June 29, 2011 12:29 pm

Camelot seeks five-year Lottery extension

Camelot is seeking a five-year extension to its National Lottery licence in exchange for adding 8,000 terminals to its portfolio, an investment the operator claimed would raise £2bn.

The size of the investment is believed to be up to £100m.

The operator’s third licence expires in 2019 and competition for a fourth licence would take place in 2015. But a clause in the third licence allows Camelot to request a five-year extension in return for a “licensee investment” that would enhance contributions to good causes.

Camelot announced on Wednesday it had now formally lodged such a request with the National Lottery Commission. It said that over 12 years from 2012, the investment would raise an additional £1.4bn for good causes and £600m for the Treasury.

Dianne Thompson, Camelot chief executive, said that because the company’s profit margins were low “we can only make such a large investment in our retail estate and still deliver a return on investment if the NLC grants Camelot a five-year extension to its existing licence.

“So this decision hinges on the commission’s assessment of our proposal during a relatively small investment window.”

Camelot said it would want to start installing new terminals in November and to operate the new estate from April 2012. The commission said it would give the request due consideration.

Mark Harris, the commission’s chief executive, said: “We will reach a decision following a thorough consideration of whether the proposal is in the best long-term interests of the National Lottery and the thousands of good causes all around the country that benefit from National Lottery funding.”

Consent from the commission would trigger the first major investment by the Ontario Teachers Pension Plan since its purchase of Camelot last year for £389m.

Camelot’s ambitions were knocked back in March when the commission blocked plans to use lottery terminals to sell other products, such as mobile phone top-ups and electronic billing, because of concerns over European competition law.

Camelot said most of the new terminals would be located in rural and suburban areas – locations where the operator had identified “the maximum level of untapped demand” for its products. More than half of the new lottery outlets would be in rural areas and Post Offices.

About 6,000 terminals would be positioned with independent retailers. Camleot currently operates 28,800 terminals. Retail sales account for about 85 per cent of turnover.

The Lottery operator said it made record sales of £5.8bn in 2010-11, raising some £1.7bn for good causes. Over the third licence, it is expected to pay out about 50 per cent of revenue to prize-winners, 28 per cent to good causes and 12 per cent in Lottery duty. About 4.5 per cent goes towards operating costs and 5 per cent to retailers in sales commission, leaving a profit of up to 0.5 per cent.

Camelot said it continued to be in discussions over launching a world lottery draw, which was one of its key pledges when it bid for the third licence.

In the autumn, it bid to run the Illinois lottery but failed to win the licence. It is looking to bid for other state government lottery licences.

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