Anticipated judicial challenge to the 4th National Lottery Licence competition process launched by Camelot

Categories: News

Following considerable conjecture, including that arising from:

it has today (1 April 2022) been confirmed that the current operator of the UK’s National Lottery, Camelot UK Lotteries Limited, has commenced legal proceedings against the Gambling Commission, challenging the Fourth National Lottery Licence competition process.

Camelot’s challenge follows announcement by the Commission on 15 March 2022 that it was naming:

  • Allwyn Entertainment Ltd (formerly Sazka Group UK 2 Ltd) as the ‘Preferred Applicant’ for the Fourth National Lottery licence and
  • Camelot as the ‘Reserve Applicant’.

Camelot has today published the following statement in relation to commencement of this litigation:

Camelot statement on the issuing of High Court proceedings against the Gambling Commission

Following the decision to issue proceedings in the High Court against the Gambling Commission, Camelot CEO, Nigel Railton said:

“We are launching a legal challenge today in our capacity as an applicant for the Fourth Licence because we firmly believe that the Gambling Commission has got this decision badly wrong. When we received the result, we were shocked by aspects of the decision.

Despite lengthy correspondence, the Commission has failed to provide a satisfactory response. We are therefore left with no choice but to ask the court to establish what happened.

Irrespective of Camelot’s dual roles as current operator and applicant for the next National Lottery licence, the competition is one of the largest UK government-sponsored procurements and the process deserves independent scrutiny. Separately, more than 1,000 Camelot employees work tirelessly to successfully operate The National Lottery under the current licence and, at the very least, they are owed a proper explanation.”

The Gambling Commission has responded with its own statement:

Fourth National Lottery licence competition: statement on legal action

On 15 March, the Gambling Commission announced Allwyn Entertainment UK (“Allwyn”) as Preferred Applicant for the fourth National Lottery licence.

The selection of a Preferred Applicant follows a fair, open and robust competition which received four applications at the final stage. This is the highest number of applications since the first National Lottery licence was awarded in 1994.

Following the announcement, we entered a legal standstill period. The standstill allowed all applicants to consider the outcome of the competition and feedback on their application, prior to the Commission entering into further legal arrangements with the Preferred Applicant.

The Commission has subsequently received legal proceedings in relation to the competition process. We regret Camelot’s decision to bring legal proceedings following the outcome of a highly successful competition for the fourth National Lottery licence. The competition and our evaluation have been carried out fairly and lawfully in accordance with our statutory duties, and we are confident that a court would come to that conclusion.

We are confident that we have run a fair and robust competition. We have taken every step possible to ensure a level playing field for all interested parties, to enable us to appoint a licensee who will engage and protect players, run the National Lottery with integrity and ensure the National Lottery continues to support good causes and their contribution to society.

Our priority is to continue to work to implement our decision and ensure a seamless and timely transition to the next licence, for the benefit of participants and good causes. These proceedings will not help that but we trust that Camelot will honour its obligations as the current licensee to cooperate in that transition, and we will continue to use the tools available to us to facilitate that process.

In order to protect the integrity of the process, we will not be able to discuss the specifics until litigation has concluded.

The Telegraph article mentioned above stated that:

The Telegraph understands that the incumbent National Lottery operator will issue legal proceedings against the Gambling Commission in the coming days. They will include a judicial review as well as a High Court procurement challenge.

At the heart of Camelot’s case is expected to be allegations that the regulator changed the rules after Camelot came out top in a scoring system designed to measure the bids.

A “risk factor” discount of up to 15pc was due to be applied to financial projections by the bidders. Camelot is expected to claim that a discount was initially applied by the regulator, but later changed to zero in the final adjudication.

The change proved crucial because the financial projections lodged by Allwyn, Mr Komarek’s gambling group, projected raising £38bn for good causes, billions more than was proposed by Camelot.

adding that:

The switch is believed to have even surprised Allwyn, which had filed its own legal proceedings against the Gambling Commission days before it was unveiled as “preferred bidder” on Mar 15.

A legal battle would prevent Allwyn from signing the contract to run the National Lottery.

