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Judicial review by other three bidders expected if Camelot wins tender for fourth time

Rival lottery operators are gearing up for a legal challenge if — as they expect — Camelot is awarded the contract to run Britain’s national lottery for a fourth successive term, arguing the tendering system discriminates against new entrants.

Whichever company is awarded the licence to run the National Lottery, industry insiders believe it will inevitably be challenged in a judicial review. “It’s one of the biggest public contracts out there,” said one government insider.

If Camelot is successful its competitors will focus their legal challenge on the way the Gambling Commission has allocated the concept of “risk” between the rival bids. They claim the system unfairly benefits Camelot as the incumbent.

That concern is also shared by some MPs, who believe the operation of the lottery — which would have been run by Camelot for almost 40 years by the end of a fourth licence period — should be genuinely open to rigorous competition.

A document seen by the Financial Times shows that a 15 per cent “solution risk factor” is allocated to each bidders’ business plan.

Giles Watling, a Tory member of the House of Commons culture committee, said he was concerned the 15 per cent risk quotient would be more heavily loaded on to new applicants: “That gives Camelot a ‘head and shoulders’ start over any of the other candidates.”

Watling noted that rival bidders had established records in running lotteries in other countries, adding: “I believe every single candidate should start on a level playing field. If there’s going to be a competition, it should be fair and clear.”

Nadine Dorries, culture secretary, has yet to receive a recommendation from the gambling regulator. “Ministers will be informed once a decision has been made by the Gambling Commission,” said one ally of Dorries.

The commission is expected to make its preferred bidder known to the Department for Digital, Culture, Media & Sport this month before an announcement in March. The licence will be handed over in February 2024.

The competition is being contested by four bidders including Canadian-owned Camelot. The others in the running are Allwyn, the Czech lottery operator formerly known as Sazka; the Italian gambling group Sisal; and media mogul Richard Desmond’s Northern & Shell.

It is the most open tendering round since the inception of the lottery in 1994 and has been one of the most tightly controlled by the Gambling Commission following disputes in previous competitions.

In 2007 Camelot’s victory was contested by the Indian operator Sugal & Damani which said it planned to seek a judicial review after Camelot was named for a third term, but it did not pursue the case.

Little has been revealed about the bidding process and operators have been constrained in what publicity they have been allowed to court. But the prize is substantial for the victorious applicant.

In the year to March 2021, sales of lottery games amounted to £8.4bn in turnover for Camelot, which made a £95.2mn pre-tax profit.

The Gambling Commission said “solution risk factors” were one element of the “detailed evaluation framework” being used to distinguish applicants. “No aspect of our framework applies differentially to any class of applicant, whether new entrant or incumbent,” it added.

Camelot declined to comment.

G20 ministers are right to take proactive approach to crypto risks

If there was one principle uniting the diffuse challenges facing G20 finance ministers at this weekend’s meetings, from inflation to climate change, it was that prevention would have made all of them much easier — and cheaper — to deal with. The same applies to one of the most prominent issues of financial regulation: setting global rules for managing cryptocurrencies. Perhaps this was why the finance ministers wisely accepted the conclusions of a report by the Financial Stability Board into the sector.

No major changes in regulation were announced. But agreement to accelerate monitoring and to find regulatory gaps that need filling, are welcome first steps in the journey to ensure speculation in crypto remains an individual, rather than a socialised, risk.

Policymakers used to assume that crypto, while problematic for a number of reasons — including its potential to defraud ordinary investors and launder criminals’ ill-gotten gains — would not threaten the health of the financial system. This assumption may not be safe for much longer as cryptocurrencies and related assets become more mainstream. Problems in markets for cryptocurrency may increasingly “leak” into the broader financial system — imperilling the stability of banks, other lenders and so the wider economy. Cleaning up after such a crisis will be more expensive than preventing it from happening in the first place.

A survey published in June 2021 found that hedge funds expected to expand their holdings of so-called cryptoassets substantially. Instruments linked to cryptocurrency, such as derivatives, are likely to proliferate: many traders use options to bet on bitcoin’s value. Fidelity, one of the world’s biggest asset managers, launched a bitcoin exchange traded fund last week. Crypto’s move out of the shadows increases the risk that a sharp drop in price could shake confidence in major players, especially those that have funded their exposure through borrowing.

