The licence to operate Ireland's National Lottery will soon be up for sale. The National Lottery, popularly known as the "Lotto", had total sales figures of €772m in 2010, which was the fifth highest lottery sales in Europe on a per capita basis.
Davy Stockbrokers recently submitted their advice to the Irish government setting out strategic options to boost the National Lottery’s saleability. The Irish government is currently reviewing the options available to it to increase the value received from the operation of the National Lottery. This government action follows recommendations in the McCarthy Report, a report prepared by a group chaired by economist Colm McCarthy to assess the potential for disposal of state assets. McCarthy recommended that the granting of a new licence be the subject of an open competition.
New legislation is expected to be published later this year that will deal with reform of the licence structure and the operation of the National Lottery itself. Once the new legislation is enacted, a competition to award the licence will be launched and the successful operator will start operating the National Lottery in 2013.
The National Lottery Act 1986 and the Lotto
An Post National Lottery Company (The National Lottery Company) has operated the National Lottery in Ireland under successive licences since the lottery began in 1987. These licences were drawn up pursuant to the provisions of the National Lottery Act 1986. The licence covers areas such as advertising, security, equipment and systems, and payments to the exchequer. The Lotto is operated by the incumbent operator on a cost recovery basis plus an annual management fee of just under €3 million.
The National Lottery Act 1986 stipulates that the lottery licence must be reissued under a competitive-bid process at least once every ten years. The current licence was granted to The National Lottery Company on 26 June 2001, to cover the period from 1 January 2002 until 31 December 2008. The Irish government extended the current licence until June 2013 in order to allow time for the holding of a competition for the new licence and the introduction of new laws to facilitate that.
The Tender Process and the Next Licence
It is likely that the current analysis phase will result in new legislation being introduced this year to cover the new licence regime. Brendan Howlin, the Minister for Public Expenditure and Reform, has said that the new licence will be a twenty year licence. He hopes that an operator licence with a much longer duration will entice bidders to make a large up-front payment to win the licence. Figures of €400 to €650 million have been mentioned for this payment.
It will be interesting to see if any aspects of the new legislation will make operating the lottery more lucrative for the operator. The potential for development of the National Lottery online is currently restricted. The National Lottery Act 1986 restricts online players to Republic of Ireland residents. Minister Howlin said that legislative changes will be required to deal with future regulation and to address issues around online sales. He’s reported to have said: “Globally, lotteries are doing more business online and in the context of a 20 year licence we need to provide for this. However, this will be done in a manner that has sufficient safeguards in areas such as player protection.” Recently Irish media also reported that Minister Howlin assured retailers that their 6% margin related to sale of lotto tickets would be protected in the new legislation.
There has been much media speculation over possible potential bidders for the new operator licence. The incumbent operator is keen to retain control of the licence but may need to partner with another party to be able to pay the upfront fee. The competition for the licence is also expected to attract interest from international lottery operators. Reports in the media suggest that the contenders may include: Camelot, which operates a lottery in Northern Ireland and may see the Republic of Ireland as a natural extension; the Tatts Group, an Australian Gaming Company; and GTECH Corporation, a subsidiary of Italian gaming operator Lottomatica, already a supplier of ticket terminals to the National Lottery Company in Ireland.
It would be prudent for any potential bidder to familiarise themselves with the current laws regulating the National Lottery in Ireland. It is clear that interest groups, such as ticket retailers, are lobbying for assurances from the government in terms of their positions. Potential operators should also make their preferences for the new laws clear to the Minister. They should articulate what rights they would be prepared to pay money for, what shape they think the new licence regime should take, and what existing laws they think need to be reformed. After all, the object of the competition is clearly to augment the state’s finances. Now is the time to act to make bidders’ views known, as once the legislation is enacted and the competition begins the Department will be unable to interact informally with potential bidders, as to do so would legally jeopardise the competition.