Rise of the scratchcard helps reduce Lottery's charitable returns
National Lottery income for good causes fell by 15% over the year to April as players turned away from draw-based games to scratchcards, a report from the Government's spending watchdog shows.
The National Audit Office (NAO) report shows income fell to £1.63 billion at the same time as three of the six largest Lottery distributors increased their grant commitments by a total of £88 million.
The drop came as Lottery sales fell by 9% to £6.93 billion compared with the previous year.
Camelot has predicted a further fall in sales and income for good causes in 2017-18, the report said.
The NAO said distributors, which include UK Sport, Spirit of 2012, Heritage Lottery Fund and the Big Lottery Fund, often had commitments spanning many years, "so it is likely that commitments will exceed their fund balance at a given date".
In December last year, the Department for Digital, Culture Media and Sport (DCMS) agreed to underwrite up to £25 million a year to cover any shortfalls in Lottery income for UK Sport over the 2017-2020 Tokyo Olympic and Paralympic cycle, the report said.
Returns for good causes are higher from sales of draw-based Lottery games, which fell by 13% in the year to April, than for scratch cards and instant-win games, which fell by 2%, the report said.
As of February this year, the approximate return for good causes ranged from 34p for each pound spent on draw-based games bought online to 10p for scratch cards, with some scratch cards returning as little as 5p.
Camelot told the NAO that scratch cards and instant-win games returned less to good causes due to the need to offer a higher proportion of proceeds as prizes to encourage consumers to participate.
Meanwhile, increases in Camelot's profits had been proportionately greater than increases in both Lottery sales and returns for good causes.
Camelot's accounts showed that Lottery sales were up 27% to £.6.9 billion in 2016/2017 compared with 2009/10 while returns for good causes were up 2% to £1.5 billion over the same period and Camelot's profit for its shareholders had increased by 122% to £71 million.
Last month Camelot signalled changes to Lotto to give players "a better winning experience" as it announced a 3.2% drop in overall ticket sales on last year's first-half performance to £3.2 billion for the six months to September 23.
Changes to the Lotto draw in 2015 saw the number of balls increase from 49 to 59 and the chance of winning the jackpot decrease from one in 14 million to one in 45 million.
The cost of playing EuroMillions increased by 50p to £2.50 a line and players had to choose an extra number under changes introduced in September last year that decreased the odds of winning the jackpot but promised bigger prizes and double the number of UK millionaires.
The report said: "The Lottery's overarching objective is to maximise returns for good causes through selling Lottery products in an efficient and socially responsible way.
"The relative decline in sales of draw-based games compared with instants has led to a lower rate of return to good causes.
"The licence terms were set in 2009 and Camelot's current licence term ends in 2023. Any changes to the basis for calculating returns for good causes prior to 2023 would need to be agreed by the Gambling Commission and Camelot."
A Camelot spokesman said: "The NAO report restates what we publicly acknowledged back in June in relation to National Lottery sales and returns to good causes. Since then, we have carried out a wide-ranging strategic review of the business and announced strong plans to get the National Lottery back into growth next year and raising as much money as possible for good causes.
"We continue to return around 95% of all National Lottery revenue - almost £6.6 billion in 2016/17 - back to winners and society, one of the highest percentages in the world. In contrast, our profit after tax is around just 1% of total revenue - £70.5 million in 2016/17.
"Since the start of our third operating licence in 2009, returns to winners and society have increased by almost £1.8 billion, while shareholder profit has increased by just £26 million over the same period.
"In addition, our shareholder has invested £181 million in capital expenditure - £98 million more than the amount set out in its third licence business plan."