Camelot's legal challenge against a decision to rule it out of the running of the UK's National Lottery has been adjourned.

The current lottery operator announced on Friday morning that it was going to court to try and overturn a decision which effectively shuts it out of negotiations to win the next seven-year lottery licence.

On Friday afternoon it went to the High Court to apply for a judicial review.

On Wednesday, the National Lottery Commission had rejected both bids for the UK lottery licence, but said it would start exclusive talks with Camelot's rival, the People's Lottery consortium headed by Sir Richard Branson.

Camelot lost out because its partner GTech had hidden flaws in its lottery software. As a result many winners received less money than they should have got.

Branson criticises Camelot

Camelot said it had urged the Lottery Commission to reconsider its decision, and had decided to take court action after this request was rebuffed.

At the High Court in London Mr Justice Sullivan adjourned Camelot's judicial review application until Tuesday, following the Lottery Commission's undertaking that it would not engage in talks with the People's Lottery over the Bank Holiday weekend.

Sir Richard criticised Camelot's move. Speaking to the BBC he said the legal challenge would simply delay the process and could threaten the flow of money to charities.

He said he believed Camelot had been treated fairly by the commission, but added it would now left to the courts to decide.

The leader of the People's Lottery is currently meeting officials from the National Lottery Commission (NLC). It will be his job to convince them that the consortium is up to the job to run the world's largest lottery.

Sir Richard Branson said he was determined to find a way to overcome remaining objections to his plans.

"Having come this far I would be surprised if we could not find some way to bridge the gap," he said.

With his offer on Thursday evening to underwrite the lottery with �50m, the People's Lottery consortium will have made a significant stride towards easing regulators' worries.

Sir Richard was meeting Dame Helena Shovelton, chair of the National Lottery Commission which awards the contract.

"Unduly optimistic"

The NLC's main objections to the People's Lottery's bid to run the lottery from October 2001 centred around its "unduly optimistic" forecasts of ticket sales.

The consortium claimed that, through a relaunch of the lottery, it would be able to increase sales by 44% within the contract's seven year period.

The consortium would introduce tickets with 53 numbers instead of 49 to decrease the chances of winning the main jackpot - and so increase the chance of a rollover, when winnings from two weeks or more are pooled.

"From our research here and in the US, you can see it is the rollover which really attracts interest," People's Lottery spokesman James Murgatroyd told BBC News Online.

First triple rollovers

The number of double rollovers would increase to an average of eight a year, from around one at present, and the National Lottery would also record its first triple rollovers, Mr Murgatroyd said.

Scratchcards would be revised, and themed around events such as major football competitions, when cards with penalty shootouts would be introduced.

And the People's Lottery would create more millionaires by introducing a subsidiary competition on lottery tickets, and a television show, both guaranteeing �1m prizes.

The People's Lottery may yet be able to beat Chris Tarrant, presenter of Who Wants to be a Millionaire, to giving out �1m on television, Mr Murgatroyd said.

Forecasts "not viable"

But the NLC, while welcoming proposals to invigorate the lottery, said that new competition and an analysis of current sales trends made the People's Lottery forecasts "not viable".

"The commission concluded that likely revenue scenarios would fall significantly below the principal forecasts," the commission said.

It also doubted that plans for a regional game, played online, "would be viable".

Overall "the commission had significant concerns about the financial viability of the People's Lottery in lower revenue scenarios," the NLC said.

Emergency fund

Hence its demand for a cashpot to underwrite the consortium's plans, and ensure that winners were paid even if the People's Lottery went bankrupt.

The consortium actually proposed a �50m fund earlier this year during negotiations - an idea the NLC backed - but failed to secure the cash.

And even after Sir Richard's offer, details still have to be agreed on how the cashpot would be held.

But with his offer, Sir Richard may have become the first person to pay �50m to win the lottery.