CAT confirms wide CMO margin in National Lottery case

The CAT accepted that in substance allowing the revenue to be used for marketing amounted to the public authority foregoing revenue it would otherwise have received (thereby capable of conferring an economic advantage under s.3(2) of the Subsidy Control Act 2022).

Even where an advantage exists, there is ‘no subsidy’ if the transaction is consistent with normal market conditions. The question is whether no rational private operator would have entered into the deal on those terms. The CAT held that it could not be said that a rational private investor would refuse the transaction; it fell within a wide margin of commercial judgment.

The absence of an obvious market comparator (because only Camelot could make the investment decision at that stage) did not prevent applying the CMO principle. The focus is whether there is objective, verifiable evidence that the arrangement resembles common commercial behaviour (here, the CAT likened it to joint marketing investments seen in ordinary commercial relationships).

To decide if the deal was commercial, you have to look at what each side was expected to gain and whether the gains were shared in a reasonable way. The CAT reviewed the forecasts and Camelot’s extra commitments and said the Gambling Commission was entitled to decide the deal was within the range a sensible private business could agree. The challengers’ argument about “indirect benefits” failed because they didn’t provide evidence to prove or value those benefits.

Under s.70(5), the CAT applies judicial review principles. The focus is on the decision maker’s reasoning process not re running analysis after the fact. Applicants must show irrationality (outside the range of reasonable commercial outcomes) or a demonstrables flaws in their reasoning.