CMO Principle and Financial Assistance Further Clarified in Latest CAT Judgment on Subsidy Control

Beatrice Wood and Oliver Dickie explore the key implications for public authorities following the latest CAT judgment on subsidy control (The Subsidy Control Act 2022: The New Lottery Company Ltd and Others v The Gambling Commission).

 The Competition Appeal Tribunal (CAT) has issued an important judgment[1] under the Subsidy Control Act 2022 (the “Act”), rejecting a challenge to a decision by the Gambling Commission to forego revenues which would otherwise have been paid into the National Lottery Distribution Fund. The challenge was made by the New Lottery Company Limited, Northern & Shell PLC and the Health Lottery Elm Limited.

The ruling further clarifies the application of the commercial market operator principle (CMO principle) under the Act, providing helpful direction for public bodies and subsidy challengers.

Furthermore, it provides guidance on in what circumstances a public authority will confer financial assistance by foregoing revenue; and on how the CAT will treat applications made outside the time limits prescribed in section 71 of the Act.

Background

The case concerned the Gambling Commission’s decision to permit Camelot UK Lotteries Limited (which at the time of the decision was the operator of the National Lottery under the Third National Lottery Licence) to retain National Lottery revenues of £70.21 million to invest in the marketing of the National Lottery. The revenues would otherwise have been paid to the National Lottery Distribution Fund.

The Applicants alleged that the Gambling Commission’s decision constituted the grant of a subsidy to Camelot and/or Allwyn UK Holding B Ltd or Allwyn Entertainment Limited (which respectively became Camelot’s parent and sister company in 2023).

The CAT identified the following key issues for determination:

• Most importantly, whether the Gambling Commission’s decision constituted the award of a subsidy.
• Whether principles developed in EU case law were persuasive in interpreting the CMO principle.
• Whether, when analysing an alleged subsidy’s compliance with the CMO principle, it matters:
  • if the public authority is acting in a public or commercial capacity; and
  • whether there is a private market for the activity in question, especially where the contribution is linked to infrastructure which no private operator would be able to create alone.
• Whether the Applicants should be refused relief for their delay in making a claim.

 The CAT’s Key Findings

The CAT:

• Held that the Gambling Commission’s decision did not constitute a subsidy because it complied with the CMO principle.
• Confirmed that EU case law was persuasive when interpreting the CMO principle under the Act, following the approach adopted in R (British Gas Trading) v SS for Energy Security and Net Zero^[2] and Weis v Greater Manchester^[3].
• Rejected the Applicants’ contention that the market economy operator principle (and, by analogy, the CMO principle) should not apply in circumstances where there is no actual market comparator. Instead, it held that, where there is no actual market comparator, the question that should be asked is whether the state intervention giving rise to that alleged subsidy can be assimilated to or is comparable to that of a private operator. “If so, the correct approach is then to assess what the normal conditions might be for the provision of the relevant benefit, on the basis of the objective and verifiable evidence available.”^[4]
• Concluded that the Gambling Commission’s decision to forego revenue amounted to “financial assistance” under s2(1)(a) of the Act, despite it not necessarily diminishing its resources in the long-run:
• • It noted that when assessing whether a public authority has forgone revenue otherwise due, the term “otherwise due” requires a comparison between the revenues due under the contested measure and the revenues that would be due in “some other situation”. A benchmark against which to compare the effect of the decision needs to be identified in such a case.
  • Further, it concluded when considering whether forgone revenue amounts to financial assistance that is “given from public resources” for the purposes of s2(1)(a) and s2(2)(c) of the Act, the material factor is the public nature of the resource, and not the question of whether the measure in issue ultimately increases or diminishes the budget of relevant public authority.
• Concluded that the Applicants did not make their claim sufficiently promptly (i.e., within the one-month limit from the date they became aware of the Gambling Commission’s decision). Consequently, it stated that had the Applicants been entitled to relief, it would have been inclined to refuse it.

Key Implications for Public Authorities

1. The CMO principle may still be applicable where the State is doing something the market does not do.

The CAT’s finding re-emphasises the central importance of the CMO principle to the test for whether financial assistance confers an economic advantage, including in circumstances where there is no actual market comparator. This is noteworthy because the Applicants’ central argument was that the CMO principle could not apply on a factual basis, because a private market was absent. They asserted that the test to be applied was simply one of considering, objectively and verifiably, whether there was an economic advantage conferred on Camelot or Allwyn^[5].

The CAT also highlighted the essentially commercial character of the decision, which it determined was ripe for comparison with normal market conditions under the CMO principle. In light of this finding, the CAT criticised the Applicants’ submissions as little more than speculation based on indifferent evidence.

2. When assessing whether the CMO principle applies (for example, in cases where benefits are to be shared between contractors and the public authority), the commerciality of whole negotiated outcome (including the contractor’s potential gains) needs to be considered rather than just the public authority’s returns.

The CAT dismissed the Respondent’s argument that the potential gains for Camelot or Allwyn were of no relevance at all when considering the CMO principle (because, the Respondents argued, the primary concern of the private investor would be its own financial returns). The CAT affirmed that the purpose of the CMO exercise is to “assess the commerciality of the negotiated outcome which the public authority has achieved. That means taking account of the potential gains available to both parties and the basis on which a decision has been made to share those.”^[6]

3. When considering whether the foregoing of revenue otherwise due is “financial assistance” for the purposes of s2(1)(a) of the Act, the public nature of the assistance is the material factor, rather than whether public resources have actually diminished.

