saturday 1 february 2014

By Joep Dahmen

Selling lottery ticket for a good cause. It was an idealistic idea by employees of third world organization Novib. What began as the Nationale Postcode Loterij (National Postal Code Lottery) in 1989 is now, 25 years later, associated with a national lottery and gaming concern.

As it turns out, the founders of the Postal Code Lottery, Herman de Jong, Frank Leeman, Simon Jelsma and Boudewijn Poelmann, have themselves been getting the best lottery tickets all these years.

In 1998, the VriendenLoterij (Friends Lottery) was incorporated and in 2002, the BankGiro Loterij (BankGiro Lottery). They are now, along with the Postal Code Lottery, the subsidiaries of the Holding Nationale Goede Doelen Loterijen NV (National Good Causes Lottery PLC). The three lotteries, which 3.5 million households participate in, are closely connected to Novamedia, the founders’ marketing company.

Since the foundation, 10 billion Euros have been collected in the Netherlands. 5.5 Billion of this went to good causes for people and nature. Over 4 billion went to prize money and expenses. A portion of the lottery proceeds went to Novamedia. Between 1990 and 2013 over a quarter of a billion went to that company, based on license and management contracts with the three Dutch lotteries. 277 Million Euros, to be exact.

More and more money kept coming in during the past 25 years, partially due to intensive marketing, TV shows and commercials. The proceeds of the lotteries grew from 7 million Euros in 1990 to 806 million Euros in 2012. This coming Tuesday, the proceeds of the Postcode Loterij will be revealed at the annual Goed Geld Gala (Good Money Gala) at the Carré theatre in Amsterdam. It is already clear that it will be another record-breaker.

With the increasing sale of lottery tickets, Novamedia’s revenues from the Dutch lotteries also increased: from 1.5 million Euros in 1991 to 22 million Euros in 2013. The lion’s share of the 277 million Euros that went to Novamedia was a license fee for the use of formats and gaming concepts (2.05 percent of the lottery ticket proceeds) and a fee for providing management of the lotteries. The Gaming Authority, which supervises the lotteries, commissioned an investigation into whether the 2.05 percent still “complies with market standards”,  considering the increased proceeds of the lotteries. The report will come out this spring. Novamedia looks forward to the future with confidence, a spokesperson says. “Independent research shows that the percentage is on the low side, internationally speaking.”

Investment abroad

In exchange for the revenues, there are few expenses at Novamedia for the three lotteries. They pay for their own staff, mailing actions, recruiting and accommodations. Novamedia also invests in setting up lotteries and gaming abroad. For example, 89 million Euros went to the People’s Postcode Lottery in Great Britain and the Svenska PostkodLotteriet in Sweden.

In Sweden there was an uproar after articles appeared in the newspaper Aftonbladet, about aggressive marketing where lottery tickets were allegedly sold to seniors suffering from dementia and about the rich founders. In its response, the PostkodLotteriet emphasized that the revenues do not go to “private individuals” but to Novamedia. The Dutch owners have not received any dividends for years,” the PostkodLotteriet wrote.

Calculation by this newspaper pointed out that the founders had jointly received nearly 89 million Euros during the past 25 years, through their own private companies, thanks to both the national and international activities of Novamedia. These revenues came from dividends, salaries and proceeds from the sale of shares.

There were several streams of money: The annual reports showed that Novamedia paid out a total of 12.1 million Euros to the founders between 1990 and 2008.

In addition, according to the Novamedia spokesperson, the four each received “20 percent of the proceeds from the license fee”, which Dutch lotteries paid to Novamedia. Allegedly, this amounts to 32.2 million Euros, but according to Novamedia, only 16.1 Euros was actually paid out to two of the four founders.  The other two left their portions in Novamedia, according to the spokesperson. They did receive their salaries, however. The company did not reveal how much those salaries are.

