JOINT COMMITTEE ON FINANCE AND THE PUBLIC SERVICE debate -
Wednesday, 22 Jun 2005

An Post National Lottery Company: Presentation.

Chairman

I welcome Mr. Ray Bates, national lottery director, and Mr. Noel Browne, chief accountant. The comments of members are protected by parliamentary privilege while those of visitors are not so protected. However, I do not expect the delegation to make any comments that will cause any problems. I remind committee members that they should not comment on, criticise or make charges against a person outside the committee or Houses.

Mr. Bates will make a short presentation which will be followed by an open discussion. We are dealing with the An Post National Lottery Company which is not responsible for granting disbursements to the various organisations. That responsibility falls back to the Government and is a different day's work. The company deals with the management and operation of the national lottery and is under the remit of this committee. As we never had the opportunity to meet with it before we decided to invite representatives to make a submission. Members will be able to raise any matters of concern.

Mr. Ray Bates

I thank the committee for inviting us here today. The national lottery was established in 1986 and its legislative base is the National Lottery Act of that year. An Post was awarded by the Minister for Finance the very first ten year licence to operate the national lottery and it established a subsidiary company, the An Post National Lottery Company, NLC, to do so. Sales commenced on 23 March 1987.

An Post holds 80% of the issued share capital of the company, with the remaining 20% held by the Minister for Finance. NLC is currently operating the national lottery under the terms of a seven year licence which was issued by the Minister for Finance in December 2001, following a formal EU-wide competitive tender process.

Our mission statement states:

The purpose of An Post National Lottery Company is to generate funds for the designated beneficiaries, while operating the National Lottery in accordance with the highest standards of integrity, credibility and security.

The national lottery, as operated by NLC for the past 18 years, is generally acknowledged as one of the success stories of Irish marketing history. It has also been one of the success stories of State-sponsored bodies in Ireland. We have successfully operated the national lottery in a delicate and ambiguous space where the worlds of commerce and public service intersect.

In an international context, the Irish national lottery is regarded as one of the world's top lotteries, not only in terms of per capita sales and revenue generated for good causes, but also in terms of style, game philosophy, record of innovation and adoption of industry best practice. We are one of only two State lotteries in the world with ISO 9001 accreditation.

For the past 18 years the national lottery has operated efficiently and effectively while generating over €2.2 billion for good causes. The current activity level of the national lottery involves the sale of some 4 million lottery tickets each week, a massive task by any standards. Accountability, integrity, openness and fairness are the mainstays of a lottery. NLC's adherence to the highest standards in all these regards should not be surprising given its parentage, ethos and record of success. As a Government regulated activity, the national lottery must be developed and operated in a way that fully satisfies the requirements of the regulator, the Minister for Finance.

Over the past 18 years NLC has a proven track record of successfully developing and managing Ireland's national lottery. We launched the national lottery in 1987 and have achieved continuous growth in sales every year since but one, increasing steadily from a turnover of IR£I02 million, €130 million, in 1987 to €578 million in 2004. The exception was the year of the conversion to the euro. The amount of money raised for the Government to distribute to beneficiary projects has exceeded all expectations, with €191 million raised in 2004 alone, and a total of over €2.2 billion raised to date for good causes. This success has been achieved through ongoing product innovation and a solid understanding of the Irish marketplace and consumer.

NLC has succeeded in building a brand that is familiar to 99% of Irish consumers. Today the national lottery is as well known as many other long established Irish brands such as Guinness, Jacobs and Jameson, which are more than 100 years old.

NLC has succeeded in developing a high level of confidence in its operation, brands and corporate image. This confidence and respect is evident across all key groups with which the national lottery interacts: its players, its 3,500 strong retail network and the media. With over 50% of all Irish adults now playing national lottery games on a weekly basis, and an average weekly player spend of €8, NLC has succeeded in making the national lottery a normal, accepted and popular part of Irish life.

Market research has repeatedly shown that the characteristics and demographics of the average national lottery player substantially match those of the adult population in general. There is no evidence of any significant variation from the population average in respect of players' sex, age, geographic designation, work status, social status, education or income.

NLC has in place an excellent network of 3,500 retail outlets giving full and balanced population and geographical coverage. All agents sell scratch cards, and 2,200 agents have lotto terminals offering all on-line lottery games.

NLC operating costs have been kept to a minimum. In 2004, the operating costs were 8%, excluding retailers' commission and bonuses of 6.2%, which compares very favourably with international lotteries with equivalent population bases. On a comparable State lottery basis, the number of staff employed is among the lowest and, on a revenue per employee basis, is among the highest in the world. In 2004, of each €l spent on national lottery games, in broad terms, €0.53 was returned in prizes, €0.06 in agent commission, €0.08 in operating costs and €0.33 to good causes.

When the National Lottery Company was established in 1987 its first task was to launch the concept of a national lottery in Ireland and develop the market for instant games from a "green field" situation. This was successfully achieved against a background of little or no experience of instant games in Ireland, or in any other European country. NLC then developed the on-line infrastructure for the lotto game in 1998 and was the first company in the EU to implement a fully on-line system. This was successfully achieved and the system subsequently became the model for many EU states, including the UK. Instant games have since been developed by extending the choice of price points and the number of games simultaneously on sale. Lotto has been developed by progressively extending the matrix from 36 numbers to 39 to 42. New on-line games such as Lotto 5-4-3-2-1, TellyBingo, LottoPlus and EuroMillions have also been added.

The breakdown of sales in 2004 was: 28% instant games, 68% lotto family, namely Lotto 5-4-3-2-1 and LottoPlus, 3% TellyBingo and 1% EuroMillions, our most recent game. NLC has consistently described its game and sales strategy and approach to operating the national lottery as striving for "responsible growth". This involves optimising funds for the good causes rather than maximising such funds.

NLC has a number of major sub-contractors who provide services and facilities to the national lottery. It has always been, and will continue to be, NLC practice to put all its major contracts out for competitive bidding on a regular basis in accordance with Government guidelines for public procurement. In this way it can be sure of receiving the best possible service at the best possible price.

The key to NLC's success has been its games, their design, prize, structures, mix and, most importantly, underlying game philosophy. Over the past 18 years, NLC games have been imaginatively designed and developed specifically for the Irish market. Through regular market research NLC has kept abreast of Irish player tastes and preferences and, through its affiliations with its suppliers and the European and World Lottery Association, NLC is well placed to monitor international lottery trends and developments.

NLC has invested in developing national lottery brands, which include some of the most recognisable in Ireland. Brands such as Lotto and Winning Streak are valuable properties that have been endowed with the highest values of integrity, fairness and fun. The current marketing mix has been arrived at after years of practical evaluation of various combinations associated with a variety of marketing campaigns and objectives. Successful marketing is about finding ideas that have the correct tone and mood in sympathy with the times, and developing them in line with societal developments.

The distribution of the national lottery fund to good causes is not the responsibility of NLC. However, NLC has played an active part in promoting the good causes which have benefited from the Government allocations by financing appropriate advertising campaigns on television, radio and press. Good causes include health and welfare, arts, culture and heritage, sport, youth recreation, amenities, and the Irish language.

NLC plans to offer Irish players access to national lottery games via a range of new media options. Players will soon have the opportunity to play new and existing national lottery games via the mobile phone, interactive television and the Internet. The company is fully aware of the implications of introducing these new media channels and will ensure that the facilities incorporate the required checks and controls to guarantee that the integrity of the games and the best interests and welfare of the players are fully protected.

NLC has security systems and procedures in place to cover physical access, personnel, computers and terminals, draws, game products, and prevention of fraud. NLC security procedures are based on best practices observed in successful State lotteries worldwide. NLC recently received the World Lottery Association Security Standards award.

State lottery operators must develop a number of important relationships of confidence. The Government, through the regulator, the Minister for Finance, must have confidence in the lottery's operation, game strategy, security, accounting, reporting and control systems. The players must have confidence in the honesty and integrity of the lottery's games and draws. The retailers must have confidence in the accounting, control, reporting and support systems of the lottery. The media must have confidence in the honesty and accountability of the lottery.