It can be anticipated that the Commission (as well as Allwyn) will wish the litigation to be fast-tracked pursuant to an expedited process so that, to quote the Commission, a “seamless and timely transition to the next licence, for the benefit of participants and good causes” can be assured in time for the start of the Fourth National Lottery Licence in February 2024.

NOTE:

This is not the first time that legal proceedings have arisen from a competition for the award of the licence to operate the National Lottery.

We summarise below information relating to the Second National Lottery Licence competition, gleaned from a Culture, Media & Sport Committee Report on ‘The Operation of the National Lottery’ published in March 2001.

  1. In 2000, the National Lottery Commission – the regulator of the National Lottery until 2013 when it was abolished and its responsibilities were assumed by the Gambling Commission – decided that neither of the two bidders for the Second National Lottery Licence had met the minimum requirements of the competition and invited both bidders to make the necessary improvements.
  2. Having then evaluated the additional information supplied by both bidders, it again concluded that neither had met the statutory minimum requirements, as a result of which it decided that (a) the bidding process was at an end and (b) it would start new negotiations with only one bidder, The People’s Lottery (the bid for which had been organised by Sir Richard Branson). Its decision to exclude the other bidder, Camelot, was made on the ground that it was not “satisfied that the protection of the interests of every participant in the National Lottery is most likely to be secured by the grant of a seven-year licence to Camelot”.
  3. Judicial review proceedings were accordingly brought by Camelot against the National Lottery Commission. Delivering judgment in favour of Camelot, Mr Justice Richards found that, although the Commission had tried to be fair, it had failed. His judgement (details of which are set out below) concluded that the Commission should allow Camelot “the same opportunity to allay its concerns by further negotiation as has been accorded to [The People’s Lottery]“.
  4. Thereafter, the National Lottery Commission:
    • instigated the further discussions with Camelot, as required by the judgment (in the process coming under intense criticism for its decision, following which Dame Helena Shovelton resigned from her position as Chair of the Commission),
    • considered both bids again on the basis of the bidders’ responses to the concerns raised by the Commission,
    • announced that both bids had fulfilled the statutory qualifying criteria and, having decided that both met the requirements for propriety and protection of players’ interests, proceeded to apply the final test of income for good causes, and
    • subsequently announced that:
      • it had decided to award the next licence to operate the National Lottery to Camelot and
      • one of the Commissioners, who had dissented from the decision, had tendered her resignation.
  5. Whilst Richard Branson considered the Commission’s decision in favour of Camelot to have been procedurally flawed and substantively unfair (describing it in January 2001 as “a cowardly decision, made in a cowardly way on, to put it mildly, a dubious basis”), he confirmed that The People’s Lottery had decided not to contest the Commission’s decision in court.

You can access here the above-mentioned judgment of Mr Justice Richards in the case of R v. The National Lottery Commission Ex parte Camelot Group plc [2000] EWHC Admin 391 (21st September, 2000).

UPDATES:

1. On 15 April 2022, it was reported in a Financial Times article entitled ‘Northern & Shell joins Camelot in taking legal action over National Lottery‘ that, after the commencement of legal proceedings by the current National Lottery technology provider IGT in order to protect its interests and preserve its rights in connection with the legal challenge launched against the UK Gambling Commission by Camelot, with which it has “a longstanding relationship”, “Richard Desmond’s Northern & Shell group has become the third company to sue the UK’s gambling regulator [reportedly by way of a procurement challenge] over its decision to award the next National Lottery licence to Czech operator Allwyn, making it the most contested award in the competition’s history”.

2. On 20 April 2022, it was reported by gamblingnews.com (in an article entitled ‘Camelot Denied Fast-Track Trial against UK Gambling Commission‘) that, delivering an oral judgment in the High Court of Justice, the Hon. Mr Justice David Waksman had refused an application by Counsel for Camelot to expedite the proceedings commenced by Camelot and IGT before a court hearing (taking place in three weeks’ time) determines an application by the Gambling Commission “to lift a suspension on its ability to transfer operations from Camelot to Allwyn” which, if successful, “would mean that claims from Camelot and IGT will be for damages only”.

3. For further updates, see our following website postings: