Exeter Community Lottery held its first draw on 22 July last year, nine months ago. It was promoted by the city council as a means of “empowering and enabling communities to help themselves”.
Martin Pearce, who has since been suspended by the Labour Party pending the outcome of an investigation, was instrumental in the lottery’s introduction. In his role as city council executive member with responsibility for communities he repeatedly insisted it was not gambling – despite the sector regulator’s definition – and would instead promote “incentivised giving”.
He also said that the lottery would be of particular benefit to “organisations which haven’t got the capacity to fundraise themselves” which he characterised as those which “don’t have a team going out trying to secure legacies from people” or which “might be a small charity or even a community group that doesn’t even have any paid staff and is reliant completely on volunteers”.
The council said it would be a “more effective facility with which to fundraise” which would give “opportunities to smaller groups”.
No evidence was presented to support these claims at any of the three council meetings that considered the lottery’s introduction. Nor did the council assess whether the lottery would divert existing local giving or disconnect community and voluntary sector organisations from their supporters. It also ignored gift aid, which allows charities (and community amateur sports clubs) to claim an extra 25% of the value of UK taxpayer donations.
The council agreed that the aptly-named Gatherwell, a commercial operator which manages more than 100 UK local authority lotteries, would run the scheme on its behalf, the proceeds of which, it said, would “stay in the city”. The council would front the setup costs which it said would be around £5,000 – including Gambling Commission licensing fees – and would cover ongoing costs which “would not exceed £5,000 per annum”. There was no public consultation on its introduction.
Twelve months later the council said that the lottery was having a “significant impact” in the city, with thirteen sport and physical activity groups signed up for a share of the proceeds. Last month, shortly before his suspension, Martin Pearce said it had been “an outstanding success”, adding that the operator was “incredibly good value” and that he was optimistic that the lottery would prove to be a “substantial source of income”, although he didn’t say for whom.
Gatherwell 2022 financial results community lottery locations map. An accompanying annual report says “there remains a substantial growth runway for Gatherwell to increase its market share of schools and local government authorities”.
The council describes Exeter Community Lottery as “a lottery for the people, by the people” in which “the real winners are the community groups and good causes who benefit directly from ticket sales”.
It promises a jackpot prize of £25,000 for ticket holders who match all six digits in a weekly draw. The odds of this occurring are one million to one. Five first or last digit matches win £2,000, four such matches £250 and three such matches £25. Two matches at either end of the six digits win three free lottery tickets, increasing the ticket holder’s chances of a subsequent win.
Tickets must be paid for by direct debit or debit card on a recurring basis, so it costs £1 per weekly draw for each ticket until the ticket is cancelled. Each week’s winning number, tellingly, is the six digit sequence from an Australian national lottery draw.
There is also an occasional “super draw” in which prizes including smartphones, laptops, gift cards and games consoles are apparently up for grabs. None of the winners of the nine such prizes that have been awarded so far have been Exeter lottery ticket holders, but the winners nevertheless appear prominently on the Exeter lottery results page without this being made clear.
It appears that most, if not all, of Gatherwell’s UK lotteries, not only the hundred or so it runs for local authorities, are offering the same “super draw” prizes, so the odds of winning one must be as remote as the antipodean parent company.
Western Isles Lifestyle Lottery homepage
Six months after the first draw was held, we asked the council to give us a breakdown. We asked how much it had spent on the lottery so far, how many tickets had been sold, how much revenue had been collected from ticket sales and how that revenue had been distributed.
We also asked how much prize money had been won, how much had been spent internally on promotional work performed by council staff and how many times the council had published posts promoting the lottery on its news website.
The answers we were given did not add up, so we asked for clarification. We were given a different set of figures the second time around, and told the first answer had been “erroneous”, but some of our questions remained unanswered, so we asked again.
We are still waiting for clarity on several key points, and it is now nine months since the first draw was held. So we have performed our own analysis of the figures on the lottery website. It is not altogether surprising that the council has not been more forthcoming.
Exeter Community Lottery homepage
One question the council was able to answer readily was how much it had spent on setup costs. These came to £6,558 of which £3,994 was spent on marketing and another £2,564 on gambling licenses and fees. It also said it had incurred no additional staffing or promotion costs as all the subsequent work had been done in-house.
Evidently council staff have spent more time on the lottery than it would care to admit. It told us that it had published sixteen lottery-promoting posts on its news website before 20 January, six months after the first draw. It had actually published 32, twice as many, and has since published another twelve, bringing the total to 44 so far. That’s four more than there have been draws held.
Murkier still, its second answer upped its account of ticket sales revenue for the first six months from £23,908 to £39,847 but only increased the amount distributed to local causes from £23,081 to £23,908. It also said it didn’t know what the breakdown of prizes was, only that the six month payout total came to £2,725.
