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Updates

November 2020

Rationale for approving Camelot’s request to change the Lotto game mechanic

Summary

On 30 January 2020, Camelot sought approval to change the Lotto game mechanic and introduce an enhancement to the functionality of the Lotto “Must Be Won” (MBW) rolldown mechanic, which will extend its benefit to the Match 2 (M2) prize tier; providing M2 winners with £5 in cash, in addition to their free Lotto Lucky Dip ticket, when a MBW draw rolls down, effective from 7 November 2020.

In reviewing the request to change Lotto, we considered the proposal in line with our statutory duties, which are:

Propriety

We are satisfied that the changes to the Lotto game are legal and consistent with the National Lottery brand.
We continue to assess Camelot’s systems and controls through an annual programme of assurance activities.

Protecting the interests of players

The new prize structure should benefit players in a MBW rolldown, recognising that the revised game means an improvement for the MBW experience for c. 7m winning tickets a year that currently do not experience any benefit from a MBW draw.

Research evidenced that the current prize structure held limited appeal to players, with regular players citing the lack of additional M2 benefit as a negative aspect of the current MBW mechanic. While it was not viable to increase the M2 prize value in the core Lotto prize structure (i.e. for all 104 draws per year), there is a viable opportunity to respond to a player want for greater value from matching 2 for the c.10 MBW draws per year; maximising the MBW rolldown win experience.

Separately, we are satisfied that the changes to the game will not increase the risks of excessive or underage play and are not of particular appeal to under 16s.

Returns to good causes

We are satisfied with the rigour of the process that Camelot has undertaken to design and develop the game change, and that the proposal was likely to lead to a positive return for good causes. Decision

Based on the information provided by Camelot and our considerations, we approved the request and will make the relevant variations to the Lotto Section 6 Licence.

November 2020

Decision notice for Condition 23 Licence Investment Proposal: Lotto

In February 2020, Camelot UK Lotteries Limited (Camelot) served the Gambling Commission (the Commission) with a Licensee Notice of Investment Opportunity (the proposal) in accordance with the provisions of Condition 23 of the Section 5 Third National Lottery Licence (the Licence).

The proposal requested an investment of £1.2m in Lotto from the National Lottery Distribution Fund (NLDF) for the 20/21 financial year, in return for game enhancements to Lotto, specifically an enhancement to the functionality of the Lotto “Must Be Won” (MBW) rolldown mechanic to extend its benefit to the Match 2 (M2) prize tier; providing M2 winners with £5 in cash, in addition to their free Lotto Lucky Dip ticket, when a MBW draw rolls down.

The Section 5 Licence provides that at the end of an evaluation process, the Commission may accept a proposal, propose modifications to a proposal, or reject a proposal. That decision is subject to the Commission’s overriding statutory duties to secure that:

• The National Lottery is run, and every lottery that forms part of it is promoted, with all due propriety;
• The interests of every participant in a lottery that forms part of the National Lottery are protected; and
• Subject to the above two duties, to do our best in making sure that the net proceeds of the National Lottery are as great as possible

The evaluation process undertaken by the Commission regarding this proposal has been both robust and extensive.

Following the conclusion of this evaluation process, the Commission approved the proposal, as the Commission was satisfied that the proposal is likely to:

• Continue to ensure that the National Lottery is run with all due propriety and the interests of every participant in the National Lottery are protected and;
• Secure an increase in the net proceeds of the National Lottery
• Propriety

The Commission is satisfied that the proposal is unlikely to have an adverse impact on the running of the National Lottery with all due propriety.

Player interests

The new prize structure should benefit players in a MBW rolldown, recognising that the revised game means an improvement for the MBW experience.

The Commission considered the potential negative impacts of the Proposal regarding player interests are limited.

Returns to Good Causes

Camelot’s financial forecasts have been scrutinised by the Commission to ensure good cause returns on the investment are positive in all plausible scenarios.

The proposal is likely to deliver substantial additional returns to the end of the Third Licence, with Camelot’s forecasted benefits representing a prudent approach with potential for further upside. Without NLDF investment this game enhancement would not have gone ahead.

Decision

Based on the information provided by Camelot and our considerations on propriety, player interests and returns to good causes, the Proposal was approved by the Commission.

