The application of state aid rules to commercial decisions made by public bodies has been further clarified following a recent ruling by the Competition Appeal Tribunal (CAT). In a judgment delivered on February 26, 2026, the CAT dismissed a challenge brought by The Modern Lottery Company Ltd and others against a decision by the Gambling Commission to approve approximately £70 million in marketing investment by Camelot, the former operator of the National Lottery. The case centers on the interpretation of the Commercial Market Operator (CMO) principle under the Subsidy Control Act 2022 (SCA), a key piece of legislation governing how the UK provides economic support following its departure from the European Union.
The ruling is significant for both businesses challenging public sector decisions and for public authorities navigating the complexities of the new subsidy control regime. It reinforces the idea that public bodies have considerable discretion when making commercial choices, provided they can demonstrate a rational, market-based approach. Understanding the nuances of the CMO principle is crucial for anyone involved in transactions with a public sector element, particularly in areas like infrastructure, broadcasting, and, as this case demonstrates, leisure and gambling.
The dispute arose from the Third Licence granted to Camelot for the operation of the National Lottery. As part of that license, Camelot proposed retaining a portion of revenue – funds that would normally proceed to the National Lottery Distribution Fund – to finance a marketing campaign. The Gambling Commission, after receiving independent economic advice, approved the investment, believing it would generate a net increase in returns for the lottery. The New Lottery Company and other applicants argued that this constituted an unlawful subsidy, giving Camelot an unfair advantage.
The Core of the Dispute: Defining a Subsidy
At the heart of the case was the question of whether the Gambling Commission’s approval of the marketing investment met the definition of a subsidy under section 2 of the Subsidy Control Act 2022. Specifically, the applicants contended that the investment provided Camelot with an economic advantage. The CAT, however, disagreed, finding that no subsidy had been granted. The Tribunal affirmed that the Gambling Commission had acted in line with the CMO principle, behaving as a rational private operator would in similar circumstances.
A key element of the CAT’s reasoning was its interpretation of how the CMO principle should be applied. The applicants argued that a direct market comparison was necessary to demonstrate compliance. The CAT rejected this narrow view, stating that the CMO principle applies even without a direct comparator, as long as the transaction is capable of being compared to analogous commercial contexts. This broadens the scope of the principle and provides public authorities with greater flexibility in demonstrating compliance. The full judgment is available on the CAT website: Judgment | Competition Appeal Tribunal.
The Importance of Expert Advice and Timeliness
The CAT likewise highlighted the Gambling Commission’s prudent approach to the investment. The Commission didn’t simply accept Camelot’s proposal. it sought and acted upon independent expert economic and marketing advice, even reducing the initial investment amount based on that advice. This demonstrated, in the Tribunal’s view, a rational response to commercial considerations. This underscores the importance of robust evidence gathering and independent assessment for public bodies.
Beyond the substantive issue of the subsidy, the CAT also criticized the applicants for the timing of their legal challenge. The Tribunal indicated it would have been inclined to refuse relief even if the applicants had succeeded on the merits, citing a lack of promptness in issuing proceedings. This serves as a procedural warning to those considering challenging public sector decisions: speed is of the essence.
Implications for Public Authorities and Businesses
The ruling has significant implications for how the Subsidy Control Act 2022 is interpreted and applied. For public authorities, it provides a degree of reassurance that their commercial decisions will be upheld, provided they are supported by a rigorous, expert-informed analysis. The decision acknowledges the persuasive, though not binding, influence of EU law concerning the Market Economy Investor Principle, suggesting a continuity of approach despite Brexit.
To ensure compliance with the CMO principle, authorities should meticulously document their decision-making processes, including all economic evaluations and the rationale behind their choices. Engaging appropriate expert advice is also crucial. The CAT’s judgment emphasizes that a well-reasoned and carefully considered approach is the best defense against legal challenges.
For businesses challenging public sector decisions, the ruling raises the bar. Applicants now bear the burden of proving that no rational market operator would have made the same decision as the public authority. This requires a compelling case, supported by strong evidence and presented promptly. The case also highlights the importance of understanding the specific context of the transaction and demonstrating why it is not analogous to any commercially viable alternative.
Looking Ahead: The Evolving Landscape of Subsidy Control
The New Lottery Company case is just one piece of a larger puzzle. The UK’s subsidy control regime is still relatively new, and further legal challenges are likely as businesses and public authorities grapple with its complexities. The government continues to refine its guidance on the SCA, and the CAT’s judgments will play a crucial role in shaping its interpretation. The Department for Business and Trade provides ongoing updates and resources on subsidy control policy. Subsidy control: overview – GOV.UK
The next key date to watch is April 2026, when the government is expected to publish a review of the first year of the Subsidy Control Act’s implementation. This review will likely address areas where further clarification is needed and may lead to amendments to the legislation or guidance. For those navigating this evolving landscape, staying informed and seeking expert legal advice will be essential.
This judgment provides valuable clarity on the application of the Commercial Market Operator principle, but it also underscores the need for careful planning, thorough documentation, and a commitment to rational, market-based decision-making. The implications of this case will be felt across a wide range of sectors, and understanding its lessons is crucial for anyone involved in transactions with a public sector component.
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