Finally and obliquely, the confidence of non-players must also be established to ensure that they, as citizens, accept the bona fides of a national institution such as the national lottery, even if they do not actively partake in its games. After 18 years of operation, the NLC can claim to have successfully developed strong relationships of confidence with all its audiences.

The development of its corporate and game brands mirrors the development of confidence. After 18 years of operation, the NLC has accumulated significant knowledge of the value and utility of national lottery game and of corporate branding. Our corporate brand and the image of the beneficiary fund allocations, the game brands, the value of the television game shows and the company's approach to advertising and public relations form a composite web of interrelationships that are drawn together in the company's unique overall communications strategy.

As the gaming market in Ireland and Europe becomes more competitive and exploited, it is increasingly important to emphasise: the unique role played by state lotteries in this market; the extent of their regulatory framework and licences; the fairness and accountability of their games and activities; the security and integrity of their operations; and the extent of their contributions to governments for good causes make national lotteries unrivalled and unequalled operators in the overall gaming sector. These ongoing characteristics will underpin the future development of our games and facilities so that the Government and the public will continue to support and realise the fullest benefit from Ireland's national lottery.

Chairman

I thank Mr. Bates. I call on Deputy Bruton. He will be followed by Deputies Finneran and Burton. I wish to rotate the questioning.

Deputy Bruton

I thank Mr. Bates for the presentation which, as usual, was delivered with aplomb. I am one of the people he described as an oblique person. I do not play the games but my confidence must be secured. This is not to suggest that I do not occasionally place a bet. However, I do not bet on this kind of game.

I have noticed that the trend in terms of the percentage of personal consumer spending is downwards. In 2000, the company secured approximately 1% of consumer spending, an enormous amount which has since decreased. The growth in consumer spending is clearly not particularly favourable to lottery playing. I took the trouble to examine the position of standard betting on dogs and races which, in contrast, is keeping pace with personal spending growth. Hence, the national lottery is falling behind considerably. Is there a long-term trend whereby lottery games of the sort offered by the company are losing out to other types of gaming activity? What does this mean for the company's future? Against that background, I congratulate Mr. Bates because the company appears to have reduced its costs in a declining market for its product. Its percentage take in costs appears to be moving in the right direction.

On the wider issues, I wish to put some questions to Mr. Bates. The Gaming and Lotteries Acts are extraordinary in that it is illegal to bet anything with a stake or prize of more than 50 cent. In practice, the gaming laws are not observed and many gaming institutions have been established on the pretence of being clubs. As a key player in the gaming market, what is the company's opinion on how the Oireachtas should view this development and of potential changes to the Gaming and Lotteries Acts? It appears that an unregulated sector is being allowed to develop simply because we have not bothered to enact any legislation. It is occurring by default.

I am also interested in the issue of unclaimed bets. My understanding is that the national lottery puts its unclaimed bets back into the prize fund. A growing movement advocates that, in general, unclaimed policies should go to the Exchequer, as should unclaimed bets in bookmakers' shops. In the United Kingdom, legislation is being considered whereby unclaimed bets of any kind will go to the Exchequer, in the same manner as unclaimed accounts, after a certain period. Should there be general legislation to the effect that unclaimed bets should revert to the Exchequer? In the case of most bookmakers' offices, I suspect that the unclaimed bets do not go into prize money but go back into either sales promotion or profit margins. I am interested to hear Mr. Bates's views on the subject.

The NLC still has some kind of relationship with its parent, An Post, which runs its pension fund. An Post has taken up the extraordinary position where it is not paying pensions out of the fund because its serving workers have not received the latest pay round increases. Has the NLC applied similar rules by not awarding the pay round increases to its pensioners? In the case of An Post, this happened as a result of an industrial dispute with its serving workers. However, it seems strange that pensioners are being placed in the battle line. Does this affect payments to the NLC's pension fund?

The NLC pays €6.3 million to An Post for some services, the purpose of which I cannot quite grasp. I see that it is on a licensing basis and so is an open tendering arrangement. I presume that the services for which it pays are audited in terms of value for money and were openly contracted. I am interested to know whether they are contestable.

When reading the notes on the NLC's accounts, I noticed that it does not apply a number of the rules which were introduced in 2003. It does not have a senior independent director. The company considered the issue but deemed it to be inappropriate, even though independent directors are recommended. Although they are recommended, the board does not have meetings in the absence of the executive director, Mr. Bates. If this was a listed company, it would be the case that the criteria normally adopted when considering the independence of its directors would not have been applied. Why has the company decided to opt out of these seemingly reasonable good practice arrangements? Mr. Bates made reference in the accounts to the fact that because the Government appointed the company's directors, it did not believe it needed to comply with the recommendations. This is not a convincing reason because people are sometimes appointed to these boards on political grounds and, consequently, there is even more reason that good practice of this nature should be seen to be applied.

Chairman

Perhaps Mr. Bates will respond.

Mr. Bates

I thank the Deputy for the compliment he paid us somewhere in the middle of his contribution. We are proud of the lottery.

The first point made by the Deputy concerned consumer spending. It is interesting in the sense that when one develops a lottery, it is easy to push for maximum growth. This is why I used the phrase "responsible growth" in my opening statement. Unlike bookmakers, we are not profit maximisers. We try — it is difficult to do — to find a rate of increase which will keep the coffers full, increase the funds available for good causes but which will not overheat, inflate or push people's wishes to have more gaming than exists at present too far. Hence, we must find a delicate point where we do not simply drive like hell to make more money from the games. We observe the total gaming market and have watched, as the Deputy correctly noted, our share decrease. The bookmaking sector has, for several reasons, expanded enormously in the past two or three years. We record the fact but it is not a problem when it comes to running the national lottery.

The Government has never pressurised us for additional money on the bottom line, which is an acknowledgement of the role played by the Government and our regulator. We are not there to be pushed. There is a level at which gaming can work and deliver the correct amount of money which matches people's ability and wish to spend and play more money on the lottery. We try to reach that level.

We have a lower share of the total gaming market and take less from consumer retail spending, although we narrow our focus to examine entertainment leisure spending. When, as the Deputy correctly noted, one studies that narrower band of expenditure to see how it behaved and grew in recent years, one can see that strange things happened. Although there is more money in circulation, in some ways there is less available for our kind of product. We must balance those matters. We are losing out to other forms of gaming but it is not a particular problem because our business is growing continually and, more importantly, the bottom line is always improving. We hope to move into some new areas with some new products and media channels, which may attract more money for us from a newer audience that wants the lottery to present a more novel form of gaming.

The Deputy's second point pertained to the gaming laws. It is difficult for me, as a public servant, to comment on laws. We have our law in the sense that the National Lottery Act regulates us. We have a very strict, 160-page licence under which we operate. We regard ourselves as being extremely tightly regulated, which is as it should be. We also observe that others are not, perhaps, obliged to play by the same rules. We just keep our heads down and keep operating within the terms of our licence and the Act. Our views are well known to the Department of Finance, which is aware of what is happening in the marketplace. We operate within the licence and the law and keep growing on that basis. Other than that, I have no comment to make on whether Acts should be consolidated or harmonised.

Deputy Bruton

Is there is an NLC view somewhere out in the ether that we can discover?

Mr. Bates

We accept that gaming in general is a strictly regulated business. All lotteries are illegal unless they are authorised. Our company is authorised to run a lottery. If somebody is operating an unauthorised lottery, it is not for us to comment on it, other than to say that the operator is not authorised. It is for other people to move against such operators.

The issue of unclaimed prizes was raised. Some lotteries take unclaimed prizes straight into the Exchequer, while some governments leave unclaimed prizes with the lottery company. We argue that if unclaimed prizes are left with us, we will give the Government more on the bottom line by using them than it would receive if it reclaimed the money.

Deputy Bruton

What is the amount of money involved?

Mr. Bates

At any one stage, we have a balance of approximately €6 million or €7 million. In a year, a total of approximately 1.5% of prizes would be unclaimed. By using this prize money for special promotions and by returning it for top-ups and financing special draws, we feel we can use it in a way that will generate more money on the bottom line and provide better value than would be the case if we give a once-off allocation to the Exchequer. However, the practice of dealing with unclaimed prize money differs between countries. We argue that it is the money that belongs to the players and, therefore, we give it back to them in the long run. When we say we give back 53%, that includes unclaimed prizes. If we start taking it off, it distorts the proposition with the players.

