A Winning Number For The Laborites?

The national lottery flap may further undermine the Tories

`Scamalot." That's what critics are now calling Camelot Group PLC, the for-profit, Anglo-American consortium running Britain's national lottery. After barely a year of operation, Camelot Group is weathering a storm of controversy. Among the allegations are offering bribes, cozying up to government regulators, and paying top executives unseemly salaries for the low-risk chore of peddling lottery tickets to wager-loving Britons.

The consortium denies any impropriety, and no one at Camelot has been formally charged with any wrongdoing. No matter. The Labor Party is turning Scamalot into a referendum on the ruling Tories' laissez-faire approach to business. With elections just a year away, Labor will do everything to keep the issue hot. Pressure already is mounting to revamp government oversight of the lottery and to turn the operation over to a not-for-profit group when Camelot's license expires in 2001.

The Conservatives had reasoned that a for-profit business would operate a lottery more efficiently than a state-run firm. So after reviewing both for-profit and not-for-profit bids, the government went with Camelot. It's composed of four British companies--candy and soft-drinks giant Cadbury Schweppes, computer maker ICL, Racal Electronics, and banknote printer De La Rue--and one U.S. company, lottery operator GTech Corp. A new government agency--the Office of the National Lottery, or Oflot--oversees Camelot.

"SMELL FACTOR." By December, Camelot was estimating it would sell $7 billion worth of tickets and scratch cards in its first year, making the lottery one of the world's biggest. Then controversy flared. On a BBC investigative program, Richard Branson, owner of Virgin Atlantic Airways, alleged that Guy B. Snowden, GTech's co-chairman and a Camelot director, had offered him a bribe to withdraw his group's bid for the lottery. Branson said he informed Oflot's director general, Peter Davis, of the alleged bribe, but Davis denies being told. Snowden labels the charges "beneath contempt" and is considering a libel suit against Branson, who is already suing GTech for libel. On Dec. 20, Davis said an investigation would begin in January.

The same day as the BBC broadcast, Davis admitted to a House of Commons committee that he had accepted rides in GTech's jets, helicopters, and limousines while touring state lotteries in the U.S. Davis also has acknowledged a close friendship with GTech board member Carl B. Menges. In a heated debate, Labor member Donald Anderson argued that the "smell factor" prevents Davis from having "the credibility necessary for the performance of his functions." The government so far has refused to sack Davis.

SCRUTINIZED. Labor MPs also are raising questions about whether Oflot let Camelot profit at the expense of the good causes it is supposed to fund. Camelot made a $37 million profit on revenues of $3.9 billion during the half-year ended in September and paid out a $14.6 million dividend to its five shareholders, the maximum payout allowed under its license. Yet in a September 1994 letter to an MP, Oflot's Davis wrote that based on the consortium's forecast he expected it would be "over four years before Camelot shows a cash return on its investment." Camelot says it did not "deliberately understate" its expected returns.

Meanwhile, Camelot's pay packets are raising eyebrows, too. Camelot Chief Executive Tim Holley received $682,785 for 1995, including a $184,800 bonus. Holley declines to comment. Oflot says it doesn't regulate the pay at Camelot, but in a country where high salaries arouse ire, this argument is hardly convincing. Says Denis Vaughan, an orchestra conductor who started the move for a lottery to help the arts: "Oflot is more of a lapdog than a watchdog."

GTech merits far closer watching as well, Camelot's critics say. The Rhode Island-based company, which operates 74 lotteries for governments and other public authorities, has endured scrutiny for its methods of winning contracts in the U.S. Its former national sales manager, J. David Smith, has been charged by federal prosecutors with taking kickbacks in New Jersey. GTech has never been charged with a crime and says it was victimized by Smith, who is vigorously defending himself. Nonetheless, critics are calling for a reexamination of GTech's role in Camelot.

Scamalot will make even more headlines when the inquiry starts probing Branson's allegations. The way things are going, Camelot's partners may come to regret that they ever bet on this business.

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