Teachers’ lottery draws ire
In the three plus years since Ontario Teachers’ Pension Plan
Board acquired the Britishbased Camelot Group for £389-million, there has been little public reference by the fund about the operator of the U.K. National Lottery.
That lack of reference continued last month when the Irish government, through Brendan Howlin, Minister for Public Expenditure and Reform, announced that “Premier Lotteries Ireland, a consortium comprising Ontario Teachers’ Pension Plan [the owner of the Camelot Group], An Post and An Post pension funds, has been selected as the preferred applicant for the next National Lottery licence which will be in place for a 20-year period.”
Howlin added that “Premier Lotteries Ireland has met the Essential Requirements and has submitted the highest Licence Fee proposal which is €405-million.” Prior to this, the contract ran on a cost-recovery basis — plus a fee of about €3-million.
At the time, concerns arose about two matters: the term of the contract (it was longer than normal, being for instance, double the one initially secured for the U.K. Lottery though that contract has since been extended to 2023) and the purchase price. Estimates of the value ranged from €200-million to €500-million; others valued it between €400-million and €650-million.
On a net present value basis, profits in the latter years aren’t worth that much because of the discount rate. As well, the licence fee works to the negative, as it has to be paid up front in two equal instalments: half next month and the rest next October.
But clearly other bidders thought it was not worth €405-million given that two conditions had to be met: The ongoing annual contribution to so-called Good Causes would be set at 65% of Gross Gaming Revenues (or sales minus prizes) and “current arrangements for retailer commission will be maintained.” The retail commission is 6%.
The latter commitment has become an issue in Ireland. This week RGDATA, an organization representing local shops and local communities wrote to Minister Howlin referring to the price paid by Premier Lotteries. That letter was dated Nov. 13 and written by Tara Buckley. (This column received a copy.)
The letter, the highlights of which published in the Irish Times, said the “price paid was at a level where they will need to secure substantive changes to the current National Lottery operating model to extract value and secure a return on the sum being paid,” adding, “there is real concern in the retail sector that the retail agents and players will ultimately pay the price to fund the purchase of the licence.”
Cutting the retail agent’s margin, increasing the retail price for games, offering preferential deals for larger retailers and driving a high level of sales online were among the eight concerns mentioned. Accordingly the letter wants assurances “that you provided to retailers and the broader public during the debate on the National Lottery Bid are not diluted.” So what does Teachers say? Reached Thursday, Deborah Allan director, of Communications and Media Relations, said, “At this stage we are the preferred bidder. We do not currently own the business,” noting that the investment is part of its longterm equities business which has “a very long-term investment horizon.”
As for the returns on its U.K. lottery investment Allan said it “is meeting our expectations, which is a moderate return over a long period of time.