November 2018

Rationale for agreeing Condition 23 Licence Investment Proposal: Lotto and EuroMillions Marketing Investment

Summary

1. On 20 February 2018, Camelot served the Gambling Commission with a Licensee Notice of Investment Opportunity (the proposal) in accordance with the provisions of Condition 23 of the Third Licence which was granted to Camelot on 1 February 2009.
2. The proposal requested £73.4m of investment in Lotto and EuroMillions marketing from the National Lottery Distribution Fund (NLDF) for the 2018/19 and 2019/20 financial years, in return for substantial Marketing, Capital and Operating investment from Camelot in excess of that required under the terms of the Third Licence. It is forecast to deliver significant Returns to Good Causes (RTGCs) of £114.6m above the investment made, over the same two year period.
3. The Licence provides that at the end of an evaluation process, the Commission may accept a proposal, propose modifications to a proposal, or reject a proposal. That decision is subject to the Commission’s overriding statutory duties to secure that:
   • The National Lottery is run, and every lottery that forms part of it is promoted, with all due propriety;
   • The interests of every participant in a lottery that forms part of the National Lottery are protected; and
   • Subject to the provisos in (a) and (b), that the net proceeds of the National Lottery are as great as possible.
4. The evaluation process undertaken by the Commission in regards to this proposal has been both robust and extensive, utilising the support of external experts where necessary. As a result of this process, and significant engagement with Camelot, a number of improvements were made to the proposal prior to a decision being made:
   • Following the provision of extensive analysis in support of the original proposal, Camelot has subsequently delivered additional information at various points throughout the evaluation process, which provides appropriate assurance in regards to the likely benefits expected from the proposal.
   • Camelot has agreed to the provision of further, material funding for marketing, which has been fully committed to upfront through changes to the Licence.
   • Camelot has agreed to a further change to the Licence, which will ensure greater alignment between the performance of RTGCs and Camelot’s profits during the proposal period.
5. Following the conclusion of this evaluation process, the Commission approved the proposal (as revised and improved), as the Commission was satisfied that the proposal is likely to:
   • Secure a significant increase in the net proceeds of the National Lottery; and
   • Continue to ensure that the National Lottery is run with all due propriety and the interests of every participant in the National Lottery are protected.

Decision and rationale

6. The Commission has approved a total of £73.4m investment from NLDF for Lotto and EuroMillions marketing over the 2018/18 and 2019/20 financial years, as follows:
   • £33.7m for Lotto and £25.7m for EuroMillions, which will be used to focus on marketing to support communications of jackpots, rollovers and events to drive participation.
   • £13.9m to be used for both Lotto and EuroMillions, which will be used on marketing headcount, agency fees and production costs.
7. As noted in paragraphs 4. and 5. this approval follows the conclusion of an extensive evaluation process, which has included:
   • A detailed assessment of Camelot’s evidence base, both internally and by external specialists. This has included wide ranging sensitivity analysis, in order to ensure confidence in a positive Return on Investment even in cases where performance deviates from Camelot’s forecasts.
   • A detailed assessment of the historic performance of similar investments, conducted primarily by Officials.
   • Significant consideration of the terms which should apply, resulting in formal ‘modifications’ being proposed in respect of:
     • Camelot’s contribution
     • Changes to the Licence which will benefit RTGCs, supported by appropriate internal and external legal advice.
   • Considerations around implementation, in order to ensure limited disruption to the profile of RTGCs during the two year proposal period.

Propriety

8. The Commission is satisfied that the proposal is unlikely to have an adverse impact on the running of the National Lottery with all due propriety. In this regard, the improvement made to the proposal to ensure greater alignment between RTGCs and Camelot’s profits during the proposal period is considered as a key, positive development.

Player interests

9. The potential impacts of the proposal regarding player interests are limited. We do note however, that consumers are likely to see additional advertising as a result of this decision, and the Commission will continue to challenge Camelot on its wider progression in terms of player protection measures. Accounting for this broader activity, we are therefore satisfied that the interests of every participant in a lottery that forms part of the National Lottery are protected..

Returns to Good Causes

10. According to Camelot’s forecasts, overall RTGCs delivered as a result of the investment are expected to total £188.0m during the two year period, meaning net incremental RTGCs of £114.6m.
11. Through the process summarised in Paragraph 7, these forecasts have been the subject of extensive consultation and interrogation, both by Camelot, the Commission and the Commission’s external advisors. We have also been able to draw upon evidence from shows historic investments of a similar nature, which have delivered significant benefits to Good Causes.
12. The conclusion from this work is therefore that the proposal is likely to deliver substantial additional RTGCs during 2018/19 and 2019/20, with the forecasted benefits noted above representing a prudent approach with potential for further upside.

