MORE than 500 people, many from the Watford area, are facing unemployment with the rejection of Camelot's bid to run the National Lottery for the next seven-year contract.

The National Lottery Commission announced on Wednesday it had decided not to renew current operator Camelot's licence, which expires in October next year.

Camelot's bid was rejected because its equipment supplier GTECH is at the centre of a scandal in which it covered up software problems, which meant lottery winners were over or underpaid and some retailers were overcharged. A report to the commission on the investigation is due in September to help it decide what action to take and a review into Camelot's relationship with GTECH is due in November.

The lottery regulator rejected the only other bid - from billionaire entrepreneur Sir Richard Branson's non-profit-making The Peoples' Lottery - but said it would pursue the latter to try to resolve legal concerns by September 23. Camelot employs 800 staff at 13 UK sites but its biggest, with more than 500 employees, is its head office in Tolpits Lane, Watford.

Staff leaving the building, which has been the centre of the company's operations since Camelot won the contract to run the UK's first national lottery in 1993, refused to talk about the announcement on Wednesday.

Mr Tim Holley, chief executive of Camelot, said in a statement on Wednesday he could not understand why the commission had failed to make a final decision and why The People's Lottery had been given a chance to improve its bid and his company had not.

He said: 'I and the 800 staff at Camelot are bitterly disappointed and stunned by today's news. After everything we have put into running the lottery this is a very sad day for everyone at Camelot.'

Mr Holley said he was confident Camelot's bid was strong and 'not only promised to protect players and uphold the highest standards of propriety and integrity, but also to deliver £15 billion for good causes'.

Watford MP Miss Claire Ward and South West Hertfordshire MP Mr Richard Page also expressed shock at the decision and concern about the impact on staff. They said they will write to the commission to argue for Camelot's licence renewal.

Miss Ward, a member of the culture media and sport select committee, said she was 'disappointed' Camelot had not been given the same opportunity as The People's Lottery.

She also said she was surprised that the commission could not wait until reports and reviews of the operator's relationship with GTECH were considered before making a decision.

'The suggestion that the relationship of Camelot and GTECH is in some way not 'fit and proper' is bizarre,' she added.

'Why is Camelot considered appropriate to operate the licence now but not in September 2001?'