Prize catch: Allwyn gears up to take on the fourth National Lottery licence

It was a damp Saturday night in November 1994 when the first ever UK National Lottery draw was aired live on BBC One. An audience of 22 million viewers, with tickets in hand, tuned into the hour-long extravaganza fronted by primetime TV stalwart Noel Edmonds out of a mixture of curiosity and, maybe even more so, the hope of scooping a life-changing sum of money, even if the chance of matching all six numbers drawn was infinitesimal. Around 14 million to one, in fact. Once the six coloured balls and the bonus ball had been disgorged from draw machine ‘Merlin’, which Edmonds excitedly informed viewers weighed 895lbs and cost £200,000, seven people shared the £5,874,778 jackpot, each collecting £839,254. Lottery fever had gripped the nation.

The company contracted to operate the UK’s shiny new lottery was Camelot, owned at the time by a consortium comprising confectionery giant Cadbury Schweppes, banknote printer De La Rue, telecoms firm Racal and computer groups GTech and ICL. Camelot beat seven other bidders to secure the tender and would later go on to land the second licence (2001) and then the third (2009) for one of the world’s most coveted lottery contracts.

However, on 15 March 2022, the status quo was dramatically upended when one of Europe’s leading lottery operators, Allwyn, was named as the preferred applicant by the UK Gambling Commission (UKGC) for the fourth licence from 1 February 2024 on a fixed 10-year term. “It was, of course, an exciting moment that we took with a mix of pride and humility,” Allwyn CEO Robert Chvátal explains to EGR Intel on the sidelines of ICE London in February. “We put everything that we could into the bid.”

Allwyn, formerly known as Sazka Group, first threw its hat into the ring in October 2020, five weeks after the UKGC formally fired the starting pistol on the race for the contract. Yet the Switzerland-based lottery operator’s intentions of becoming custodian of Europe’s largest lottery were revealed privately in 2018 when Allwyn met with representatives of the UKGC for the first time at the Hilton Hotel in Buenos Aires, Argentina, where the World Lottery Summit was being held at the time. Chvátal says: “I remember that I promised them one thing: for the fourth National Lottery licence [bid], you will have competition from someone with a strong track record of successfully operating lotteries across Europe – in five markets – and I think The National Lottery deserves the competition.”

Four play

There ended up being four applicants in the final stage of bidding, the highest number since the first licence was awarded in 1994. Besides Allwyn and the incumbent, Camelot, the other pair still in the running were Sisal (now owned by Flutter Entertainment) and The New Lottery Company Ltd (run by publisher Richard Desmond’s Northern & Shell).

Yet the champagne corks hadn’t long popped at Allwyn when Camelot announced in a polemic statement how it was “shocked” by aspects of the UKGC’s decision and would be lodging a legal challenge at the High Court. In response, the regulator insisted that it had “run a fair and robust competition” and that the evaluation had been “carried out fairly and lawfully”. Last September, the legal challenge was dropped, and soon after Allwyn was officially awarded the fourth licence to operate the UK National Lottery starting 1 February 2024.

Digital accounts for around 40% of all National Lottery Lottery sales

The following month, Allwyn confirmed speculation that “advanced discussions” were underway with Camelot’s owner, the Ontario Teachers’ Pension Plan Board, to acquire Camelot’s UK operations headquartered in a glass and red-bricked building in Watford, 16 miles northwest of London. The deal, thought to be worth around £100m, although a true figure hasn’t been released by Allwyn, completed on 5 February, the day prior to EGR Intel’s sit-down with Chvátal. Meanwhile, the 54-year-old Czech has recently been made interim CEO of Allwyn UK, replacing David Craven to lead the handover from Camelot to Allwyn.

It means that Chvátal, who speaks fluent English as well as German, is making weekly trips to the UK from Allwyn’s HQ in Lucerne, Switzerland. “From the very beginning, we respected Camelot as an operator of the UK National Lottery for 30 years – and they have accomplished many great things during this tenure. The rationale for the acquisition is that we wanted to bring the best elements of both businesses [Allwyn and Camelot] together and to smooth the transition from the third to the fourth licence,” he explains when discussing the deal. “It’s about making sure that both teams work hand in hand to ensure a seamless transition and the successful delivery of The National Lottery both in 2023 and over the next decade.”

No one-trick pony

Owned by billionaire Czech businessman Karel Komárek, Allwyn operates lotteries in Italy, Austria, Greece, Cyprus as well as Czechia. Drawing on a strong track record of successfully operating national lotteries across these markets, management has pledged to create “a lottery of the future” in the UK under its stewardship.