Deputy P. McGrath

Mr. Bates said that 53% of the money goes back. Is this 53% of the unclaimed prize money?

Mr. Bates

It is 53% of the total amount of money that comes in. We give back 53% in prizes.

Deputy P. McGrath

So 100% of the unclaimed prize goes back into the kitty?

Mr. Bates

Yes, 100% of the unclaimed prize goes back in special prizes, promotions and top-ups.

Deputy P. McGrath

Can the money be used for things such as advertising and expenses?

Mr. Bates

The money cannot be used for this purpose. The unclaimed prize money belongs to the players and goes back to them in special prizes.

Deputy P. McGrath

A total of 100% of the money goes back.

Mr. Bates

We offered a top-up a few weeks ago in which five people won a special prize of a Jaguar car, which cost us approximately €250,000. This is an example of unclaimed prize money being given back to promote the NLC on a weekend. A total of 100% of unclaimed prizes go back to the players.

Regarding An Post and pension funds, everybody in the NLC works for An Post because we are all An Post employees who have been seconded. We are effectively pensioners of An Post, so it administers our pensions.

Deputy Bruton

So NLC pensioners have not been paid either?

Mr. Bates

Our pensioners would enjoy exactly the same circumstances as those of An Post.

Deputy Bruton

These same circumstances are that pensioners have not been paid in the last pay round.

Mr. Bates

Deputy Bruton is correct. We have only 81 staff, so I think we have two pensioners at this stage. It is not, therefore, a major problem.

Regarding the contract with An Post, the licence to operate the NLC was put out to tender by the Department of Finance three years ago and we won that tender. Part of the tender was to bid a fee, which would be paid to the winner of the licence. The fee is capped at just under €3 million and is paid directly to An Post. It receives this money because it won the tender for the NLC and the €3 million is the fee that is paid. In the UK, Camelot gets approximately £15 million or £20 million. When a project is put out to tender, it is quite normal for the winner to receive a fee. Deputy Bruton mentioned the €6.3 million difference. The balance between this figure and the €3 million would be for services provided by An Post to the NLC. If our company, which is small and has only 81 employees, uses An Post's SDS service for delivering parcels, its legal service, its human resources functions or any of its other services, An Post is paid for these. That is where the €6.3 million goes.

We hope to have best practice with regard to our board of directors and implement codes of practice very rigorously. The NLC was one of the first State companies to implement codes of practice in this regard. The NLC is a tiny company, with six people on its board of directors, three of whom are nominated by the Minister for Finance, three of whom nominated by An Post and all of whom are appointed by the Minister for Finance. The chair of the board is nominated by An Post and appointed by the Minister for Finance. It is generally accepted that with a board of that size and a company of 81 employees, the kind of rigorous adherence to some of the requirements that would be more appropriate to larger companies and companies that operate in different environments is not necessary. If the NLC can get a sign off from its auditors and accountants that everything is above board, it is satisfied with that. I would be the only executive director among the six people on the board.

Deputy Bruton

That is generally the case with boards of directors. They do not have casts of thousands; they are generally composed of six or 12 people. I do not know about the background to this matter but I presume the principle is that at times boards of directors meet without the executive director and if there are issues about board members' independence, there are rules about what is permitted. I do not see why the small size of a board should alter that. These seem to be rules of good practice as to how a committee should be run.

Mr. Bates

It is an issue we have not seen the need for up to now. However, I will examine the matter and see if it is required. One thinks of a company that would be engaged in large scale acquisitions and the growth in the normal way a company would move and the potential conflicts, however, the NLC simply runs a lottery. The matter is worth examining and I accept the suggestion that perhaps we should look more rigorously at those good practices.

Deputy Finneran

I welcome Mr. Bates and his staff. From a public perspective, the NLC has been a great success and has contributed enormously to many areas that had not been supported in the past. It has had a very positive effect on the sport and amenities sector across the country and has contributed to the health and other sectors.

Mr. Bates said that in 2004, 86% of every euro went on prizes and good causes. This would mean that 14% went on commission and operating costs. Would that have been the same breakdown that would have applied over a number of years or would there have been a different breakdown five or ten years ago? Obviously, 14% of €100 million or €130 million is a limited figure but 14% of approximately €600 million is a totally different matter. If my figures are correct, I estimate that operating costs in 2004 would have amounted to possibly €40 million. This seems to be quite a high figure.

Mr. Bates said the NLC has a staff of 81. Perhaps Mr. Bates will give the joint committee a breakdown of how the €40 million was spent. What has been the increase in the number of staff? Mr. Bates may not have the background information with him but I would like to know the percentage of national lottery's returns spent on areas other than prizes. A figure of 33% is referred to in his statement.

Regarding outlets, particularly lotto outlets, there is an anti-rural stance. I have raised this matter a number of times and can identify a sizeable area of 30 miles by 20 in south County Roscommon in which a lotto machine cannot be found. Several premises have submitted applications during the years but not one machine has been provided in the area which stretches from Roscommon town to Ballinasloe beyond the county's borders. The issue has been highlighted by community groups and others but their requests have fallen on deaf ears. I do not support one outlet more than another. There are many good ones. There should be a lotto machine in an area of this size.

I have a preference for supporting post offices. I believe in the concept because post offices have played a vital role in the social fabric of rural areas. However, they are under constant threat. I am pleased that An Post has recently seen as worthwhile the placing of many offices on-line while operating pilot schemes elsewhere. This development is welcome as one cannot now expect any financial concern to operate off-line. Perhaps Mr. Bates will comment on the issue. I will not speak about territories other than those which lie within my constituency. I could identify one or two others but will only cite that specific example.

I compliment Mr. Bates on the fine job his organisation is doing. Since its establishment, it has had a positive effect on sport and recreation. While the distribution of grants is not its responsibility, it is the collector of money prior to its distribution. Its role, therefore, is vital in terms of the support given to organisations. I compliment it on its innovation in respect of new products and on the way it has kept interest alive. I wish it well.

Mr. Bates

I thank the Deputy for his kind and gracious words which I accept on behalf of the staff and board of the National Lottery company. He raised two points, one of which concerns operating costs. We have a table showing our sales since our establishment. I will cite the numbers. In 1988, our first full year in operation, the percentage was 20%. In the following years it was 19.3%, 18%, 16.3%, 16.3%, 16%, 16%, 15.5%, 15.8%, 15.4%, 15.4%, 15%, 14.9%,14.9%, 14.9%, 14% and 14.2%. That is the progression in our 18 year history.

The figure for our operating costs went from 20% to 14% as our sales increased from nearly €130 million to nearly €600 million. We have a strange cost structure. Many of our costs are variable — they move in line with the level of sales. Whether we sell €1, €100 or €100 million worth of tickets, retailers will get 6%. This percentage does not vary by volume or agent. Only 4% of our costs are controllable in comparison to a figure of 6% when we began 15 years ago.

Deputy Finneran

I am sorry but I do not understand what Mr. Bates is saying. I understand 6% goes to An Post.

Mr. Bates

It represents the commission of agents, not An Post. Of the remaining 8%, half is not within our control and moves in line with sales. For example, GTech Ireland Corporation which provides the on-line machines and services receives a fixed percentage regardless of whether our sales amount to €100 million or €500 million.

Deputy Finneran

What is its percentage?

Mr. Bates

There is a competitive tender known to the regulator. We do not make the information public. It is a closed bid. We can get better value by not revealing the amount.

Deputy Finneran

Who is the regulator?

Mr. Bates

The Minister for Finance.

Chairman

Is there another?

Mr. Bates

No. The situation is neat as the Minister for Finance is the person who allocates the funds when we submit them.

Our record shows that, following the increase in sales from €130 million to €600 million, our total operating costs have decreased from 20% to 14%. When one sets aside commission payments to retailers and the percentage paid to those who supply various services such as the printing of instant tickets, the percentage for controllable costs fell from 6% to 4%. The 14% figure compares favourably with those for equivalent-sized lotteries in the United States and Europe. We are proud of it because we work hard to reduce our costs.