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September 2018

Rationale for changes to Lotto

Background

In December 2017, Camelot sought approval to change the Lotto game mechanic and introduce some new features and benefits to the game. The Gambling Commission (the Commission) considered Camelot’s proposal over a 6 month period, and following consideration of its duties, is content to approve the game in principle. Camelot still needs to meet a number of conditions prior to full regulatory approval being provided. The game is currently planned to launch in November 2018.

In summary, the proposed changes to the Lotto game are:

• Increasing the value of prizes to be paid out to players from 47.5% prize pay-out (PPO) to 50%. This change will mean players will now get fixed prizes across all mid-tier prize levels. Mid-tier prize levels will increase to £30 for Match 3, £140 for Match 4, £1,750 for Match 5 and £1m for Match 5 + Bonus Ball. Jackpot winners (Match 6) will continue getting a share of the prize pool. (All prizes are subject to capping where in the unlikely event prizes far exceed sales, there will be a reduction in prizes).
• There is a new ‘Must be won’ (MBW) opportunity, with jackpot events at roll 5 (estimated £12m jackpot). The MBW opportunity means that when a jackpot is not won on the 5th rollover, the amount is shared amongst all cash winners in the game in accordance with an agreed formula. This is a change from the current game which has a cap of £22m.
• Removal of the Millionaire Raffle from the game (1 x £1m and 20 x £20k prizes each draw).
• Introduction of retailer commission on sales of Match 2 tickets.

In reviewing the request to change Lotto, we considered the proposal in line with our statutory duties, which are:

Propriety

• We are satisfied that the changes to the Lotto game are legal and consistent with the National Lottery brand.
• We continues to assess Camelot’s systems and controls through an annual programme of assurance activities.

Protecting the interests of players

• The new prize structure should benefit players, recognising that the revised game means fixed prizes across all prize tiers (except for the jackpot).
• This will provide more certainty to players and limit the unexpected prize levels previously seen. However, in some extreme cases, prizes will be capped. We have therefore challenged Camelot to ensure that the chances of capping is low, and where it occurs, it will be fully explained to players.
• Due consideration was given to the merits of Camelot’s proposal to remove the raffle. Research evidenced that the current raffle held limited appeal to players and player comprehension of the raffle was low. Camelot made a persuasive case for reinvesting the raffle funds in the core game, with bigger prizes now offered for matching 3,4 or 5 numbers along with the £1m prize for matching 5 balls + the bonus ball.
• Separately, we are satisfied that the changes to the game will not increase the risks of excessive or underage play and are not of particular appeal to under 16s.

Returns to good causes

• We are satisfied with the rigour of the process that Camelot has undertaken to design and develop the new game, and that the proposal was likely to lead to a positive return for good causes.
• A lower percentage of each sale will go to good causes, due to the increase in prizes, but the anticipated higher sales levels, compared to what would be expected without the change, should lead to an overall increase in good causes over the remaining term of the Third Licence. We were satisfied with Camelot’s detailed modelling which evidenced this expected impact.
• While the Commission was suitably assured regarding the overall benefits of the change, the new prize structure will mean that returns to good causes do fluctuate more on a week to week basis. In line with the action we have taken from a player protection perspective, we have also challenged Camelot to ensure that returns to good causes have been adequately protected over the long term in this respect.
• We are satisfied that paying retailer commission on Match 2 prizes is appropriate and that the benefits it should bring will offset the associated small reduction in the percentage of Lotto sales that go to good causes.

Decision

Based on the information provided by Camelot and our considerations, we approved the request and will make the relevant variations to the Lotto Section 6 Licence at the appropriate time.

June 2016

Rationale for agreeing to change the Lotto Jackpot cap

Background

In June 2016 Camelot sought approval to change the Lotto Jackpot cap from its current threshold of £55m to £22m. The licence for Lotto was subsequently varied to allow Camelot to introduce the change from August 2016.

In reviewing the request to change Lotto, the Commission considered the proposal in line with our statutory duties, which are:

Propriety

The Commission was satisfied that the change is legal and consistent with the National Lottery brand.

Protecting the Interests of Players

The Commission is satisfied that there should be no negative impact on players from this change.

Returns to Good Causes

Given that we were satisfied on player propriety and player protection, we went on to consider the projected returns to good causes.

We were satisfied with Camelot’s research, which showed that this change would likely have a positive impact upon returns to good causes.

