As the first lottery in Europe, and only the second worldwide, to sell the licence for an up-front payment, the performance of the newly privatised Irish franchise will be a closely watched thing.

If it proves successful, lotteries elsewhere are expected to follow suit.

The Government can, at the very least, be confident that after shelling out €405 million Premier Lotteries Ireland, the winning consortium involving An Post and UK operator Camelot, will be sufficiently incentivised to grow the business. Whether this will be enough to halt five consecutive years of falling sales is another matter.

The new era will see the opening up of the previously restricted digital channel – an untapped potential for growth and, undoubtedly, the chief selling point. This will, however, have consequences for retailers, many of whom rely on the footfall associated with selling lottery products, and for the lottery’s reputation as a responsible gaming business.

There are also concerns the new operator may seek to raise prices to claw back its investment, something that would have a direct impact on the playing public.

Balancing act
Forging a path that serves the interests of all stakeholders will be a delicate balancing act for the new operator.

The two men charged with overseeing the task are current National Lottery boss and chief executive-designate of Premier Lotteries Ireland Dermot Griffin, and the managing director of Camelot Global Services, Alex Kovach, whose position in the new entity is still to be decided.

“The progressive model that Premier Lotteries Ireland offers is a win-win for the State,” says Griffin. “The State no longer carries the substantial overhead cost of running the lottery, we provide a substantial up-front payment against future good cause returns, €405 million in this case, and we invest to grow the lottery in an aligned way where good-cause returns and financial returns rise together.”

Griffin is convinced Premier’s 20-year business plan for the business will deliver “significantly more money” for good causes.

“The fundamental way to deliver a greater return for good causes and the State is to grow lottery sales and increase lottery participation, just as with any mass-market consumer product, by bringing in best practice in consumer marketing and innovation.”

'Positive long-term view'
He acknowledges the recent fall-off in sales, which has seen annual turnover drop from a 2008 high of €840 million to €735 million in 2012, was not the best platform from which to sell the business.

“The last five years have been tough for everyone in Ireland, and inevitably the National Lottery has been impacted too. But Premier Lotteries Ireland takes a very positive long-term view of the Irish market – we see huge potential to grow by innovating our games, the way people play and the way we share and communicate.”

Kovach sees the fact that more than half of adults here play the lottery on a weekly basis – one of the highest levels in Europe – as a key stat.

“The Irish lottery has been one of the most successful lotteries around, with great local ownership in An Post, great people and a strong management team. It’s long been an important part of Irish life and has been innovative and well run. That’s why Premier Lotteries is so incredibly positive about its future prospects,” he says.

Ambitious target
Minister for Public Expenditure and Reform Brendan Howlin has previously indicated he believes annual funding for good causes could be grown from its current level of €235 million to €300 million in five years under the new licensing terms.

Neither Kovach or Griffin seem fazed by the ambitious target. You might even say they appear quietly confident. However, they won’t be drawn on what sort of growth the operator is targeting in the short term or what it needs to make a return on its investment, insisting only they are taking a long-term view of things.

Premier's bid for the Irish franchise was bankrolled in the main by Camelot's parent company, Ontario Teachers' Pension Plan. The Canadian pension fund, which manages $129.5 billion in assets, has taken a 79 per cent stake in Premier Lotteries Ireland, with the remaining 21 per cent split evenly between An Post and An Post Pension Funds.

One of the puzzling aspects of the competition was how a reputedly conservative investment vehicle managed to outbid all other rivals to the tune of about €100 million. Particularly when you consider it paid £389 (€460 million) for Camelot in 2010, essentially acquiring the British lottery, a vastly bigger operation with a £6 billion turnover, for only €55 million more than its outlay here.

Allegations of overbidding
Since the Government announced the winning bid allegations have surfaced that Premier may have overbid for the licence.

“The price we paid for this lottery was a fair deal for the Government and recognition of the potential we see in the lottery here in Ireland. We can’t comment on what others have bid,” Kovach says.

That said, both men claim the cost of technology lies at the heart of the bidding disparity.

“Our investment to roll this [technology] out will be quite substantially less than some of the far clunkier technology solutions that have dominated the lottery market until now. In short, that means a better lottery but at a far lower cost to deliver. We suspect the difference between our bid and those of others is largely down to this cost of technology,” Griffin says.

The current National Lottery operator, An Post, pays US technology supplier Gtech an annual fee of about €15-€17 million for the technology that underpins the system.

While Griffin and Kovach won't confirm this, Premier Lotteries is understood to have a done a deal with Greek technology company Intralot to provide the technology for the Irish system at a substantially reduced rate.

Under the terms of the licence, the new operator must roll out a new technology infrastructure within the first 18 months of taking over.

Much has been made of the potential for growth in online sales, which currently account for less than 3 per cent of sales. In contrast, Camelot’s internet channel in the UK accounts for 18 per cent of sales, making it the largest internet lottery in the world, with a turnover of €1.2 billion.

Digital channel
Kovach says they hope to generate more than 15 per cent of sales in Ireland from the digital channel within five years of taking up the licence.

But will the rise in online not inevitably cannibalise some of the high-street trade?

Kovach is adamant the evidence doesn’t support this. He says attracting greater player participation from the interactive space means bigger jackpots, which feed back into more retail customers buying tickets, creating a sort of “virtuous circle”. For evidence of this, he points to the fact that Camelot has grown its retail network in the UK and its in-store trade in tandem with online sales.

“It’s only natural for retailers in Ireland to worry that interactive channels will cannibalise their sales – and Camelot’s retailers in the UK were no exception when it launched its interactive channel 10 years ago. But we worked together to improve the end-to-end sales model and that’s exactly what Premier Lotteries will be looking to do in Ireland,” Kovach says.

“It’s about providing convenience and accessibility to all on all channels at all times.”

The National Lottery has, up until now, been restricted in the way it operates online, obliging players to go through a cumbersome registration process. This involves the submission of a passport number or driver’s licence to activate accounts, which can take up to 48 hours. Most potential online players never complete the process. These restrictions, which date from a pre-internet era, will be done away with under the new licence in favour of a simpler registration process which will take users only a few minutes.

Lexical sleight of hand
Lottery operators tend to use the term gaming rather than gambling to describe the business. For addiction specialists, this is merely a lexical sleight of hand – an attempt to give the industry a softer image. Howlin has, from the outset, warned the online channel needed to be opened up in a responsible manner because of the potential impact on underage and/or problem gambling.

Griffin insists, however, basic online registrations will be checked and players seeking to collect anything more than small payouts will still have to send in proof of identification.

Kovach says: “At every stage of our work, corporate responsibility and responsible gaming are considered. We use tools in our game design process, for example. These tools tell us early on whether a game fits our responsibility and sales potential requirements. We do not let a potentially risky game go through this first stage.”

Price increases
Last year, Camelot was widely criticised for upping its prices from £1 to £2.

The Irish franchise has been crafty in hiding its price increases inside add-on draws, allowing the standard two-panel play to rise to €3 without much of a whimper from the public.

Can we expect another price hike?

“We’re always reviewing game structures, of which price is one element, and would only change game structures when customer research shows it’s good for players and good causes – and has regulatory approval,” says Griffin.

Only time will tell whether privatisation was a clever move by Government or a rash decision made at a time of severe financial constraint. Whatever happens, the Irish experience is likely to prove something of a test case.