Deputy Finneran

What has been the trend in staffing levels? The company has a staff of 81.

Mr. Bates

We began with a staff of 54 in 1988 and as we grew, we developed additional services. The introduction of the lotto was significant. When we started, we only offered scratch card games. In 1988 we installed the full lotto network and the number of staff grew to nearly 70. As one adds additional games and products, one needs staff to answer telephone calls. We carry out 4 million transactions every week. If a person spends €1 or €2, he or she could win a prize worth €60 million. The scale of the business is amazing. The number of staff — 81 — compares favourably with that for lotteries of similar size elsewhere.

There will never be complete satisfaction in the allocation of outlets. We have 3,500 such outlets. This is a high number, given the size of the population. We have approximately one outlet for every 1,200 people. There is a waiting list of 3,000 applicants for lotto machines. There are approximately 8,000 or 9,000 shops in the country and almost all of the proprietors want to be lotto agents. There is almost an innate unrest among people regarding the national lottery because we will not install a machine in every chemist or butcher shop on every corner. We pay 6% commission, which is quite low when compared with commission rates on other items. In order to sustain that 6% rate, however, we cannot put an outlet on every corner. We must retain some level of exclusivity so that the agency is worth money to the shop owner. Last year, the 6% commission earned by the 3,500 agents amounted to almost €40 million. The commission represents a significant contribution to business and, in some cases, the shops depend on it to survive.

We must accept that, intrinsically, the system will generate unrest and dissatisfaction. At the same time, we must ensure that existing agents are happy with the system as it currently operates. We have field staff, numbering 12, who stay in touch with what is happening on the ground. They visit areas when an application is submitted and try to accommodate people. It is in our interests to accommodate a shop owner if he or she is in a heavily populated area that is not currently covered by our machine network. We are not intent on preventing shops from obtaining machines but rather on achieving the best possible distribution. We are constantly working on this. Every year there is a natural agent turnover of 1% or 2% when shops close. A number of machines, therefore, become available every year and we try to install them in places that we believe will give us the best return.

If revenue is potentially available in a location, we are willing to install a machine there. Generally, we put scratch cards in an outlet initially and if sales are good, we then install a lotto machine. We do not simply provide machines to those who apply for them. They must prove themselves and show that they will promote the product, which is why we supply scratch cards first.

I have no doubt that people can point to areas of the country that do not have ready access to the national lottery. However, we do our best to distribute the 3,500 agencies throughout the country in a manner that will yield the best possible coverage and capacity to generate revenue.

Deputy Finneran

I understand what Mr. Bates is saying. Every time new filling stations open on the outskirts of towns in my county, however, they have a lotto machine within hours. It also appears that large outlets, such as those owned by Tesco, have a lottery machine waiting on the counter before they even begin trading. My point is that there appears to be an anti-rural policy. I know of many rural outlets in my region that have applied for machines on many occasions since the national lottery was set up and they have been totally ignored. Community groups have even contacted the national lottery and I have attended public meetings where this issue was raised in the context of service provision in rural areas in general. I firmly believe that there is an anti-rural policy and I have seen it in operation in my county. Does Mr. Bates not feel that, like An Post, the national lottery has a social obligation to provide lotto machines in the more remote rural areas?

Mr. Bates

The company's obligation and responsibility is to ensure that everybody can play lotto, with a reasonable distribution of terminals. However, with 3,500 terminals, the density of our network, when compared to those in other countries, is already very high. We are not in any way being, for want of a better word, skimpy. In New Zealand, for example, which is a country of 4 million people spread over a large geographic area, there are only 900 terminals. That is approximately one third of the number of terminals here. We have a large number of terminals relative to our population size.

Furthermore, it should be remembered that Lotto machines are expensive. People must also take account of the cost of mortising machines as well as that relating to the telecommunications system which allows them to link into the central system. We could spend €1,000 per machine per year on telecommunications and at least another €2,000 per year on mortising the hardware. If, therefore, it costs us €3,000 per year per machine and there is 6% commission, a large volume of sales is required to make up that amount. Shop owners often apply and support their applications by saying that they have received many representations from local people. When we examine the figures, however, we sometimes find that it could cost the national lottery money to install a terminal in a particular location.

We try our best, however, and I assure the Deputy that there is no anti-rural bias in the National Lottery Company. If there is a need, population and potential sales in an area, we will install a machine. We may not get it right in every single case but I wish to disabuse the Deputy of the notion that there is an anti-rural bias in the way we operate. There is no such bias. We aim to install machines to service a wide number of people, while achieving the optimum geographical distribution.

Deputy Finneran

Is it not true that there are 2,200 lotto terminals rather than 3,500?

Mr. Bates

There are 3,500 agents in total and 2,200 lotto terminals.

Deputy Burton

I congratulate the National Lottery Company on another successful year. Several of my questions relate to the relationship between the National Lottery and An Post.

What happens to the cash generated by the national lottery? I understand that the company does not hold cash. Who holds the cash and who benefits from it? I ask this in view of the fact that the company retains €500 million in flow-over in any one year, which would generate a substantial amount of interest.

The average wage per employee of the national lottery is €58,000, which is significantly in excess of the wage rates paid by An Post. The latter is seeking significant cost savings from its employees. What are the implications of this for the national lottery, given that its staff are technically employees of An Post?

Mr. Bates's total remuneration package is €244,000 per annum, which is similar to a lotto win in the view of most workers. Does that package place him in the top five earners among the chiefs of semi-State companies or is he at an average point on the earnings scale? I find it interesting that Mr. Bates has made this information available in a very clear manner. He is to be commended for doing so.

Reference was made to the company's intention to expand into the area of mobile telephone lottery games. I stand open to correction but I understood that previous telephone games run by the national lottery were not particularly successful. I am concerned about young people playing mobile telephone lottery games or playing them on the Internet. The lotto is essentially gambling or betting but one does not hear about addiction to the lotto very often because it is played within the social environment of shops, post offices and so on. However, one hears a great deal about addiction to gambling by means of mobile telephones and the Internet. In terms of social responsibility, is this an issue that the company has considered? It appears that existing telephone-based games have not done particularly well. Has the EuroMillions product grown much and does Mr. Bates envisage it becoming a major part of national lottery business?

What is Mr. Bates' assessment of the imminent EU competitions directive? The so-called Bolkestein directive, initiated by Mr. McCreevy's predecessor at the European Commission, aims to liberalise the entire competitions market. Mr. McCreevy has indicated that he intends to follow this agenda. The lotto was established by a Fine Gael-Labour Government and I am not sure if Fianna Fáil became wedded to the company. I suppose the latter party must have developed a positive attitude towards it when it saw how much money it produced. The national lottery might say that because its operation is very well run, it might be in a position to compete strongly. However, given that our population base is quite small and the association with good causes is localised in the case of Ireland — as it is, with Camelot, to the UK islands — has any strategic thinking been done in this area?

Mr. Bates

I thank the Deputy for her compliments to the lottery. The first point was to do with cash flow. As she points out, €600 million going through a company is nice. Everything taken in is lodged to the central fund and out of that is taken everything we need to pay prizes and cover operating costs. Everything, including all the interest, stays in the fund and that becomes the beneficiary money. There is a figure of between €1 million and €2 million every year in interest. As well as that, last year we generated €191 million for good causes and in addition there was about €2 million interest on the €600 million.

We do not touch anything. We do not own anything. The licence is set up in such a way that it can be given to somebody else at the end of the current licence period. We do not own any assets. The law is very good and very well written to keep us away from it all. The money, the lottery, brands and intellectual property are there, so it can go to anybody else. All the benefit is with the Minister, not the company. There is no outflow on the fund from anywhere. That deals with the first question.

Chairman

How, then, is there a bank overdraft of €607,000? Just explain that to me.

Mr. Noel Browne

It is the timing difference.

Chairman

Could it not be timed somewhat better so that there is no overdraft?

Mr. Bates

We can, if the Chairman can arrange not to have a lotto €5 million winner on Christmas Eve or on 30 December. It is simply to do with the timing, one year running into another.