Public authorities should note that, according to this judgment, when considering forgoing revenue otherwise due, the material factor is the public nature of the resource, and not the question of whether the measure in issue ultimately increases or diminishes their revenue accrued (though, as below, this consideration is not irrelevant when CMO is engaged).

Although this case dealt with the forgoing of revenue specifically, the wording of paragraph 160 of the judgment arguably implies that the principle above should be applicable to other (non-exhaustive) forms of financial assistance, including those others set out in s2(2) of the Act.^[7] It will be interesting to see whether further cases clarify if this principle could be applied to intangible assets in the same way – i.e. the granting of an IP licence or the sharing of data.

Ultimately, there remains some uncertainty surrounding the breadth of this principle’s application (i.e. whether it applies only in relation to forgone revenue otherwise due vs. it applying to all other types of financial assistance), and therefore public authorities may wish to adopt the more cautious approach.

4. It provides comfort for public authorities around time limits for delayed claims

The judgment confirms that where a public authority has not treated the assistance as a subsidy, claim proceedings should normally be issued within one month of the date on which the applicant was or should have been aware of the decision, unless within that one-month period a request is made for the provision of information. This is comforting for public authorities, as it starts the challenge clock running even where an authority does not think it has awarded a subsidy.

5. Whether financial assistance is “specific” should be interpreted as applying broadly

Section 4(2) of the Act outlines that measures are not specific (for the purposes of engaging s2(1)(c)), “if the distinction in the treatment of enterprises is justified by principles inherent to the design of the arrangements of which that financial assistance is part.”

However, the CAT confirmed that in cases where a contract was awarded following an open and competitive procedure to ensure that the contract itself did not itself constitute a subsidy, this does not mean that any financial assistance that the contractor receives pursuant to that contract is immune from scrutiny under the provisions of the Act^[8].

Relevant here was the fact that while the decision was adopted by the Respondent under a mechanism set out in a condition of the licence (which had been awarded competitively), it was not inherent in the design of licence that such a decision should have been adopted, meaning s4(2) of the Act did not apply, and the financial assistance was deemed “specific”.

The application of s4(2) of the Act should not be confused with an assessment which would be carried out when considering a subsidy’s compliance with the subsidy control principles – i.e. when considering proportionality and minimising distortion by the design features of the subsidy instrument under principles B and F.

This conclusion opens the door to an argument that when modifying public contracts under applicable procurement rules, that modification may not be deemed “specific” in subsidy control terms where the modification is “inherent in the design of the contract”.

That said, public authorities should note that this will depend on the factual matrix in each case. Notably, it is still possible that a contract variation could be deemed a subsidy even where the original contract was procured in an open and competitive market.

6. State aid law may be used to guide the application of provisions of the Act, unless there is an obvious reason to depart from EU principles

Throughout the judgment, references to State aid caselaw were used to interpret how to apply provisions in the Act. Particularly, the CAT confirmed that “the CMO principle is intended broadly to replicate, within the framework of the [Act], the approach taken by the EU courts in relation to the market economy operator principle” (MEOP). It noted that the principles from EU case law in relation to the MEOP should be treated as generally applicable “unless there is some obvious reason to depart from them”. ^[9]

Arguably, this opens the door to the use of State aid case law as guiding principles when construing other parts of the Act. For example, the CAT also referred to EU case law when addressing the issue of “specificity” (or “selectivity” in State aid terms).^[10]

Public authorities may remember the difference in the CAT’s treatment of this point in case of Durham, whereby it stated that the principle that State aid law could be nothing other than “of persuasive effect when construing the provisions of the 2022 Act.” ^[11]. On the contrary, the Gambling Commission case indicates a move in a clearer direction for the post-Brexit subsidy regime.

Sharpe Pritchard Commentary

Our subsidy control team advises on all aspects of the Act, including the application of the CMO principle in practice. We support public bodies in designing lawful funding mechanisms and assist both claimants and public authorities in litigation under the subsidy control regime.

For further information or tailored advice, please contact us.

Beatrice Wood is a Junior Associate and Oliver Dickie is a Trainee Solicitor at Sharpe Pritchard LLP.

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[1] The New Lottery Company Ltd and Others v The Gambling Commission [2026] CAT 14

[2] [2025] EWCA Civ 209, [2025] 1 WLR 3342

[3] [2025] CAT 41.

[4] Paragraph 91 of the judgment.

[5] The CAT noted at paragraph 92 of the judgment that this interpretation would require s. 3(2) of the Act to be disregarded in the assessment of economic advantage when there is no actual market comparator, and saw no basis for this approach.

[6] Paragraph 123 of the judgment.

[7] Paragraph 160 states: “We do not see any reason why the same [State aid] analysis should not apply to the application of ss. 2(1)(a) and 2(2)(c) of the SCA, given that the relevant question is whether financial assistance is given from public resources, including by the forgoing of revenue otherwise due, and not whether that ultimately leads to an increase or diminution of the revenue accruing to the relevant public authority under the regime in question.” (emphasis added).

See also, paragraph 308 of the judgment of Belgium v Commission (State aid) [2006] EUECJ C-182/03 (22 June 2006), which the CAT reference:  “For the condition that the aid must be financed through State resources to be satisfied, it is sufficient that the measure should receive actual support, directly or indirectly, from the public budget. […] The material factor in considering that condition is the public nature of the resource and not the question whether the measure at issue ultimately does, or does not, represent a charge for the budget of the Member State concerned.” (emphasis added).

[8] See paragraph 166 of the judgment.

[9] Paragraph 73 of the judgment.

[10] Paragraph 165 of the judgment.

[11] Paragraph 33,  Durham Company Limited v Durham County Council [2023] CAT 50.