Has Camelot lost the plot?

The Lottery's prospects have taken a dive, says Marc Lopatin

WHEN the National Lottery launched in November 1994, the country was gripped by lottery fever. Four years on and the ticket queues have vanished along with our innocent hopes of being plucked from rags to riches every Saturday and Wednesday night. Sales for the TV draws are falling at 5 per cent annually while sales of scratchcards have slumped by 12 per cent annually.

In November, the lottery operator Camelot reported its first profit dip, for the six-months to the end of September: a sure sign that the company could be about to pay the price for turning the UK into a nation of losers.

At the same time, the BBC revealed that ratings for its key Saturday television lottery show have plummeted from 20 million at the time of its launch, to a low of 9 million earlier this year. Camelot may have created over 700 millionaires, but this is scant consolation for those who lose their money every week. For nearly two years, the average spend of people playing has been frozen at pounds 3.33, while the average number of people playing each week has levelled off at 60 per cent of the adult population. It would appear jackpot odds of 14 million to one are beginning to deter people from playing.

In a bid to revive flagging sales Camelot's "It Could Be You" marketing slogan was replaced last month by the telling phrase, "Maybe, Just Maybe" in a pounds 14m advertising campaign. Advertisements for the first time are emphasising the six good causes that benefit from lottery grants.

The subtext is clear: it may be almost impossible to win, but Camelot will make you feel better about losing.

Jeremy Collis, managing director of Littlewoods Lotteries, believes people have become jackpot-drunk in recent months. "Lottery fever is over. Players are increasingly blase about normal jackpot draws, which continue to fall."

The downturn in popularity comes at a critical time for Camelot. In 1999, the company's performance will be heavily scrutinised as the newly installed Lotteries Commission decides whether or not to renew Camelot's licence, which is due to expire in September 2001. Since the National Lottery's launch, Camelot has sat back and watched the money - and the profits - flow. The lottery operator has so far collected pre-tax profits of pounds 274m for its four shareholders: Cadbury Schweppes, Racal, ICL and the banknote producer, De La Rue.

Will Whitehorn, a spokesman for Virgin, maintains that Camelot's profiteering image will be difficult to shake off despite its change of tack. "Camelot is a monopoly backed by a government licence to print money. People have become cynical because they think they are buying tickets from an operator which is a money-making machine," he said.

Last year, the Secretary of State for Culture, Media and Sport, Chris Smith, publicly criticised Camelot for profiteering at the expense of good causes. This prompted the operator to increase its good causes target from pounds 9bn to pounds 10bn. Camelot has so far raised pounds 6bn, but falling sales have raised question marks over its ability to raise the remaining pounds 4bn in time.

Whitehorn believes this is could be the operator's downfall: "Failing to hit the good causes target could be enough to persuade the Government to snub Camelot in favour of a not-for-profit operator."

Diane Thompson, Camelot's commercial operations director, remains upbeat. "We are confident we can raise the remaining pounds 4bn," she says.

In some respects, there is little reason to doubt Camelot. Few disagree the company has done a very good job running the UK's first national lottery. From a zero base, the National Lottery has became the biggest lottery in the world, judged on sales, and is run on very efficient margins. But per capita spend tells a different story. This is a more meaningful measure of success, particularly as the lottery makes its transition from novelty to institution. Elsewhere in the world, the best-run lotteries depend less and less on TV draws and more on impulse buys such as scratchcards. For example, in 1997 the Massachusetts State Lottery, with a population of just six million, generated $3bn - of which two thirds came from the sale of scratchcards.

Camelot's efforts to diversify into scratchcards under its pounds 636,000- a-year chief executive Tim Holley have been less than successful. Weekly sales are down from pounds 44m in 1995 to just over pounds 13m following a disastrous tie-up with a BBC game show called The Big Ticket.

A lottery analyst, Richard Newell, suggests poor scratchcard sales are a result of Camelot's obsession with TV draws. "Camelot simply does not have the range of scratchcards that are available in the US. Its dependence on the big TV draw has meant the company has been slow to understand the different type of thrill people seek from playing cards. It's not always about huge sums; players also like to win small sums regularly."

Despite its shortcomings, most lottery insiders agree that Camelot is unlikely to be holding a losing ticket come 2001. Few believe the Government wants to break with the lottery's first operator. A drawn-out bidding process and a new operator will cause disruption to the nation's favourite flutter. Camelot, unlike potential rivals such as Littlewoods and the Post Office, has the infrastructure in place. And if good causes totals are met, it may come down to putting some fat cats on a profit-free diet.