Chairman

That was unusual.

Mr. Browne

The actual bank account was not in arrears.

Chairman

That was the reconciled figure. We will move on.

Mr. Bates

The recent difficulties in An Post were mentioned. As I said before, we all work for An Post. However, there was an interesting development recently where the unions in the lottery and in An Post went to the Labour Relations Commission. An assessor was appointed by the Labour Relations Commission to deal with the non-payment of the national wage agreement. The assessor came up independently with the idea that it should be paid in the national lottery — while accepting that the lottery people were different from An Post staff. I am paraphrasing, but that is what the special assessors from the LRC came up with. While we work for An Post, it is accepted that slightly different circumstances apply within the national lottery company. It is a company that is growing by at least 3% or 4% each year, with 81 people and a turnover of €600 million. It is a different company from An Post, but we are employed by An Post.

The average pay of the 81 people reflects the distribution between the types of workers and is slightly different when compared to the average in An Post where a substantial number of employees are postmen, at a lower level in terms of pay rates than some of the people in the national lottery. There is a slightly different structure in terms of the people who work there, so that it works out at a slightly higher figure, on average. My figure is decided by the board. My salary is fixed by a remuneration committee of the board and is seen as competitive. I do not believe I am in the top five and I certainly do not get €244,000 in take home pay.

Deputy Burton

I know that.

Mr. Bates

However, that is the package, yes.

Deputy P. McGrath

Mr. Bates is not one of those who does not pay any tax, is he?

Mr. Bates

I am not and never have been. I used to work on tax policy in the Department of Finance, way back in the 1980s.

Where we are going next is an interesting area, The lottery has been good at moving from its 1988 genesis. Then we looked at what was best in America, the scratch card games, online lotto etc. and we got all the ideas from there and brought them to Europe. We are now entering a different phase where the younger people, aged 18 to 25, is the group we are interested in. We rigorously implement the stricture that no one under 18 can play the lottery. However, we feel we should be able to find games that will interest the 18 to 25 age group, while at the same time raising some money for good causes. It is a question of moving into a space which if we do not occupy, others will — mobile phone operators and everybody else. Everybody now is in the entertainment business. A mobile company will not call itself that. It will say it is in the entertainment business selling ring tones and all the rest. We must ensure we do not lose that space. Deputy Bruton was suggesting earlier that the lottery was not holding its own, but this is an area in which there is some growth and one in which we should have a product, a channel in which to play new games as well as some of our existing games. It is an area we are interested in. Our games will be implemented in those new channels in a way that is appropriate to keep going.

The Deputy mentioned corporate social responsibility. That is big in our agenda. The rest of the world is finding it out. For 18 years we have been almost obsessed with doing the right thing, being good corporate citizens and actually having codes of conduct and behaviour, charters for players, etc. We have these, not necessarily because we want to, but because we have to. A State lottery really must behave like that.

When we come to move the lottery into the new space, players will be able to define the maximum amount of money they may lose in a day, for example, and overriding that we will set limits on how much money one can lose or play in a day. On the question of behaviour, we will not leave matters so that people can abuse it. We will help people with devices that will help them regulate their playing. It is somewhat like a casino where one can actually say, in effect: "Do not let me into this place. Here is my name and my passport number. I do not want to come into this place. Stop me if I try to get in." That applies in some casinos around Europe at the moment where it is possible to have a self-exclusion request. We will have all of those devices on the new media to ensure that people are over 18——

Deputy Burton

Will this not be available to parents for young teenagers and children?

Mr. Bates

It will be for the over 18 age group, yes.

Deputy Burton

Most children now of ten to 18, say, have mobile phones. How will they be restricted or will there be some type of parental override? Already there is a good deal of criticism from parents of various telephone marketing services which are appallingly expensive if one is caught in terms of ringing for various prize games. They are absolute rip-offs. Will parents be offered a way of overriding? Say one has a pay-as-you-go phone. How can the use of this be overridden, just for gambling purposes?

Mr. Bates

The simple answer is a registration process. In other words, someone cannot just suddenly decide to play a game and do it. State lotteries cannot do that. Other people who do not have the responsibility the national lottery has will allow one to do things on a mobile phone. Probably it will be a registration process where one must prove one's age and one's Irish residency. We will not allow people not resident in Ireland to play the game because that is another requirement we have. This does not have the same implication on a personal level but rather on a country level, and we will confine the game as part of our approach in Europe, which I will come to later. We will have a registration process that will ensure we only allow people who are proper lottery players. In other words, they will be over 18 and Irish citizens. If one is not, one cannot register and therefore cannot play.

Having said that, one does not want to make the restrictions insurmountable or turn the registration process into a three-day event. We have to find a balance between registration and ensuring that the people who play are appropriate as per the rules. Lotteries cannot take short-cuts in this area, however. They have too much responsibility for this and there is a €600 million business involved, after all, with €191 million a year for good causes. We are not going to mess around with it. It must be ensured that when the system is in place the standards applied for terrestrial systems will apply also in the new media space. I can reassure the Deputy that all the areas she is concerned about will definitely be taken into account.

Ms Burton

I have one final question on that. Does the national lottery make contributions towards Gamblers Anonymous or similar organisations? A percentage of people end up with addiction problems. As Mr. Bates probably knows, gambling can be a pretty tough addiction in terms of its impact on families.

Mr. Bates

No, we do not make a contribution to such organisations. If the Government wants to give money from the beneficiary fund to those, we will do it. As a lottery company, we do not because we have not so far found any evidence——

Deputy Burton

I know that. I would be concerned about Internet gambling and mobile phone gambling.

Mr. Bates

We are super-conscious of that.

Deputy Burton

The evidence from other countries, particularly the US, is that there are people who develop significant problems.

Mr. Bates

We are aware of those and will take them into account. The Deputy mentioned an unsuccessful game in which we were involved. There is a figure for phone play in our accounts which is a small sub-game on our game show. People phone in entries to win a car. There are many other games cropping up from all kinds of places which are not run by the national lottery. Such games do not have our paraphernalia, they survive for a short while and then they disappear. Perhaps these are the games to which Deputy Bruton referred earlier when he spoke about legislation. We run the State lottery and we do not offer such games.

Deputy Burton

Does the national lottery monitor the competition, if any, from those games?

Mr. Bates

We do but it is not a matter for the national lottery to prosecute or to bring cases against other people; it is a matter for the regulators to do so. The Gaming and Lotteries Act is administered by the Department of Justice, Equality and Law Reform, the Betting Act is administered by the Department of Agriculture and Food and the National Lottery Act is administered by the Minister for Finance. The other games come under the Gaming and Lotteries Act.

EuroMillions is growing and is now in week 36. We have had four reasonably big winners and it consists of people in nine countries playing together. This game costs €2 to play, as opposed to €1 for the normal lotto game. European countries came together to fill a space into which others were moving and to satisfy a demand for some people who have already played the national lottery and who would like to play something else. The odds of winning EuroMillions are 76 million to one, which are great odds.

Deputy Burton

Odds of 76 million to one?

Mr. Bates

Yes. One could, however, win €62 million, so it is a good game in that sense and it is additional to the game provided by the national lottery.

Deputy Burton

Have there been any winners in Ireland?

Mr. Bates

We have had four winners of the five plus one game. The top prize is five plus two and we have not had a winner for that. One of those who won the five plus one game received a prize of €1.4 million, while others won hundreds of thousands of euro. We have done very well for a small country in that game.

Deputy Burton

We have done better than in the Eurovision.

Mr. Bates

Certainly for this year. Hopefully, we can change that. The game is in rude health and is working very well as an additional product. Last year was its first year in operation and that is why it only accounted for 1% of our operations over 13 weeks. We expect it to bring in over €20 million. The good causes get the same percentage from EuroMillions that they get from our domestic lotto. It does not matter to us in that sense whether someone buys a lotto ticket or a EuroMillions ticket because 33% is going to good causes.