The nightmare scenario would be a crypto version of the 2008 financial crisis. On that occasion, uncertainty over which institutions were exposed to a collapse in novel financial securities was enough to cause financial markets to freeze up. For the moment though, there is no comparative “shadow banking” system that backs lending to the real economy with cryptoassets. Few would consider bitcoin a “safe asset”, unlike the mortgage-backed securities that were at the centre of the 2008 crisis.

If anything is to fulfil this role it is likely to be stablecoins, which account for a significant majority of all trading in cryptocurrency. These tokens are meant to be fully convertible to ordinary currencies, usually the US dollar. This grants them, with their apparent safety and stability, many of the same properties of bank deposits — which are similarly meant to be convertible to state-backed money on request. A big enough shock to crypto markets may lead to investors seeking to “cash in” their stablecoins, behaving like depositors in a bank run. This would force stablecoin providers to sell their assets in order to get investors their money. If this resulted in a fire sale, other markets could similarly be destabilised.

These risks are small for now. Crypto does not yet have the scale to make them more acute. But global finance moves fast. That is why the G20 is right to get on the front foot. In a world awash with money, allowing investors to seek out the speculative gains associated with crypto must remain a second order priority to financial stability.

UK company’s board confirms it would accept proposed terms from New York-listed group

Ecommerce specialist Clipper Logistics plans to accept a potential cash-and-share takeover offer by New York-listed GXO Logistics that would value the British group at £943mn.

Clipper, which processes orders for Asos, H&M and Marks and Spencer, has agreed to GXO’s proposal to pay 690p in cash and issue 230p of new GXO stock for each Clipper share. This represents a 32 per cent premium to the Leeds-based company’s three-month average share price, the groups said in a joint statement on Sunday.

GXO is yet to make a firm offer but Clipper’s board confirmed to its rival that it would accept an offer on those terms.

If the deal goes ahead, it would cement GXO’s position at the centre of British supply chains and online retail, adding to its acquisition of Swiss rival Kuehne+Nagel’s UK contract logistics business in 2020.

The fragmented logistics sector has witnessed a flurry of dealmaking in recent months with container shipping lines such as Maersk using bumper profits to snap up logistics businesses.

GXO’s chief executive Malcolm Wilson said: “This potential acquisition would enhance GXO’s position as a successful pure-play logistics leader. Our two companies have highly complementary service offerings, customer portfolios, and footprints in the UK and Europe.”

Clipper was founded in 1992 by Steve Parkin, a former coal miner who started the business with just one truck. It listed in London in 2014 with a market capitalisation of £100mn.

In 2020, plans for private equity group Sun Capital to buy the group were shelved after they disagreed over a £300mn price tag.

Clipper’s turnover has doubled since 2017 and its shares have trebled since the onset of the pandemic, which supercharged growth in online shopping.

Logistics companies say the complexity of ecommerce has driven retailers to outsource warehousing and supply chain operations to specialist providers.

Clipper runs warehouses for retailers in the UK and Europe, particularly those in the fashion sector, helping them process online orders, including returns, and repairs for electronics.

It had been planning to expand in the US where GXO has a large presence.

The deal could result in a £138mn payout for Parkin who owns a 14.7 per cent stake in the business. He sold a 10 per cent shareholding last year for about £62mn.

He has been interested in buying Leeds United football club, where his company sponsors the training kit.

GXO was spun-off from trucking group XPO Logistics last year in order to focus on warehousing and picking, packing and distributing goods for big brand names such as Nestlé, Apple and Nike.

It had $7.9bn in revenues last year, making it one of the world’s largest contract logistics providers.

Here is what some of the world’s corporate leaders said in their quarterly earnings reports last week about inflation, the supply chain, travel and dining, and the future of the internet.

To see what business leaders have said in past weeks, click here, here and here.

