.

Per capita spending on the Irish lottery was €129 in 2010, ranking it eighth in the world, considerably higher than in most other European operators.

Another issue which needs to be ironed out is just what is being tendered by the Government, namely whether it is the National Lottery business, which is 80 per cent owned by An Post, or just the licence.

Department officials have been briefing interested parties on their plans for the last few months in advance of a formal tendering process, due to commence this summer.

An Post has yet to declare how it plans to fund a bid to retain the licence but is has engaged Goodbody Stockbrokers to drum up a set of options.

The semi-State will certainly need to bring in a big fish if it hopes to compete with UK operator Camelot, which has a healthy balance sheet on the back of annual ticket sales of nearly £6 billion.

US gaming firm Gtech Corporation, a subsidiary of the world’s largest lottery operator Lottomatica, which already supplies the National Lottery with ticket terminals, may also enter the race, either on its own or with one of the others. Despite rumours that it might drop out of the race because of the ongoing euro crisis, Australian gaming firm Tatts Group said it was still “actively monitoring the Irish lottery opportunity” and would await the “final model”.

There is understandable concern in Government circles that the tendering process is transparent, not least because of the controversy surrounding the awarding of State’s second mobile phone licence which remains a running sore on the body politic and which, coincidentally, was overseen by the same coalition grouping of political parties back in the 1990s.