The Deputy mentioned a subject close to my heart, which is Mr. Bolkestein and his services directive. That is now the responsibility of our friend, Mr. McCreevy. There is much happening in Europe. There is a move in Europe towards a more liberalised market, towards free borders and towards the removal of barriers to anything. However, there has been a general acceptance up to now that lotteries are different. For example, if one is allowed to do something in Amsterdam, one cannot necessarily come to Ireland and do the same thing when it comes to gaming. That has been protected up to now and that is what some are trying to dismantle. A free market in Europe for gaming could end up in one of those races to the bottom, with everyone trying to give as high a payout as possible and nobody worrying about how people participate.

We are in a European association of state lotteries and we have been lobbying the Commission to highlight the exceptional nature of gaming and that is not like selling chocolate bars or plastic piping. Gaming is a very special product that needs special treatment and, therefore, needs exception. That is part of the debate on the services directive.

Deputy Burton

I saw some material which suggested that there was a very strong lobby for a free market in lotteries. Many of the gaming machines originate with American companies. They seem to feel very confident that if they could locate gaming and some of the services associated with it in some of the new states, the costs would be a fraction of those which apply here. The national lottery pays those companies a licence for the use of their machines. It is important to allow protection of national lotteries in Europe because the money comes back into the local area. It has been good for Ireland in that sense. Has the Government adopted a position on this?

Mr. Bates

It is not my place to comment on that in a formal way. We have made the case to the civil servants involved who are taking the Irish position on the issue. There is a conflict. The classic case is in the UK, where there is a strong lobby for an open market and yet the UK national lottery is looking for a deal similar to that which we are seeking.

Our job is to make the case and we operate under strict rules. We have the Act, we have our licence and we should just keep our heads down and continue working. We put across our views when cases are being made. We make our case very clear, which then has to be carried, in whatever final form it is decided, by the Minister to the negotiations. We would make the strongest case for the national lottery but it is ultimately a Government decision. If the Government decides to open the borders and let the whole thing become a free-for-all, then we will operate within that system. We have operated very well in a difficult market which is unlike those in Norway or Sweden, where there are no bookies. We have operated with a big elephant in the room. Our colleagues in Norway offer sports betting in their lottery and so do not compete with bookies. These countries are worried about a liberalised market where British bookmakers could expand aggressively.

The national lottery is well able to compete. We will operate within the boundaries anyone puts around us and we will compete in whatever market is developed. We will signal any fears we have but we will operate within the rules that result.

Deputy P. McGrath

I welcome Mr. Bates and his delegation. I will start with my complaint. Unlike Deputy Bruton, I am part of the 53% captive audience because I play lotto. I contribute €6 once a week, so I am a big spender. I also spend a few bob at the bookies.

Mr. Bates

The Deputy spends more than €6.

Deputy P. McGrath

I am exposing my soul entirely.

Deputy Bruton

Deputy McGrath will no doubt become a lotto millionaire.

Deputy P. McGrath

When I play lotto, I hand in my slip to my local retailer on a Sunday morning to discover if I have won. The shop assistant puts it into a machine and informs me whether I can retire or not. The usual story is that I must keep working. However, I have no way of knowing whether the retailer — any retailer — is telling me the truth. Approximately six months ago, I asked my retailer if I could retire that particular week and she invited me behind the counter to look at the machine. It showed that I had won €1,246. I would have been none the wiser if she had not invited me to do so. I would have left with my newspapers and would have reloaded for the following week. That retailer could easily have cashed that and collected my €1,200.

I corresponded with the national lottery about the matter and received a letter back from some lady. I wrote again but did not get a reply. The national lottery's system is unsatisfactory and I suggest that changes should be made to the machines. They should be like the ordinary till in a shop which has a small screen at the top that faces towards the customer and allows he or she to see the price of the items one is buying. All it needs to say is that one is a winner. It does not have to declare to the shop that one has won €1 million. The machine could give an audible sound to indicate that one is a winner.

Deputy Burton

How about the sound of cash?

Deputy P. McGrath

The sound of cash falling.

Deputy Burton

It could be like the Vegas experience.

Deputy P. McGrath

Deputy Burton is rightly having a laugh at me but nonetheless——

Deputy Burton

No, I am probably one of the few Deputies in the House who worked in Atlantic City, which is home to many casinos.

Deputy P. McGrath

It is a valid point that there should be some way to do this. Mr. Bates may say that in some outlets — it is a limited number and I have not been in one yet — one can put ones ticket into the machine. The other alternative is that one goes to teletext page 150 and checks how one has done on the teletext. I rarely do that. I am tempted to go to different retailers to see if I can catch them out. A substantial amount of money was involved in the case I outlined. However, one usually wins a lotto ticket or something else.

On a serious note, it is something at which the national lottery should look and move towards. If somebody is found to have cheated his or her customer, it will be embarrassing not only for the retailer but also for the national lottery because it will have been warned about the situation but did not move on it. That is my crib out of the way.

My colleague, Deputy Burton, mentioned a salary scale of somewhere in the region of €240,000. That is approved by the national lottery's audit committee. Is that not unusual for a semi-State company? Generally, the remuneration of directors of semi-State companies is approved by the Minister rather than by the board of directors. Are bonuses paid on top of that for performance as the lotto grows and so on?

I wish to add my voice to the point raised about the proposal to move down the road of mobile phone use. The national lottery must be careful about under 18 year olds and must design a system that will eliminate them from participation. A former colleague of ours in this House was fond of a flutter and gambled quite often but never took a drink. He said to me that gambling was the greatest evil because if one takes a drink, there is only so much one can drink in a day but one can gamble quite an amount and lose much money in one day. There is a serious problem with gambling. Many people squander a great deal of money on gambling.

As I declared an interest earlier, I sometimes go to the bookies and bet a few shillings. I will not embarrass myself by telling those present the amount of money I put on a horse but there are people I know who put €100 on a horse on a regular basis but who cannot afford to do so. This points to a problem many people have with gambling. We must protect people from squandering money over a lifetime. That is something of which we must be extremely conscious. It is in that context that I say to Mr. Bates that he must be very careful about mobile telephone usage and ensure safeguards are built into the system.

I disagree with a statement Mr. Bates made that despite the growth of the lottery over the years, it was not a case of push, push, push. In my view, the latter was the case. I recall him appearing before another committee at the very early stages of the lottery when it moved from once per week to twice per week. I asked Mr. Bates why the lottery was moving from once per week to twice per week and I distinctly remember his response. He said the national lottery had identified that there was additional money in the market which could be spent on the lotto, so it went after it. That was push, push, push. When one sees the advertising, one will know it is a very aggressive marketing campaign. Fair play to Mr. Bates, that is his job. It is what he has been appointed to do and he does it very well. However, many of the charities would feel it is at their expense and that the share of the market left for them has been reduced. As lotto expands, the national lottery should be conscious of these charities.

Mr. Bates talked about salaries, how they have grown and the increase in staff from 54 to 81. The salary costs increased quite substantially over the period. Was that mainly at the top end? Did senior staff get substantial increases? How widely was that increase in wages spread across the board? I note the 350% increase in turnover in the 17 years in which Mr. Bates has been there, which is fantastic.

Mr. Bates said that market research has repeatedly shown that the characteristics and demographics of the average national lottery player substantially match those of the adult population in general. I have never seen such a craftily composed sentence. Mr. Bates should write literature — perhaps fiction might be more appropriate. When one looks at that sentence, one will say that is fair enough and everything is okay. However, when one looks at the number of average and below average wage earners in this country compared with the number of high earners and when one reflects on the take in the lotto, is it not true that it is people on middle to lower incomes who play the lotto? They are the ones who invest weekly in the lotto in the hope making a buck. Relatively well off people — they are a small proportion — do not invest to the same degree as persons down the line. Perhaps Mr. Bates will comment on that.

Mr. Bates

In regard to lotto machines and winners, in the early days — I refer here to 1989-90 — we had a machine called the starlight which had nothing to do with Atlantic City and which was like a bar with an LED which ran across. That was able to display the result of a winning ticket. The players asked to have it taken away. That was just after we introduced the lotto. People did not want this bar. We removed it. The Deputy made a fair point. I would be concerned if even only five of our 3,500 agents were dishonest because that would be five too many as far as we are concerned. I am not making any allegations and good systems make people honest.

