Select Committee on Culture, Media and Sport Memoranda


Supplementary memorandum submitted by Intelligent Gaming Solutions

  This written evidence seeks to demonstrate two main points:

  1.  Raising the cap on society lotteries will allow UK charities to provide for themselves a sustainable source of reliable funding.

  2.  The introduction of a large "society lottery", as detailed in this document, would not impinge upon the activities and profit of the UK National Lottery. We believe this for two distinct reasons:

    (i)  A society lottery of this kind is not designed to compete with the National Lottery: it is a smaller operation, based on entertainment rather than gambling and aimed at a new audience.

    (ii)  Even if it were perceived as competition in the lottery market; this "perception" is likely to have a very positive effect on the commercial success of the National Lottery operator (currently Camelot).


  Intelligent Gaming Solutions was formed in 1989 and is registered in the Netherlands. IGS UK Ltd is its wholly owned registered subsidiary. IGS combines innovative interactive gaming products with non-profit and commercial partners to generate major contributions for broad based social aid. This document refers to IGS' current work with a non-profit television lottery in Sweden.


The Charities

  In Sweden, the member charities of the IGS lottery are able to provide themselves with regular and reliable funding, by selling tickets for a weekly television lottery game show. The lottery is organised so that the individual charities determine their own levels of funding according to the number of tickets they sell. This is done by a system of proportionality. The vital difference between this system and that of individual society lotteries is that the member charities are buying into a product which effectively sells itself—the interactive television programme markets the lottery—all the individual charities get involved in is the distribution and a share of the funds raised by the lottery.

The IGS concept—how it works

  The IGS lottery in Sweden is staged nationally (it was originally a regional television show) but its fundraising methods are at grassroots level. People may choose from which charity or not-for-profit organisation to buy their ticket. The membership bases of the individual organisations are likely to take out long-term subscriptions to the lottery tickets of their chosen charity.

  The IGS television show is the driving force of the charities' lottery—it is not simply an entertaining method of broadcasting the results of the weekly draw—but is an entertainment in itself. People in Sweden watch the television show in order to "play" the interactive games it offers (although you do not have to watch the programme to win); it is the process of the game show that interests the viewers, not the promise of a life changing prize. For this reason, the Swedish National Lottery and the IGS lottery co-exist and complement each other—each accentuating the other's unique quality by clearly demarcating its own territory. (See Figs 1 and 2) [not printed].


  Sweden's national lottery (Svenska Spel) has just posted its record year to date. [1]The IGS lottery also celebrated its 10th anniversary last year. The Prime minister of Sweden, Goran Persson, took part in the celebrations and featured on an anniversary broadcast endorsing the IGS lottery and praising the good work it has achieved for grass roots organisations and charities.

  Figure 3 shows that in Sweden the national lottery increased its sales following the introduction of the IGS lottery. The two lotteries exist side by side as two distinct games that have increased the overall lottery market in Sweden, not detracted from each other's success.

  Understandably perhaps, the Swedish government was initially sceptical of the IGS concept, but the Swedish experience was that, although the IGS lottery did not represent direct competition to the national lottery, the national lottery learned from the innovative techniques used by IGS and the result was that it "picked up its game". Figure 3 below shows the trend in national lottery and society lottery sales since the introduction of the IGS lottery. It demonstrates that national lottery sales were quick to respond to the changing market.

Figure 3


The problems for Charities

Introduction of the National Lottery—effects on UK charities

  The UK National Lottery 's impact on the funding of good causes in this country is phenomenal. It has enabled projects that previously simply would not have been possible. However, an unfortunate side-effect of the introduction of the National Lottery was that the self-funding capabilities of the not-for-profit sector in the UK were significantly damaged, as revenues fell. [2]Although the National Lottery is generous in its funding of a number of charities, this funding is distributed on a "project by project" basis, and does not constitute a reliable source of core funding. [3]The Community Fund, responsible for distributing National Lottery money to charities has an unofficial policy of limiting funding to six year periods. As a result, many charities have found that funding has been withdrawn at crucial times[4] and have been left without the necessary income to continue with their most basic work.

  The problem for charities is therefore two-fold:

    —  The main problem is that the introduction of the National Lottery meant that players gained the "feel good" factor of donating to a good cause from their weekly flutter and as a result many stopped contributing directly to their previous charity of choice. Charities therefore saw a notable decline in revenue.

    —  This problem is compounded by the fact that the Community Fund, set up by the National Lottery, distributes money on a "project by project" basis, neglecting to recognise the need that charities have for an ongoing and reliable source of base funding.

