When Tim Holley launched the Monday lottery, the former Camelot chief executive was confident of taking on his old employer – and winning. „We’ve taken three years to develop this and we know it will succeed,“ claimed Holley as he launched a multi-million-pound advertising campaign.
But six weeks on Holley’s dreams are in tatters. On Friday Chariot, the AIM-listed company set up to run the Monday lottery, admitted it was in crisis. The company had virtually no cash left – having burnt its way through almost GBP 15m.
Its share price has crashed 96%, falling from a high of 213½p to close at 8p on Friday. Four months after it floated shareholders face the prospect of a discounted rights issue – which will further erode the value of their equity – to keep the company going.
For the London Stock Exchange, which runs AIM, it is all deeply embarrassing, particularly as Chariot was a favourite with small investors. On Friday many private shareholders vented their frustration on the bulletin boards. „Even in the dotcom boom no-one managed to destroy shareholder value as quickly and effectively,“ wrote one on ADVFN, the stock-market website.
In recent months AIM has been rocked by a number of embarrassing scandals, including Langbar, the AIM cash shell at the centre of a £365m fraud investigation, and Regal Petroleum, the former stock-market star that has cost investors hundreds of millions of pounds after its share price collapsed when its wells were found to contain little oil.
Although there is no suggestion of any wrongdoing at Chariot, some observers question whether the exchange has found the right balance of regulation – light enough to attract fast-growing smaller firms, but strong enough to protect investors.
The omens for Chariot were never good. Its first draw, last month, was delayed by technical problems, and within days the firm admitted to shareholders that ticket sales had been at the bottom end of expectations. Chariot was also hit by the revelation that, despite the boast that it was a „fairer lottery“, directors were awarded shares and bonuses worth GBP 10m.
It was not only the option packages that were generous. According to the admission document, founder Suzanne Counsell picked up GBP 153,846 after the float for the „transfer of intellectual property“ while Holley received GBP 200,000.
There had been problems even before Chariot went public. Its first set of accounts, filed as a private company last autumn, had to be revised because the initial version did not comply with the Companies Act.
But the business’s swift unravelling had less to do with minor accounting issues and everything to do with incompetent management and a miscalculation of the potential revenues the new lottery would deliver.
The original business plan was for the Monday lottery to sell about 5m tickets a week, with a fallback plan for 2.5m. That proved wildly ambitious. Chariot said on Friday it had sold only 1.68m tickets in all over the four weeks it has held draws.
The new lottery had to operate online to get round rules designed to protect the national lottery, but the lack of a high-street presence has hit hard. „People go into the newsagent most days and they get that reinforcement from in-store advertising. You don’t get that with an online lottery,“ said one industry source.
Some observers think the Monday lottery made a fatal mistake by pitching itself as a rival to the national lottery, rather than as a national version of the sorts of social, local lotteries run by many hospices and charities.
Much of the publicity surrounding the launch of the Monday lottery highlighted the fact that the odds of winning the jackpot were far greater — but then the jackpot was actually substantially lower.
Chariot executives have partly blamed the failure of the business on a television advertising campaign, which they feel did not work.
But others close to the company claim that the best advertising campaign in the world would not have prevented the disaster that has been the Monday lottery to date.
This weekend Holley is reportedly considering stepping down. He will not participate in the impending cash call. The fresh round of funding, which is subject to investor approval, is likely to raise about GBP 3m of new money to keep the company going. It has already got through GBP 4.4m raised privately last year and about £10m from its AIM flotation.
But the business will have to alter substantially. Part of the fresh funds will be needed to pay for a business reorganisation that will lead to head- office job cuts. The company will also have to become a “virtual” operation.
Customer-facing aspects of the operation, such as its website and call centre, will be preserved; everything else will be outsourced.
„This thing will be substantially downsized,“ said one source close to Chariot. The business had been set up to run on the basis of GBP 750,000 per week income. That is obviously going to change.
The marketing will also have to be modified significantly, with a far greater emphasis on non-traditional forms of advertising.
This weekend the board has been locked in talks with the charities for which it has pledged to raise funds, and its investors, in the hope of getting fresh money.
It is understood that two members of the board will contribute to the fundraising, as a sign of their commitment to the project.