The fast checker is regarded as a better solution. It has been installed in nearly 600 outlets. It is a small machine into which a ticket can be inserted and it will indicate whether that ticket is a winner.

Deputy P. McGrath

It is in less than 20% of the machines.

Mr. Bates

It is installed in 600 out of the 2,200 lotto machines.

Deputy P. McGrath

That is less than 25%.

Mr. Bates

Yes. We commenced installing them approximately two years ago. The first machines were installed as a test run and we will see how they operate. The only problem with these machines is that they are connected to the lotto machines and on a busy Saturday night, when many tickets are being input, it slows down the throughput of the queue of people waiting to play. It would be lovely if people just came in on a Saturday or on a Monday morning to have their tickets checked. We have a solution which we hope will be applicable. If necessary, we can put it into all 2,000 outlets but only if it is necessary. It is currently installed in the biggest outlets because we decided to allow people check their tickets and so avoid them clogging up the queues of those waiting to play.

We are aware of the problem but there have been no significant complaints. I apologise to Deputy McGrath, who did not receive an answer to his second letter. The national lottery is quite good at responding to letters and we do not receive that many complaints.

Deputy P. McGrath

Perhaps it was my response to the first one that put them off.

Mr. Bates

If the letter was addressed to me, I would have replied.

Deputy P. McGrath

I addressed it to Mr. Bates but he did not reply.

Mr. Bates

I will investigate the matter.

The Deputy has a fair point. We removed the system because it did not seem to suit the majority of people and we are now reconsidering the position. In 1989 starlight machines were put in place to allow people to check their tickets and these placed on top of the old-fashioned lotto machines, which were blue and which used to make a funny sound. They were different machines and it was different technology. People complained about the starlight machines and they asked for them to be turned around so that others could not see what was happening to their ticket. We will monitor the situation. If one agent tells someone that they do not have a winning ticket, then that is a problem for the national lottery.

My salary is fixed, within Government guidelines, by the remuneration committee. It is not as if the committee is untrammelled and does whatever it wants. Under the national lottery licence, the salaries of the senior executives must be notified every year to the regulator. The Minister's office receives the information on the salaries and bonuses paid to senior executives every year and these must be within broad Government guidelines. It is not an activity that is carried on willy-nilly, without reference to anyone.

Deputy P. McGrath

Is the national lottery subject to the new process, the strategic management initiative, by which additional bonuses are made available?

Mr. Bates

A bonus scheme is in place for me and the bonus amount is included in the figure mentioned by the Deputy. I cannot recall what it was last year but it is part of a formal scheme approved by the remuneration committee. It is all conveyed to and approved by the Minister. The national lottery is not subject to the strategic management initiative but, under the national lottery licence, a strategic plan must be submitted annually to the regulator — the Minister for Finance — with three-year forecasts for all its revenue and very detailed budgetary reports. The licence is 160 pages and its conditions must be complied with. Operating cost limits cannot be exceeded and neither can the prize percentage limits. If these are exceeded, the parent company must pay penalties. It is a very formal relationship between the national lottery operator and the Minister for Finance. Our licence arrangement is exactly the same as in the United Kingdom, where the lottery is operated by a private company with shareholders taking money out.

It is an interesting experience to listen to the concerns of members as we move into the new areas of the Internet and mobile telephony. We will be super-conscious of what is required because of the views expressed here today. I do not think we can do too much in this area. It is difficult to find a balance in terms of making games attractive, particularly when one considers those operating in this area who have no responsibility, no conscience, etc., who perhaps are not even resident in Ireland and who are banging stuff in. We are the State lottery operating in this area. A balance has to be found but we will find that balance and ensure that we do not create any problems.

We are under no pressure from anybody in respect of the bottom line and, thankfully, we have been in that situation for 18 years. We have never been put under pressure for more money on the bottom line. Government has been happy to take our €191 million, which has left us in a very fortunate situation where we can dictate the pace for ourselves.

In 1989, the Minister for the Environment, Heritage and Local Government, Deputy Roche, was Chairman of this committee. I bow to the Deputy's memory on that score. We had fun that day. Every single lottery in the world progresses from running one lottery per week to running two. More money is generated and people want to play twice a week. A balance must be struck between developing the business and trying to keep up with the growing market and the increasing levels of disposable income, which we are not doing. In my view, we are not pushing at maximum speed. We are aiming for responsible growth, growing it and yet not pushing it.

Charities do not lose money because of the national lottery. People make a distinction between the money they give to charity and the money they spend on the lottery and this is proved by research. We have evidence that people do not play the lottery at the expense of charities; they regard them as different moneys. When the tsunami happened and when people in this country donated millions, national lottery sales remained exactly the same. People gave to charity but playing the lottery was a different activity and people do not play one off against the other. This has been our experience over 18 years.

National lottery salary costs are competitive but they are also consistent with the Civil Service. For the first half of the life of the national lottery, senior managers were paid the equivalent of principal officer in the Civil Service. It has moved a little ahead of that level but not extraordinarily so. We must be able to compete at market rates when hiring staff. An eye is always kept on maintaining parity with Civil Service rates because we are public servants who work for An Post.

I used the word "substantially" with regard to the age profile and not with regard to the wage, work status or to geography or education. We have slightly fewer of the 18 to 25 year olds and over 65s than their respective shares of the population. The reason is that young people believe they can fulfil their dreams without the help of the national lottery and older people are of the view that €62 million is no use if one is 75 years old. There is an under-representation of the top and bottom ages. A study of education and work status shows that the average spend of unemployed people on the lottery is almost exactly the same as that of all players. There is no distinction across all the categories. It resembles the distribution and profile of the average Irish person.

Deputy P. McGrath

Does this not point to the fact that people on lower incomes are proportionately subscribing a great deal more to the lotto? A person on unemployment benefit of €143 per week and a principal officer on €2,000 per week are both subscribing the average of €8. It is a vastly different scenario.

Mr. Bates

The comparison is applied equally to every item of expenditure by both people. If I give €5 at mass on Sunday morning when I only earn €160 per week, I contribute a higher proportion of my income than I would if I were earning €1,000 or €2,000 per week.

Deputy P. McGrath

If one looks at their houses, lifestyles or cars, it is totally disproportionate.

Mr. Bates

One can navigate out of that. It will always be a larger percentage. I cannot argue with that but can only express it in absolute terms. A spend of €8 is less than the cost of a newspaper every day. While some would say it was a great deal, by other standards it is an inconsiderable sum spread over a week. It equates to approximately €1 per day for a bit of fun.

Deputy Nolan

I welcome Mr. Bates and his colleagues. He referred earlier to a charter for players of the national lottery. What is the lottery's commitment to and does it have any programme in place for winners? We have seen press reports in recent months about winners of substantial sums of lottery money who have not, subsequently, had the best luck. It may be the result of a combination of bad advice and losing the run of themselves due to the amounts involved. What advice and support does the lottery provide to winners following the handing over of cheques?

An Post National Lottery Company is the only body of its kind to use the term "play" in advertising encouraging people to play the national lottery. I do not know if it is a deliberate ploy to soften the image of gambling, which is what is involved. In my town, people who go out on Wednesdays and Saturdays say they intend to "do" the lottery. No constituent of mine has ever said he or she was going out to "play" the lottery.

I have an aunt in Dublin who is a great fan of the lottery's Saturday night television programme. She is quite convinced that there is an in-built bias against Dublin players. As a regular buyer of the tickets, she is so convinced of her theory that when she gets three stars, she sends the ticket to us to submit it from Carlow. Can Mr. Bates put her mind at ease that Dublin-based tickets are not left outside the door in a black sack?

Mr. Bates

We take winners very seriously. While news is always made by one or two bad apples or extreme cases, it is generally the case that we meet with winners and provide them with a standard booklet and make ourselves available for any purpose at any time, day or night. We do not provide psychological or financial advice because we do not consider that to be our job. We highlight to winners, however, that there are professionals who are competent in these areas. We provide general advice on their possible experience and general emotions and advise them to buy the professional, legal and other advice they feel they may need. We are always there for them, we put them in touch with relevant people and we look after them because they are ours.