  Charities have become increasingly dependent on National Lottery funding at a time when there has been a significant collapse in the core funding for smaller charities. [5]

  The inherent problems for charities have recently been exacerbated by the fall in sales of National Lottery tickets. This led to an estimated reduction of £40 million in funding for good causes over the year-long period from 2000-2001. [6]

Regulations and logistics for society lotteries

  In addition charities have to contend with the organisation of their own individual (and restricted) lotteries. One charity estimated that it cost £250,000 just to ensure that lottery tickets were returned[7]. Barnardos currently has to run two annual lotteries to abide by regulations on society lottery turnover, causing a huge burden on their time and resources. [8]A recent survey by the Institute of Charity Fundraising Managers found that 61 per cent of charities believed that regulations for lotteries added costs to their fundraising activities.


  There is no doubt that a serious obstacle for society lotteries is the logistics involved in staging one. From our research and contact with charities we understand that the resources expended in running a lottery of this kind are enormous and represent a serious obstacle and financial risk, particularly for smaller charities.

  IGS provides the infrastructure for society lotteries, relieving individual charities of the costly burden of staging lotteries, as well as the inefficiencies of running individual lotteries, particularly where turnover is small. The IGS lottery allows charities to generate an income which is more flexible and easy to distribute.

  Moreover, we do not see that this process and the work that the National Lottery carries out for the good causes would be mutually exclusive. In fact, we believe that they can complement each other: once charities are able to secure their core, basic funding, they will be better positioned to apply for the National Lottery grants that are so vital for the projects they carry out.

  Figure 4 [not printed] shows a projected income distribution "model" of an IGS lottery which might operate in the UK. The diagram is of a "top up" model, whereby the charities themselves determine their own administrative costs, according to their efficiency. Crucially, charities' income levels from the lottery are entirely proportional to their sales of lottery tickets. There is a clear correlation between effort put in to the process and rewards accrued by the individual organisations.

  Moreover, the IGS television show gives a unique opportunity for the charities to raise their profile on a national stage. In short, IGS offers the vehicle for lotteries to secure their own long-term funding and the charities remain autonomous in their fundraising activities.


  Sir Alan Budd and his advisory team recommend that: "the limits of the size of prizes and the maximum annual proceeds should be removed for societies' lotteries." [9]Having considered this recommendation however, the Government decided to take heed of Camelot warnings that revenue for the National Lottery good causes could be cut by up to 30 per cent, should this recommendation be implemented. [10]

  While Camelot argue that there simply isn't "room" for any more lotteries in the UK market place, we would argue that this viewpoint does not seem compatible with Chief Executive Michael Grade's recent enthusiasm for a daily National Lottery draw. [11]There is often the potential for an expansion of a market, and as the Swedish case has demonstrated, this general rule extends to lottery markets—in Sweden, the market expanded to accommodate the society lottery. In addition, a positive "side-effect" of its introduction was the national lottery's response to the perceived competition and subsequent increase in national lottery sales.

  This information, however, needs to be set against the fact that the Swedish national lottery, much like the UK National Lottery, is a far bigger operation than any potential IGS society lottery. Currently society lotteries have a total turnover of around one fiftieth of that of the National Lottery. The IGS concept would look to increase this turnover five-fold—a significant increase for the charities—but still only one tenth of National Lottery turnover and potentially smaller if, as we believe, the National Lottery responds in the way the Swedish state lottery did.

  To look at the relative sizes of the National Lottery and the society market in more detail: For the year up to 31 March 2001, the Gaming Board reported that sales of chances in society lotteries amounted to just £107.1 million from the 5,049 lotteries registered. In the same period, Camelot sales were £4.983 billion. [12]

  We do of course understand that the UK Government wants to ensure the National Lottery's pre-eminent position as the UK's No.1 lottery. However, we think that Camelot has vastly overestimated the effects of competition from a larger society lottery.

  We see no reason why people would substitute a national lottery ticket for an IGS lottery ticket any more than players would make the choice between the national lottery and a bingo game. In Sweden, the two lotteries exist happily side by side, and both flourished, simply because they are both secure in their unique appeals to the Swedish public. The Budd Report itself doubted whether "punters" could view other forms of gambling as substitutes for the National Lottery, which has the unique appeal of offering a very small chance of a life changing prize. Budd therefore came to the conclusion the "the National Lottery," as currently designed, is reasonably well insulated from other gambling activities." [13]

  The kind of lottery that we envisage is not on such a scale that it can provide an alternative to the National Lottery: its prizes are smaller, its appeal is different: it is based on the interactive component of a family television show and the "grass roots" base of the lottery's organisation.

  We also believe that, given the deregulatory thrust of Budd, and the likely increase in the frequency of other forms of gambling, to continue to constrain society lotteries may well lead to increased competition without the good causes benefiting from it. Surely this is not the route the Government wants to take.

  We believe that, as in Sweden the IGS lottery will attract new players into the lottery market. We concur with Michael Grade, that there is room for more lottery games to be played on a weekly basis. The Swedish experience has shown that despite a very successful national lottery, there was a gap in the market: many people play the IGS lottery because they do not see it as a "one in a million" chance but as an evening's entertainment.