The four were also on the payroll as manager, commissioner, consultant and mission representative or creative partner, for around 8 million, between 2001 and 2013.

In addition to the dividends, the license fee and the salary there was another stream of money. There were two occasions where the founders received money from the sale of Novamedia shares.

The first time was in 2001, when Chios Investments bought 30 percent of the shares from theatre and television producer Joop van den Ende. He paid the founders 27 million Euros for these, of which they immediately reinvested 10 million in Novamedia.

Seven years later, millions again came in. In 2008, Joop van den Ende (for 37 million) and founder Herman de Jong (for 10 million) sold their shares to the Novamedia Foundation. This foundation was started by the founders themselves to “guarantee the continuity and the mission of Novamedia”.

After that, two other founders, Frank Leeman and Simon Jelsma, also sold their shares to the foundation for 15.2 million Euros. Leeman now owns a company that manufactures handmade Italian shoes “for the Dandy man”. Jelsma died in 2011.

The foundation purchased the shares with a bank loan, which was guaranteed by the Postcode Loterij, a loan from Novamedia and a dividend payment from Novamedia. The dividend (16.9 million Euros) was gifted to the Novamedia Foundation by the shareholders. This was done with the mediation of a so-called Public Benefit Institution (PBI), the Energo Foundation. The gift tax of 68 percent was avoided in this way. Of the four founders, Boudewijn Poelmann (64) is the only one that is still an owner (19 percent) of Novamedia. As per the agreement, his shares will be gifted to the foundation upon his death.

On Tuesday, Poelmann will once again present the millions of the 25-year-old Postcode Loterij (Postal Code Lottery), at the Goed Geld Gala (Good Money Gala) in Amsterdam. Many good causes are more or less dependent on the annual donation.

Poelmann is influential. He is the president of the three lotteries and the manager of Novamedia. His is also on the board of directors of the Novamedia Foundation, which holds 81 percent of Novamedia’s shares. And he is a manager of the Energo Foundations, along with his business friend, Derk Sauer (co-owner of NRC Media), among others. The Energo Foundation not only ensures tax savings, but also also appoints the directors of the Novamedia Foundations, “to guarantee the social mission of Novamedia”. Incidentally, it is the foundation Aandelen Nationale Goede Doelen Loterijen (International Good Cause Lotteries Shares) that controls the three lotteries; not Poelmann. Management of this foundation consists of people who have been associated with the Postal Code Lottery, some of them from the beginning.

Criticism about lack of transparency

Ever since its foundation, there has been criticism about the symbiosis of idealistic and commercial interests. Starting in the nineties, it was already about the profits reaped by the founders and the lack of transparency of their organization. After an investigation by order of the Ministry of Justice in 1993, the organization was adjusted slightly and a supervisory board was implemented. But the Gaming Supervisory Board the precedent of the Gaming Authority, wrote in his annual report in 1999:  “In terms of transparency and division, the role of the four founders (…) does not win a beauty prize.”

In the opinion of the Gaming Authority, the interests are still not divided very well. Most of the money from the lotteries goes to the DOEN Foundation each year, which distributes money for people, nature, culture, well-being and sports. Poelmann attends meetings of the supervisory board of this foundation as the president of the lotteries. The supervisory board is appointed and fired by the Board of Commissioners of the Holding Nationale Goede Doelen Loterijen (National Good Cause Lotteries Holdings). It is the opinion of the Gaming Authority that the governance structure between the foundation and the holding must change “in order to prevent the public from perceiving a conflict of interests.”  A report about his is also due to come out this spring.

In the opinion of Novamedia’s spokesperson, the fact that the founders were each left with millions from the lotteries was not undeserved. “Those four took great financial risks in privately founding the Postcode Loterij (Postal Code Lottery).  They put all their own money and in one case a second mortgage, into this new concept, because they believed in the power and in the mission. What we take for granted now, is only due to the courage of four people. They founded a social enterprise avant la lettre.”

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