Of the almost 300 millionaires we have made since we began, a handful at most have been the subject of newsworthy events. One does not hear about the other approximately 290 people because nobody cares that they are living happy lives in great deal of financial security. That is not to say that all of their problems have been solved. We are conscious of difficulties but there is nothing we can do. Someone decided to constitute a lottery and we operate it. Our policy is that winners can be anonymous if they wish and deal with matters in a certain way. Half of the winners chose to remain anonymous and half go public. All we can do is provide the booklet and advice and say that we are available to winners to discuss their needs. However, we do not pretend to be specialists.

Deputy Nolan

Does the company advise people to go public or to remain anonymous?

Mr. Bates

They come to us already decided. If somebody comes in and says "I have one brother with me", one knows he or she will not go public and that there is no point even suggesting it. If someone who has been pictured smiling out from the morning newspaper before even coming to us to check their win says that he or she wants to be anonymous, one says "Hold on a second, you were in The Mirror this morning”. He or she is not, perhaps, serious. One group whose members said they wanted to remain anonymous left our building in a large bus with a sign on the back stating “We won lotto”. There is an ambiguity in the way people approach it.

Deputy Nolan

The company does not advise.

Mr. Bates

No. It does not matter to us any longer in a sense. If we say that a single farmer from Galway won €10 million, people believe a Galway farmer won €10 million and wishes to remain anonymous. At the beginning, one was concerned and wanted to establish credibility that one paid real people real money. That is now established and we do whatever people want. We support them, whatever they choose to do. Some want the publicity and we organise the press.

To address the issue of nomenclature, I was described by the press once as studiously avoiding using words such as "betting". We say "play" because we want to distinguish what we do from what happens in betting shops or in the plethora of games now available and which are increasingly being pushed down people's throats on the Internet or via other new media. Our intention is to say that ours is a different, softer form of gaming. No serious gambler would bet on a 76 million to one chance. He or she wants a one and a half to one gamble where he or she knows the jockey involved. The motivation is very different in mass games such as lotto, which we distinguish by using the word "play" instead of "do". I hope members will excuse us in our nomenclature because we will continue to say "play". We are conscious that others say "do" and that in the UK they say "have a flutter". We do not like the term because it does not reflect what we say here.

If Deputy Nolan gives me his aunt's address, I will give him the figures for the number of people who appear from her area. It is not, by any means, the first time her suggestion has been made. One needs to see a run of figures from the gameshow over the past five years to see that there is no bias. Contestants are beautifully distributed across the country. While there may have been nobody on from Dublin over the past four draws, for example, the Deputy's aunt has probably forgotten that the previous draw produced three Dubs. I had letters then from country people complaining that because only Dublin people won the game, they would post their tickets from Dublin in future. The distribution is proportionate. One does not need to fix it because large numbers naturally resolve to provide one with the correct distribution.

Deputy Nolan

I will have some job convincing her.

Mr. Bates

She would not be the first to write.

Chairman

I thank Mr. Bates for bearing with us for the afternoon. Can staff play lotto? Could, for example, Mr. Bates play?

Mr. Bates

No, by law we cannot.

Chairman

The staff of the company must feel left out. Mr. Bates said that half of the winners chose to remain anonymous and half chose to go public. I often wonder about that. My wife plays lotto every week but when the pot increases to €2 million or €3 million she tells me I might be lucky and should play too. How many extra people play when the prizes get larger?

Mr. Bates

The Chairman is what we refer to as a part-timer.

Chairman

Yes.

Mr. Bates

In other words, he is not interested in winning €1.35 million and only wants to win €5 million. Approximately 500,000 people play for a base jackpot of €1.35 million. When the jackpot reaches €5 million, up to 800,000 might play.

Chairman

Does that include the 500,000 who play the previous and next games?

Mr. Bates

Yes. There are regulars who might play an extra quickpick when the jackpot increases. While there is some additional spending on the part of existing players, the real growth comes from the part-timers. Syndicates tend to keep winnings and when the jackpot is substantial, they put their money into the big game. Approximately 15% of players are in syndicates.

Chairman

Mr. Bates mentioned the shares in EuroMillions. What will happen to the shares in 2008?

Mr. Bates

Like everything else, the shares will become the property of the Minister and can be passed on to the next holder of the licence to operate the lottery.

Chairman

As a quickpick player, I note that some outlets have quickpick machines only. Why choose these machines? Are they a cheaper version of the real ones?

Mr. Bates

Yes, as I stated, a full blown machine costs nearly €1,000 per annum to——

Chairman

Mr. Bates did not refer to how many such machines were in operation.

Mr. Bates

I believe there are 800.

Chairman

Therefore, of the 2,200——

Mr. Bates

No, there are 2,200 full blown, real lotto machines. Of the remaining 1,300, approximately 800 are quick pick machines.

Chairman

Mr. Bates appears to be indicating — he has sold himself short if this is the case — that there are 3,000 outlets at which one can buy a lotto ticket.

Mr. Bates

Yes, provided one wants a quick pick and does not want to play one's own numbers.

Chairman

Mr. Bates undersold himself when he referred to a figure of 2,200 as I assumed it included the 800 quick pick machines which are, in fact, additional.

Mr. Bates

No, we have 2,200 full blown lotto machines.

Chairman

Who pays for the television programme, "Winning Streak"? Does RTE pay the national lottery or vice versa?

Mr. Bates

There are three elements. We pay for the lotto draw.

Chairman

In other words, the national lottery pays for the slot.

Mr. Bates

Exactly, we pay for the time required to make the draw in the same way as one pays for an advertisement. RTE pays for the game shows, "Fame and Fortune" and "Winning Streak", and covers the fees of Derek Mooney and Marty Whelan. We make a small contribution to the programme to meet the costs of special equipment and certain checks and tests we must carry out because the programme is not like a normal game show, given the money at stake. We pay for the lotto draw in the same way as one would pay for a two minute advertisement.

Chairman

Does RTE regard the programme as good entertainment?

Mr. Bates

Yes, it is one of the most popular programmes on the station.

Chairman

What would happen in the event of a town experiencing a power cut which brings down all its lottery machines? Has this happened often and what mechanism is in place to deal with such an eventuality?

Mr. Bates

It does not happen often. We have no mechanism in place to deal with a power cut in a town because there is nothing one can do.

Chairman

The tickets, therefore, would be invalid.

Mr. Bates

If a ticket cannot be printed, we will not have it registered in the central system. Standby generators in Dublin ensure power is never lost at the centre. Therefore, while a town may suffer from a black-out, a safeguard built into the system design makes it impossible to have what we call a rogue ticket, in other words, a ticket for which there is no proper record on the system.

Chairman

The figures for beneficiaries indicate that the heading "youth and sport" receives 59% of available funding and "health", 27%. The possibility of allowing lotto players to indicate their preference on the pay slip has been raised. Mr. Bates is laughing already; does he not want to go down this route?

Mr. Bates

This approach has been tried elsewhere and does not work. In New York, for example, a special game was introduced, the profits of which would be directed towards removing crime from the city's streets but it did not work. A similar option is under consideration in the United Kingdom but people have baulked at the prospect. Notwithstanding the problems involved in the current system, it is preferable to let those who normally spend billions of our tax money to spend lotto revenue too. Why not allow them to spend a further €191 million using the same system, logic and set of controls?

Chairman

With regard to prizes, has the national lottery considered guaranteeing a certain proportion of prizes per county? I am sure this could be done every so often. While I am aware that the company wants to maintain the lotto as a national draw, I suspect one of the reasons the numbers playing the game are not increasing is that every parish and GAA club has a local draw. Their maximum prize may be only €10,000 but they generate large sums and more power to them. They thrive on the notion that players may know the person who eventually wins the prize. Would guaranteeing prizes for each county be beneficial or counter-productive?

Mr. Bates

The playing level means few counties do not have a lotto millionaire. As such, the distribution arising from the level of participation addresses the issue.

Chairman

On behalf of the joint committee, I thank Mr. Bates and Mr. Browne for their attendance which we found interesting and helpful. This completes our first meeting with representatives of the National Lottery Company.

The joint committee adjourned at 5.15 p.m. until Wednesday, 29 June 2005.