  The case in Sweden demonstrates that the introduction of a new and exciting lottery game actually bolstered the lottery market as a whole. People's interest in the lottery was re-awakened and they chose to play both games, for entirely different reasons. The IGS lottery provides an entertaining and compelling family game show and the opportunity to give to specific charities, whereas the state lottery, like the National Lottery in the UK, lured players by its promise of life changing prizes.

  We believe that by introducing a similar, tailored concept to the UK, expensive (and unpopular) revamps of the National Lottery brand will become extraneous. In fact, it is a widely held opinion the "revamps" occurring within the vacuum of a monopoly are likely, in the long-term to simply be "cosmetic"[14] and are not long-term solutions to a market that needs reinvigorating structurally.

  We predict that changes in the UK lottery market will raise the National Lottery's profile and remind players exactly why they played the National Lottery in the first place; as was the case in Sweden. We see this only as a "win-win" situation. We would like to introduce a new gaming concept to the UK, to build on what has already proved to be one of the most successful lottery markets in the world.


  We understand the Government intends to double current limits, presenting us with the limits of £2 million total income per lottery, and £200,000 total prize money per lottery.

  We wonder what the basis for the decision to double limits was? From our cursory research on this point, we surmise that perhaps this level was set on the original advice of the Lotteries Council. However, we also know that the Lotteries Council revised this figure, once it had grasped the issues (and funds!) at stake. It seems that this move was indicative of an understandable reluctance, on the part of the UK charity sector, to involve in the political process.

  The charity sector in the UK is largely apolitical, and this reluctance to become involved in the political process has meant that charities did not present their case to the Government, (or indeed in many cases, completely grasp the potential opportunity presented to them by recommendation 118 in the Budd Report). We therefore feel that the relative "silence" from the charitable sector may mean that the UK Government has somewhat underestimated the levels of support existing amongst charities, for significantly raising the cap on society lotteries. Indeed, having been in ongoing discussions with a number of large UK charities we know that there are huge levels of support of this recommendation.

  We are pleased that in this report, the Government recognises the importance of lottery income to charities and not-for-profit organisations. What we do ask however, is that the Government reconsiders what we suspect to be an arbitrary decision on the amount by which the cap is to be raised. We have carefully considered the amount by which we need the cap to be lifted in order to achieve our aims.

  In order to successfully achieve our aims we need to operate a lottery which generates income of over £5million per week (although our gameshow would be seasonal with several breaks during the year), and occasionally offers prize money on up to £500,000. While we recognise and understand the Government's wish to retain a degree of control over the size of society lotteries, we ask it to reconsider its initial intention to "double" limits. In essence, we ask for the current proposals to be increased by a further 200 per cent—to arrive at a figure which retains the "special status" enjoyed by the National Lottery while allowing sufficient manoeuvre for non profit organisations to be able to make a serious impact on their own fundraising capabilities.


  We are not presenting the case for the introduction of a second national lottery. We simply argue that there is room in the UK gambling market for the lighter regulation of society lotteries. Indeed we believe that without an increase in the current limits, over and above the proposed doubling, charities cannot update and innovate their fundraising methods, as their European counterparts are able to do.

  We do not see this as a battle with Camelot. We wholeheartedly support the good work that the National Lottery facilitates for the good causes. However, we do feel that the effect of removing the cap on society lotteries has been vastly overestimated. We do not think that it is realistic to talk in terms of a society lottery competing "head to head" with the National Lottery, for the reasons we have discussed.

  Charities need the ability to better use lotteries as a fundraising method and we believe that, as in Sweden, allowing them to do this would not pose a threat to the established state lottery. Indeed, as we have discussed here, we believe that a move to raise the existing caps on society lotteries to a more reasonable level will be beneficial to the UK lottery market as a whole.

3 May 2002

1   See Appendix 1. [not printedBack

2   Hansard, 5th March. Back

3   While we recognise that recent changes provide for a certain amount of administrative funding it is nevertheless still the case that "We [the Community Fund] are absolutely not covering general core costs. We're in the business of project funding." (Richard Buxton, Chief Executive of the Community Fund, quoted in The Guardian newspaper, 17 April 2002). Back

4   See Appendix 3 [not printed]. Back

5   Hansard, 5 March. Back

6   The Express newspaper (28 November 2002). See also Appendix 4 [not printed]. Back

7   See Appendix 2 [not printed]. Back

8   Although current proposals to double the limits on society lotteries will mean that Barnardos can stage one lottery per annum in order to achieve current funding levels, they do not allow for expansion. Back

9   Recommendation 118, Budd Review, July 2001. Back

10   Camelot response to the Budd Review, 31st October 2001 Back

11   The Observer, 4 February 2002. Back

12   Hansard, 5 March Back

13   Budd Review, section 35.7, p187. Back

14   BBC News online, 29th April. Back

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