“During periods of inflation like this, middle-income families, lower-middle-income families, even wealthier families become more price-sensitive. And that’s to our advantage.” (Feb. 17)

“When we saw container rates at this, I think, maybe highest cost ever in October, at least from my recollection over my 30 years...we didn’t think it could go up from there. And they went up from there, and they went up from there like almost 50% in December, January...Where I might have felt like, as a business leader, how could it possibly get any worse than this? And then it gets worse than that. It’s just difficult to pin that down.” (Feb. 14)

“I would describe our supply chain shortages as two steps forward and one step backward. We don’t like the one step backward, but between the Omicron virus, the labor shortages, the logistics and the component shortages, we’re certainly experiencing another wave of uncertainty in Q1 over here...We’ll keep improving every quarter, but Q1 isn’t the great indicator of supply chain improving.” (Feb. 14)

“During the quarter, supply chain didn’t get materially worse and didn’t really get materially better. It was pretty consistent. There were gives and takes throughout the quarter...I wouldn’t say we have a great timeline for you as to when things begin to improve. All we know now is we expect this to be with us through the second half of our year.” (Feb. 16)

“It’s worth noting that our supply base will likely remain challenged throughout fiscal year 2022. Issues continue to arise, and our guidance contemplates successful resolution of these issues without significant disruptions. Components with heavy labor content remain in tight supply, and of course, semiconductor availability will continue to be limited throughout the year.” (Feb. 18)

“While we have seen some component costs decrease relative to peak prices in 2021, overall component and logistics costs remain significantly elevated, and availability issues persist. Thus, we believe these disruptions will continue to negatively affect the size of the TV market and our player margins in the short term.” (Feb. 17)

“Our Q4 inflation were higher than we expected in our October call. We ended up with low double-digit. But for 2022, we are likely to see, or are expecting today, a year of inflation of low teens for the full year. … And we expect this inflation to be higher in the first half than in the second half.” (Feb. 16)

“While we believe that the Covid-triggered acceleration of e-commerce that spilled into the first half of 2021 in the form of lockdowns and government stimulus will be absent from 2022 and there is caution around inflation and consumer spend near term, for the full year, we see economic growth supporting the continued penetration of retail by e-commerce.” (Feb. 16)

“We took price in 2021 at each of our brands and given the level of commodity cost and labor inflation we’re seeing, we expect additional price increases in 2022.” (Feb. 15)

“Frankly, for any small or midsize operator, and we talk to many of them still, there’s no urgency to getting back into the game when you see labor and commodities like this. So, the restaurants that closed next to us two years ago are still closed. So, I think that just bares the opportunity.” (Feb. 16)

“We’ve put to rest, I think, this question of what happens to demand as diners go back and eat inside restaurants. Well, I think clearly, takeout and delivery, as shown by our performance, not just in the fourth quarter but also in 2021, just in an aggregate, is that they’re complementary.” (Feb. 16)

Airbnb Inc. Chief Executive Brian Chesky

“Nearly two years into the pandemic, it’s clear that we are undergoing the biggest change to travel since the advent of commercial flying. Remote work has untethered many people from the need to be in an office, and as a result, people are spreading out to thousands of towns and cities, staying for weeks, months or even entire seasons at a time. For the first time ever, millions of people can now live anywhere.” (Feb. 15)

“We continue to be really optimistic that there’s still a significant tailwind for leisure demand. And I think part of that is because of the evolution of the way folks work. The incremental flexibility that you’re seeing in working from home, working from anywhere, has been an accelerant for leisure demand. And if anything, we expect further acceleration in that regard.” (Feb. 15)

“Today’s internet is 2D, and AI is in the cloud. The next phase of internet will be 3D, and AI will be connected to the physical world. We created Omniverse to enable the next wave of AI, where AI and robotics touches our world. Omniverse can sound like science fiction, but there are real-world use cases today.” (Feb. 16)

“Some may refer to this as Industry 4.0 or, in some instances, Web 3.0 or even powering the emerging metaverse. We are buzzword agnostic on this. You can call it whatever you like. It all involves distributed, fast, scalable and secure experiences, and we know it’s in increasingly higher demand from our customers.” (Feb. 16)