Competition Appeal Tribunal rejects subsidy control challenge in lottery case

Last week, the Competition Appeal Tribunal (CAT) decided The New Lottery Company v Gambling Commission. This is the second case in which the CAT has decided a subsidy control case in favour of the public authority, applying the ‘Commercial Market Operator (or CMO) principle’ set out in Section 3(2) of the Subsidy Control Act 2022. The CAT found that that the Gambling Commission’s decision in July 2023 to contribute GBP70.21 million to Camelot’s marketing activity for the National Lottery was consistent with normal market conditions.

The case was brought by the New Lottery Company (a vehicle set up by Northern & Shell PLC to compete for the fourth national lottery licence) and the marketing contributions in question occurred towards the end of the third licence period. The fourth licence was won by Allwyn which subsequently acquired Camelot in February 2023. Separately, the New Lottery Company is challenging the process for awarding the licence to Allwyn and is seeking damages.

In this case, the appellants argued that the decision of the Gambling Commission to allocate GBP70.21 million to Camelot to market the National Lottery in order to drive lottery sales conferred an economic advantage on it, as it “provided Camelot with resources to market and promote the National Lottery, thereby improving the National Lottery’s competitive position in the relevant markets, to the ultimate benefit of Camelot and Allwyn, as both Camelot’s owner, forming a single enterprise with Camelot for the purposes of the Act, and the operator of the Fourth Licence”.

The respondents argued that an economic advantage had not been granted because the National Lottery allows licence monies to be committed to the joint financing of unanticipated investments and this was simply a licence modification. The CAT rejected this, finding that the way in which the modification was structured was tantamount to a public authority foregoing revenue, which, as illustrated by the state aid case law, amounted to an economic advantage. 

However, no subsidy was granted because the CAT found that it could not be said that a rational private investor would not have entered into the transaction, instead concluding that it “fell comfortably within the wide margin of judgement available” to the public authority in determining how a commercial market operator might behave in such circumstances.

As mentioned, this is the second case in which the CAT has found that a subsidy was not granted because of the application of the CMO principle. The first, Weis v Greater Manchester Combined Authority (GMCA), concerned the extent to which certain property development loans granted by the GMCA complied with the CMO principle. As in the Lottery case, the CAT drew on established EU state aid caselaw in interpreting the CMO principle and found that public authorities are entitled to a margin of appreciation in determining whether a commercial operator would have acted similarly. The appellant, Mr Weis, had been granted leave to introduce expert evidence to show that the CMO principle did not apply. However, he did not do so, instead focusing on the process resulting in the terms of the loans that were offered to the borrower. The CAT examined this and found that it was a perfectly rational process and not inherently defective, given that it provided for decisions to be made with input from experienced lending officers, and it was only after this multi-stage process that the matter was put to the decision maker.

In the Lottery case, the CAT rejected an application at a case management conference to introduce expert evidence to demonstrate flaws in econometric analysis prepared for Camelot and accepted by the Gambling Commission in concluding that the CMO principle was satisfied. The CMO principle is to be assessed by reference to the decision‑maker’s reasoning process, not by re‑running the economic analysis after the fact.

The CAT also plugged a gap in the statutory framework. Rule 98A of the Competition Appeal Tribunal Rules provides that an appeal must be brought within one month of the “transparency date” (that is the date on which requisite information is uploaded onto the National Transparency Database) or within one month of information being provided in response of a request for pre-action information under Section 76. Where, however, the public authority considers that no subsidy has been granted, no information would be uploaded to the transparency database. The CAT held that in these circumstances, time would run from the date set out in Rule 98A(4)(b)(i) of the CAT Rules, that is the date when the interested party knew or ought to have known of the making of the decision. On the facts of the case, the CAT was highly critical of the delay in bringing the claim and stated it would have withheld relief had it decided that a subsidy had been granted.

The Weis case is being appealed to the Court of Appeal and it remains to be seen whether it will support the way in which the CAT is applying the CMO principle. The CAT’s judgment in the Lottery case can be found here.

Sam Szlezinger, Competition Partner, is leading the DLA Piper team advising the GMCA in Weis v Greater Manchester Combined Authority.