Our analysis of the figures on the lottery website reveals a rather different picture. The first thing that leapt out was that the published amounts raised by each local cause are not the amounts raised so far but the amounts that would be raised over a full twelve months if the number of tickets held in support of each cause remained the same throughout the year.
But there is quite a lot of churn, with ticket holders coming and going, then being replaced by others, as Martin Pearce admitted last month. He also said “there hasn’t been a drop-off in the overall number of ticket sales, it’s steadily increasing all the time”.
1,685 purchased tickets were in play each week by November last year, four months in, which fell to 1,645 by the end of January, six months in, before falling again to 1,635 by last Saturday’s draw.
Why do we say “purchased”? Because a total of 3,327 free tickets have so far been given away by the operator in the form of prizes. Of course, these are actually an incentive mechanism to keep people from cancelling their direct debits when they don’t win any cash, and they become more affordable for the operator to give away as time goes by and profits mount.
Jumbo Interactive 2023 annual report financial highlights
How much money is Gatherwell making from the city council lottery? Martin Pearce couldn’t remember exactly how much the company’s cut came to when asked last month, but was sure it was “a very small percentage”. In fact the operator collects 20% of ticket sales to cover running costs and another 20% to cover prize payouts.
Over the first nine months of operation, according to the figures published on the lottery website, ticket sales have brought in £63,765. The operator has taken £25,506 of this, before paying out a total of £4,150 in small cash prizes (no-one has won the jackpot). So it has so far made a gross profit of £21,356 or 33.5% of sales.
The company’s 2023-24 Exeter earnings are less than 1.5% of its 2022-23 UK revenues, which were A$3.6 million (about £1.9 million). Does the risk that it might have to pay out a jackpot in Exeter threaten its profit margins? No, as it holds a growing fund for this purpose that was worth A$1,317,000 by the time the Exeter lottery was launched.
The company says it made a gross profit of £1,369,000 last year. It would have to experience statistically implausible bad luck not to make handsome profits from the hundred or so local authority lotteries it is “servicing”, the language used in its parent company’s annual report to describe its financial affairs.
And if the unthinkable happened its Australian owner, the also aptly-named Jumbo Interactive, is reassuringly elephantine, with a market capitalisation value of nearly A$900 million and net profits after tax of A$35.3 million.
Meanwhile the council, which retains the net income from the central fund, which benefits from having by far the largest share of supporters playing the Exeter lottery, also retains 10% of all the other ticket sales. This means it has collected £14,040 so far, to which it will be able to add VAT charged against ticket sales to the tune of another £2,295. That’s £16,335 altogether of which none has so far been redistributed.
What about the local organisations that are supposed to be the lottery’s main beneficiaries? They have so far shared a total of £24,219. But there are 118 of them. Only three have raised more than £1,000 so far, and another seven more than £500.
The other 108 local causes “championed” by Martin Pearce have raised less than the £500 that used to be the council’s standard small community grant and 22 organisations have raised nothing at all.
The primary rationale for the introduction of the council lottery was that small organisations which could not otherwise fundraise would be able to receive money from supporters they would not otherwise be able to access, as Martin Pearce reiterated last month.
But Exeter Community Lottery’s principal beneficiary is the lottery operator, followed by the council, which is sitting on the money instead of distributing it to community groups as it said it would.
A few dozen local voluntary organisations have added a few hundred pounds to their balance sheets, but in so doing have added a few hundred more to the balance sheet of a company that is based on the other side of the earth.
Compare this with recent fundraising efforts by Love Food CIC, which raised £15,361 from its community of supporters with the help of match-funding from Aviva and Sovereign Housing while only paying modest card payment transaction fees on the crowdfuding platform it used. It has only received £26 from the lottery so far.
Exeter Observer raised £56,850 last year by issuing community shares to investors, many of whom not only claimed half their investment back through HMRC’s Seed Enterprise Investment Scheme while keeping all their shares, but also ended up with a stake in the company.
We paid just £50.40 in transaction fees by reaching out to prospective investors to arrange direct payments instead of relying on a third-party platform. The kind of approach, rooted in real-world relationships, that companies like Gatherwell, and the city council, apparently want to prevent.
Gatherwell’s response to so few Exeter organisations shifting more than a handful of lottery tickets, and many none at all, is to provide workshops to train local volunteers to promote their causes, a proposition Martin Pearce said he hoped would give the scheme a “big boost”.
What this would amount to is harnessing community volunteers to increase revenue for the company and the council by promoting the lottery on their behalf.
It appears the council would rather help a foreign multinational extract wealth from Exeter than see the city’s voluntary and community organisations find ways to make local financial support go much further, developing relationships with their communities along the way, or simply fund a proper community grants scheme itself.
Match-funding and tax relief are just two options among many, each potentially doubling the value of community giving instead of halving it.
And any local residents who would like to finance the council directly could simply send their money to Paris Street without the lottery operator taking a cut first.
