Lottery bid numbers don't yet add up

ANALYSIS:BRENDAN HOWLIN has for some time been trumpeting the need to think outside the box when it comes to funding flagship projects like the children's hospital, not least because of the budgetary difficulties facing the State.

By extending the State’s lottery licence to 20 years, he hopes to secure an upfront payment from the next operator, thought to be about €400-€600 million, while retaining the annual stream of lottery income for good causes.

“The awarding of this licence for a longer duration presents a real opportunity for the State to generate funds,” the Minister said yesterday, noting that a portion of the proceeds would go towards the construction of the national children’s hospital. The Government has earmarked approximately €200 million from the proceeds for the hospital.

Howlin was particularly keen to emphasise that the percentage of annual turnover allocated for good causes would be retained at last year’s level of 30.5 per cent.

However, prior to 2011, the percentage of lottery revenue diverted to good causes was substantially higher, in most cases 32 per cent.

The differences are considerable given the business generates annual sales from tickets and scratch cards of nearly €800 million, even in a recession.

It appears the percentage allocated to good causes may have been strategically reduced in 2011 in anticipation of the new licensing process, likely to involve a significantly enhanced operator’s fee.

Yesterday’s announcement made no mention of the fee to be awarded to the next licensee but it will have to be funded, at least in part, from a reduced good cause fund, and the move to lower the allocation is, undoubtedly, an acknowledgement of that fact.

An Post, which has operated the State’s lottery since its inception in 1986, currently receives an annual management fee of 0.5 per cent turnover, which amounts to €2.8 million.

Sources close to the process suggest the next operator might be offered in the region of 6 per cent of revenue, or €48 million annually, making it one of the most lucrative State tenders ever.

Whether the operator’s fee will be set as part of the tender, due be announced in June or July, or whether prospective bidders will invited to come up with competing offers is anyone’s guess at this stage.

While the Government is naturally keen to emphasise the benefits to the State of tendering the licence in this fashion, yesterday’s announcement was notably scant on detail.

Whether the licence is to be tendered on its own, without any of the existing sales infrastructure, including the 103 staff, or whether it will be offered with the National Lottery Company remains unclear.

Either way, An Post is likely to face stiff competition to retain the licence from several international operators eying the business.

UK operator Camelot, which already operates in the North; Australian gambling giant Tatts Group, which recently won the right to operate the New South Wales lottery; and US firm GTech Corporation, a subsidiary of Italy’s Lottomatica, have all expressed an interest.

One thing is sure: Howlin will want the next incumbent to exploit the online potential of the business which many observers believe remains untapped.