Next lottery operator could get annual fee of €50m

THE GOVERNMENT is considering offering the next operator of the National Lottery an extended licence of between 20 and 30 years and a significantly enhanced annual operator’s fee of up to €50 million to run the business.

Under the existing seven-year licence, An Post operates the State’s lottery for an annual management fee of just under €3 million.

Minister for Public Expenditure Brendan Howlin is expected to bring proposals for the sale of the licence to Cabinet early next month.

He hopes a longer licence and a greater share of the revenue generated from ticket and scratch card sales will attract international bidders and secure a large upfront payment for the exchequer, thought to be in region of €400-€600 million.

The Government has already earmarked €200 million from the proceeds for the proposed children’s hospital on the Mater campus in Dublin.

A team of officials in Mr Howlin’s department, with the aid of Davy stockbrokers, has been examining several strategic options to boost the asset’s saleability, and are due to deliver an interim report to the Minister today.

As well as the extended licence, prospective buyers would be enticed by an annual operator’s fee of about 6 per cent of revenue.

At the moment the fee is about 0.5 per cent.

A 6 per cent figure equates to €48 million annually on current sales, or €1.2 billion over a 25-year licence, making it one of the most lucrative public tenders in recent times.

Lottery sales in Ireland have fallen sharply in the recession, significantly reducing the amount of money diverted to good causes.

In 2010 the business generated sales of €772 million from lottery tickets and scratch cards. It gave out €420 million (54 per cent) in prizes with a surplus of €244 million (32 per cent) going to good causes.

The cost base was €108 million (13 per cent), including a sales infrastructure which employs 103 people.

According to a senior department official, the Minister is keen to preserve the 32 per cent level of payments to good causes.

However, to do this the enhanced operator’s fee would have to come from a reduction in costs and/or a reduced prize fund, which may risk damaging sales.

Despite the global downturn, the spokesman said the Government had already been approached by several interested parties since it announced its decision to sell the licence last November.

An Post said yesterday it was determined to win the new licence, indicating it was exploring several possible partnership options to fund its bid.

However, the semi-State is likely to face stiff competition for the licence from several international operators, including UK group Camelot and Australian gaming company Tatts Group.

Camelot, which already operates in Northern Ireland, is said to view the Irish business as a nice fit for its existing operations.

The group, which has held several meetings with department officials in recent weeks, said: “We are interested, and we are currently engaging in the ‘interested parties’ process”.

“However, until we see the Government proposals on how this will be structured, we will not make a final decision on whether to participate in any future tender,” a spokesman said.

Similarly, the Tatts Group told The Irish Times it had been closely following the Irish process, and would be “particularly interested” in acquiring the licence if certain conditions were met.

Tatts recently won the right to operate the New South Wales lottery, which was the first state tender to demand an upfront payment from a prospective operator.

Gambling firm Paddy Power, once mentioned as a likely bidder for the Irish licence, indicated it was unlikely to be in the mix for the licence unless there was a provision to allow for the development of online gaming in tandem with the lottery’s existing games.

Mr Howlin is expected to announce the tendering process before the summer, with the winner taking up the new licence from 2013.