“Even a lottery product cannot be a one-trick pony and remain unchanged for decades,” Chvátal asserts when pressed on what that future looks like. “It has to evolve with time. There is a strong focus on product innovation and a vision of digitalising lotteries – not only in the digital space, but also in retail. And it’s also about ensuring safer play, using this technology to protect players from gambling harm and provide exciting ways to play.”

Indeed, The National Lottery itself has had to evolve over the years. An abridged history would include these milestones: scratchcards introduced in 1995, a mid-week draw launched two years later, Thunderball created in 1999, the main draw game rebranded to Lotto in 2002, the debut of pan-European EuroMillions two years after that and then, of course, the rise of digital products.

Against a backdrop of falling sales and waning interest in Lotto, Camelot controversially doubled the price of a draw ticket to £2 in 2013 and tweaked the prize structure, including introducing new raffle prizes. Then, in 2015, Lotto went from 49 to 59 balls, decreasing the chances of winning to 45 million to one, although a new Millionaire Raffle guaranteed at least one millionaire per draw.

In a nod to The National Lottery’s roots, Allwyn’s bid, chaired by entrepreneur Sir Keith Mills, included a headline-grabbing pledge to slash the price of a Lotto ticket to its original £1 and to have two midweek and Saturday draws. “We want to ensure that Lotto appeals to a broad audience in the UK. I really think, for instance, that the fact there was a 100% increase in the cost of a ticket in 2013 was difficult for many,” Chvátal points out.

On Allwyn’s vision to reinvigorate The National Lottery, particularly Lotto, he says: “At Allwyn, we feel strongly that draw-based games are at the heart of the lottery and play an important part in ensuring player safety and contributions to good causes. It’s common knowledge that draw-based games typically raise double the amount for good causes compared with instant win alternatives, such as scratchcards. We believe in the future of draw-based games, and as we continue to transform and improve lotteries around the world, we hope to put draw-based games back at the heart of lotteries and reverse the slide towards scratchcards and instant games.”

In the UK, Allwyn has set an ambitious target of doubling contributions to good causes over the next decade. Since 1994, The National Lottery has generated more than £47bn for good causes and 670,000 individual grants have been made up and down the UK, the equivalent of 240 lottery grants for every postcode. In its most recent financial year, Camelot said The National Lottery raised more than £1.95bn for good causes, the second-highest total since its inception. It is worth mentioning that Camelot itself doesn’t award money to good causes across the arts, sport and national heritage; that is the responsibility of the National Lottery Distribution Fund, which is administered by the government.

Tickets, please

Played by around 36 million people, The National Lottery achieved sales of £8.1bn for the financial year 1 April 2021 to 31 March 2022, which was the second time this figure has surpassed the £8bn mark since The National Lottery began.

This was followed up with sales for the first six months of Camelot’s 2022/23 financial year (1 April to 24 September) eclipsing the £4bn mark for the first time in the company’s 28-year operation of The National Lottery. It represented a 2.6% increase on the prior year. The record half-year performance, announced at the end of November, was driven by record online sales “despite the more challenging economic climate”, the company said. With sales of £3.42bn in 2021/22, online accounts for 40% of sales. Of this, £2.45bn, or 72% of digital sales, were on smartphones and tablets.

Camelot says that around 60% of UK adults play National Lottery games

Camelot also reported in its most recent annual financial report that 1.8 million new player acquisitions took the active digital player base to an all-time high of 10.1 million. Online – particularly interactive instant win games – is clearly going to play an important role in a contract forecasted to generate up to £100bn in sales over the course of the 10-year licence.

“We live in a digital world, and I think that the share of online will continue to grow,” Chvátal comments. “One advantage of digital is that you can better understand the consumer and use digitally led, innovative products to create a more engaging and interactive gaming experience for all our players. These products enable us to keep lotteries fun, relevant and entertaining and better protect players by using data to help the consumer manage problematic behaviour. And while we believe there will be continued growth in digital, we do not want to ignore retail. Digital is 40%-45%, and it could go above 50%, but retail will always remain a truly important part of the business.” He continues: “It’s two legs; we need both a strong digital and retail leg. We will help the retailers to use digital technologies to be more personalised and thus more relevant for the UK consumer.”

Although around 60% of the UK adult population play National Lottery games, one challenge facing the fourth licence holder will be appealing to mobile-first young adults surrounded these days by social media, streaming subscription services, mobile gaming platforms and other forms of gambling. The National Lottery’s products will clearly have to fight hard for share of wallet among this demographic over the next 10 years. To illustrate the point, a survey published in September 2020 by the Department of Digital, Culture, Media and Sport (DCMS) found that those aged 45 to 64 were most likely to have played a National Lottery game in the previous 12 months (54%). Respondents aged 16 to 24 were the least likely (21%), the study revealed. “Attracting a younger audience is a challenge, in general, for lotteries,” Chvátal acknowledges.

“Lotteries need to focus on being the only ones offering a life-changing experience. In online casino you cannot dream of winning £100m, or even £10m. It’s not possible with online casinos, but it is possible with lotteries. It’s important that lotteries are more entertaining and engaging in the way the draw-based games are positioned to the consumer.”

Chvátal also highlights how the rhythm of twice-weekly draws can lead to what he describes as “jackpot fatigue”. “People don’t distinguish anymore. Yes, it’s a big number so we [Allwyn] started to have special ‘event draws’ on certain dates of the year. These are the moments when people think ‘I don’t normally play the lottery, but I will tonight’.”

TV blackout

While estimated jackpots are trumpeted during TV ad breaks, particularly if there is a rollover or multiple rollovers, the fact that the Lotto draws are no longer broadcast into people’s homes twice a week is bound to have impacted sales to some degree in recent years. You can still watch both weekly draws live on The National Lottery website or YouTube, though. The other option is to simply wait for the email to confirm if you have a winning ticket bought online.

It’s all a far cry from when the draw was a staple of the national broadcaster’s Saturday night schedule and the late celebrity astrologer Mystic Meg had a weekly slot in the programme where she conjured up nebulous predictions about the winners’ Christian names and their locations. So, does it matter that the Lotto draw is no longer shown live on terrestrial TV on a Wednesday and Saturday evening?

Chvátal leans forward in his chair and ponders a response. “The world has changed since 1994 when telly was a big thing,” he replies. “I don’t want to be fixated on bringing the [televised] draw back on a Saturday night – maybe the time for that has gone.”

He adds: “What’s more important is finding relevance through digitally led, innovative products that create a more engaging and interactive gaming experience for all our players.”

The numbers-based games landscape is also far more crowded now compared with 1994. As well as The National Lottery competing with bet-on-lotteries websites and bookmakers’ draw-based number games – first introduced in the mid-nineties in response to the arrival of The National Lottery – there has been an explosion of lotteries generally over the past decade or so. The Postcode Lottery and the Health Lottery being two of the most high-profile examples. But a whole host of charities now offer lotteries as a means of raising funds besides donations. And according to the UKGC, there are more than 800 active society lotteries, the vast majority of which offer top prizes under £10,000.

For Allwyn, these lotteries can’t compete with the jackpots on offer with The National Lottery and the sums raised for good causes. “We respect that there are also charity lotteries but there’s only one National Lottery,” Chvátal emphasises. “If you compare how much The National Lottery historically contributes to good causes with the [money generated for] good causes through the charity lotteries, it is not comparable.”

Pass the baton

In the meantime, Allwyn is firmly focused on managing the transition from the third to the fourth licence on 1 February 2024 after the group secured €1.6bn in financing from a syndicate of international banks in November. Allwyn will also continue – for the near future at least – as a privately owned business after announcing it would not  proceed with its previously proposed US listing. Indeed, the lottery operator and a SPAC, Cohn Robbins Holdings Corp., first announced plans to float Allwyn on the New York Stock Exchange in January 2022, a deal that would have valued Allwyn at $9.3bn.

However, Allwyn, which at the time of the announced combination anticipated generating €1.5bn of net gaming revenue and around €710m in adjusted EBITDA for 2022, and Cohn Robbins Holdings Corp. jointly decided not to proceed with the transaction nine months later due to “significant market volatility”. Despite this, Allwyn has highlighted that the company remains open to going public “when conditions are more favourable”.

“We strongly believe that Allwyn is a premium brand in the lottery world with a proven financial success story. We are ready to be a public company when the timing is right,” Chvátal stresses to EGR Intel. “While we received strong indications of support during investor meetings, the marketing period coincided with significant market volatility amid a backdrop of concerns about the prospects for inflation, interest rates and recession. Despite this, we remain confident in our future as a public company. The question is when, not if. We are a real company with real cash flows and a strong track record of solid organic and inorganic growth.”

Operating the UK’s National Lottery for the next decade certainly makes Allwyn an attractive proposition when it comes to any potential future float. Camelot has had an incredible run over almost three decades – awarding more than £88bn in prize money and creating more than 6,600 millionaires or multi-millionaires since 1994 – but now it’s nearly Allwyn’s turn to take up the mantle as custodian of this institution for the next decade.

“Camelot was working hard for two years figuring out how to operate the lottery for the next 10 years, and we were working hard on how to operate the lottery for the next 10 years based on our knowledge from other markets,” Chvátal says regarding the competition for the licence. “We want to build on what already exists, bringing our innovation, technology, efficiency and expertise in player safety to ensure the continued success of The National Lottery.”