Autumn 2015 (A) - Rationale for agreeing changes to Lotto

In 2013, to re-invigorate the game, the Lotto licence was varied to include an increase in the price of a ticket to £2 and a 2.5% increase in the prize pay-out. These changes enabled an increase in the Match 3 and Match 4 prize values, and the addition of new raffle prizes.

In 2015, Camelot sought approval for a further change to the Lotto game, as part of a continuous refreshment programme of draw-based games. As with most domestic lottery games across the world, it is likely that Lotto needs continuous innovation to maintain player interest and so a healthy return to good causes. We were convinced by the case put forward and the benefits to good causes that the changes should bring, as well as noting the considerable risks of not continuing to develop the game.

The changes to the Lotto ball matrix meant that changes were also necessary for HotPicks.

The key changes to Lotto include:

• increase in the number of balls from which the winning numbers are drawn, from 49 to 59
• addition of a new Match 2 prize tier
• addition of a new £1million raffle prize
• change to the existing £20k raffle tier from 50 to 20 winners in every draw
• removal of the quadruple rollover jackpot cap, to enable higher jackpot levels
• changes to the way prizes are funded, to increase certainty of prize amounts at certain tiers
• price of Lotto remains at £2 per line.

In reviewing the request to change Lotto, we considered the proposal in line with our statutory duties.

Propriety

We were satisfied that the new game:

• represents a legal lottery, in line with the definition in the Gambling Act 2005
• is consistent with the National Lottery brand
• has security measures in place to protect against fraud - from both a systems and processes and player funds perspective.

As part of its proposed changes to Lotto, Camelot is introducing a new prize tier for matching 2 numbers, which will offer a free lucky dip ticket. In line with the retention model agreed for the third licence, a proportion of the proceeds from those lucky dip ‘sales’ will flow both to Camelot and to good causes in the normal retention proportions. The full cost of the free tickets will be met from the prize fund for each draw.

We discussed this point and we are content that the Match 2 prize is consistent with our propriety duty.

Protecting the interests of players

We considered a number of issues such as the risk of excessive play and the potential for play by under 16s, as well as:

• impact of lengthening the odds of winning the jackpot and thus increasing the probable number of rollovers (jackpot odds moving from 1 in 14m to 1 in 45m)
• unclaimed prize rates
• how the new prize funding structure would impact players
• how the changes will be communicated to players.

The new prize structure should benefit players, as it should remove the significantly unexpected prize levels seen previously and they will be more likely to receive the prizes they expect from each prize tier. This is because the prize pay-out percentage will now fluctuate with each draw, depending on the number of winners of the fixed prize tiers, similar to the rules that apply for Thunderball and HotPicks games.

If an individual draw produces a high number of winners, for example because a popular set of numbers have been drawn, the prize pay-out will increase, ensuring that prizes are not significantly impacted, but the contribution to good causes from that draw will be lower than average. Conversely, when a draw produces a low number of winners, the percentage paid in prizes will be lower, but good causes will benefit. The new prize structure should tend towards an average prize pay-out percentage of 47.5%, as it is currently.

We also considered the impact of the proposed changes on the odds of winning, and how this may be perceived as a negative change by players. Camelot’s research indicated that the majority of players are more interested in prizes than the odds of the game. We noted the balance between odds rising on individual prize tiers with the increased overall chance of winning a prize and the improvement of the odds of becoming a millionaire, as well as the fact the same percentage of sales as before will go to the prize fund.

Having considered all of these points we were satisfied that permitting the changes to Lotto would be consistent with our statutory duty to protect players.

Returns to good causes

We were satisfied with the rigour of the process that Camelot had undertaken to design and develop the new game and that this was likely to lead to a positive return for good causes.

The new prize structure, although designed to protect players’ prizes and ensure consistency, should tend towards an average prize pay-out percentage of 47.5%, as it is currently. We were satisfied with Camelot’s modelling that indicated that over a relatively short period of time, the impact from the new structure on the percentage return to good causes is likely to be neutral.

Good causes stand to benefit considerably over the course of the current licence which runs to January 2023. We report the amount that goes to good causes every quarter.

We were satisfied that the changes to Lotto represented a strong proposal for good causes, players and the long term interests of the Lotto game.

Decision

Based on the information Camelot provided to date, our own considerations of the proposal and taking in to account our statutory duties, we agreed to vary the licence for Lotto.

Autumn 2015 (B)

Rationale for agreeing Condition 23 Licence Investment Proposal: Additional Lotto Marketing

The proposal requested an annual investment for additional Lotto marketing support. As no retailer commission will be paid on the Match 2 prize tier for free tickets, the investment will be covered by these additional funds flowing to net proceeds.

