Mr. Seamus McCarthy:

The national lottery was established under the National Lottery Act 1986. The objective of the lottery is to raise funds for the Exchequer on an ongoing basis, to be used for any or all of a range of purposes specified by law. Under arrangements put in place by the National Lottery Act 2013, and following a public competition, the operation of the lottery was licensed to an international consortium in 2014, for a contract period of 20 years. As part of the bid for the licence, the Exchequer received an upfront payment of €405 million from the operator.

The 2013 Act also provided for the establishment of an independent Regulator of the National Lottery, whose role is to oversee the operation of the lottery, and to manage and account for the National Lottery Fund. Net revenue from the sale of lottery tickets, after the payment of small prizes by retailers and deduction of retailers’ commission, is paid into the National Lottery Fund. This represents the fund’s income in a year. The remaining prize money and the operators' entitlement for the year are paid out of the fund into accounts managed by the operator. The amount remaining in the fund represents the amount payable to the Exchequer in respect of the year of account.

The income of the fund in 2021 totalled €682 million - €287 million was paid from the fund to the prize fund in 2021, and the operator’s entitlement for the year was €103 million. Almost €290 million was transferred to the Exchequer, and the balance of the fund available for transfer to the Exchequer at the year-end increased by around €6 million. The financial statements of the regulator reflect income of €1.5 million in 2021, derived from a levy on the operator. Expenditure by the regulator was €1.3 million.

The audit report includes a reference to the pension liabilities recognised in the financial statements of the regulator. Staff of the regulator are members of one of two contributory pension schemes, and the office of the Regulator of the National Lottery remits employee and employer pension contributions to the Department of Public Expenditure and Reform. Pension liabilities estimated at €531,000 in respect of staff who are members of the single public service pension scheme are recognised in the accounts, with a matching deferred pension funding asset.

In contrast, pension liabilities estimated at €3.2 million in respect of staff who are members of a model pension scheme are disclosed by way of note only. Responsibility for the pension liabilities earned by staff covered by the model scheme before 2014 - predating the establishment of the regulator - has not been settled. The regulator’s proposals about this matter have been under consideration by the Department of Public Expenditure and Reform since 2015.

The report before the committee today was undertaken to try to explain the complex transfers of funding involved in the operation of the National Lottery Fund, and in particular the contributions to the Exchequer. Annual sales for national lottery games increased by 57% between 2015 and 2021, rising from €670 million to around €1.1 billion. Over the same period, the proportion of ticket sales allocated for prizes varied between 55.6% and 57.6%. Contributions due to the Exchequer for the year of account increased by almost 62%, from €188 million for 2015 to €304 million for 2021.

In accordance with the terms of the licence, lottery prizes that are not claimed within a specified period are forfeited to the operator, to be used for the promotion of the national lottery. The contract specifies that such funds must be used within a year, and must include additional prizes. Some of the funding may be used for additional marketing. The examination found that, between 2015 and 2021, just over €124 million of expired unclaimed prizes was forfeited, an average of around €17.7 million per year.

By the end of 2021, €122 million of this had been used by the operator, with 98% spent on additional marketing and 2% used for additional prizes.

This report recommends that the regulator consider including additional information in the National Lottery Fund accounts to enable users of those accounts to see more clearly that the key provisions of the licence are being complied with, in particular around the amounts allocated to the Exchequer annually.