Decisions and reasons

We completed an evaluation process which considered the methodology and monitoring processes detailed in the proposal against our statutory duties. We are satisfied that no issues were identified in relation to propriety and player protection.

We noted in particular:

• the extra marketing opportunity provided by the additional rollovers forecast as a result of changes to Lotto.

• We decided to accept the proposal as we are satisfied that Condition 23 of the licence had been met and the investment:

• will secure an increase in the net proceeds of the National Lottery

• will continue to ensure that the National Lottery is run will all due propriety and the interests of every participant in the National Lottery are protected.

We will review the investment on a six-monthly basis and can amend the amount that is invested annually or cease to invest entirely at any point if it has concerns with its performance.

Autumn 2013

Rationale for agreeing changes to Lotto

In 1994, Lotto launched at the price point of £1 and in 1997 a mid-week draw was introduced. Since its launch the range of National Lottery games available has evolved, but the core Lotto game has remained unchanged. Over this time, interest in Lotto has fallen, resulting in declining sales, lower jackpot prize levels and a resulting decrease in funding given to the good causes supported by the National Lottery.

In an effort to reinvigorate the Lotto game and prevent falling sales, Camelot proposed changes to the Lotto game which we approved in December 2012 after careful consideration. We were convinced that changes needed to be made to maintain the attractiveness of the Lotto game, and satisfied that the significant benefits offered by the revised game were not possible at the previous game price.

The key changes to Lotto included:

• increase in ticket price from £1 to £2
• increase in the jackpot (based on expected sales)
• 2.5% increase in the prize pay-out (from 45% to 47.5%)
• new weekly raffle of 50 £20,000 winnersine with rollovers
• increased numbers of raffle prizes in l
• increase in prize for matching 3 balls (from £10 to £25)
• increase in prize for matching 4 balls (from £62 to £100 on average)
• reduced prize for matching 5 balls (from £1500 to £1000 on average)
• reduced prize for matching 5 balls plus bonus ball (from £100k to £50k on average)

In reviewing the request to change Lotto, we considered the proposal in line with our statutory duties.

Propriety

We were satisfied that the new game:

• represents a legal lottery, in line with the definition in the Gambling Act 2005
• is consistent with the National Lottery brand
• security measures are in place to protect against fraud - from both a systems and processes and player funds perspective.

Protecting the interests of players

We considered a number of issues in relation to this duty, such as the risk of excessive play and the potential for play by under 16s, as well as:

• player comprehension
• results checking for the raffle element
• unclaimed prizes.

As the enhanced game offered a more complex structure, we felt it was essential that all players would be able to comprehend the changes. Assurance was taken from the ease of implementing the EuroMillions Raffles, in November 2009, in which no significant player comprehension problems arose. In addition Camelot made the raffle easier to check by introducing a colour prefix to the raffle tickets and providing a win checker on their website.

We also considered the impact of the proposed changes upon players who use fixed numbers. The consideration of the use of fixed numbers has not been a commercial driver in the approval decision, but from a player perspective we acknowledge that some will have a decision to make regarding whether they continue to play Lotto at their current levels. We understand if this is a difficult decision to take but we are confident that Lotto players will be able to make such a decision.

We do recognise the importance of National Lottery products remaining accessible to a wide range of players and we continue to ensure that there is a wide portfolio of games available at a range of price points with online instant win games starting from 25p and Thunderball for £1.

Having considered all of these points we were satisfied that permitting the changes to Lotto would be consistent with our statutory duty to protect players.

Returns to good causes

The percentage paid to the player increased from 45% to 47.5% which means that a greater percentage of funds are going back to the player in prizes. Because of the new raffle element to the game, the chances of winning have also slightly increased.

The financial benefits for Camelot and good causes are closely aligned. Camelot’s returns rise and fall in line with increases and decreases in the returns generated for good causes. This means that we can place a degree of reliance on Camelot’s commercial judgement and do not need to ‘double-guess’ Camelot’s research and game design processes as long as we are confident that a robust process has been undertaken, which we are.

Decision

Based on increased sales projections provided by Camelot, good causes stand to benefit considerably over the course of the current licence to operate the National Lottery which runs to January 2023. We were satisfied that the changes to Lotto represented a strong proposal for good causes, players and the long term interests of the Lotto game.

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Last updated: 13 December 2022

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