Camelot was last night looking forward to running the National Lottery for another seven years following a sensational reversal in its fortunes.

The Lottery operator had earlier been ruled out of the bidding by the Lottery Commission. But in a remarkable U-turn yesterday, the company was awarded the game's next licence.

Rival bidder Sir Richard Branson, who had promised to raise more money for good causes, refused last night to rule out a legal challenge after his People's Lottery was told it had lost the race to run the nation's favourite game.

But sources close to the bid said the chances of the Virgin tycoon pursuing the matter through the courts were looking increasingly unlikely.

Sir Richard had pledged not to take a penny out of the Lottery other than to cover expenses - unlike Camelot which has made millions in profits and has been hit by rows over "fat cat" salaries.

Camelot's celebrations began immediately after learning that the Lottery commissioners had voted by four to one to continue its franchise when the current agreement expires next September.

The decision will safeguard the jobs of 800 Camelot employees, including about 20 staff at the firm's regional office, at Doxford International Business Park, Sunderland.

Led by its new chairman, Lord Burns, the commission ruled that Camelot's continuing tenure was in the best interest of the game and expressed concerns about The People's Lottery bid.

In particular, it feared that there were greater risks in appointing The People's Lottery as the new operator and commended Camelot on the job it had done so far.

Sir Richard, whose bid cost about £40m, was clearly stunned by the commission's decision and rejected the reasons as superficial. He also ruled out making any future Lottery bids.

Sir Richard said: "We are sad, disappointed and baffled.

"Four out of the five judges voted for The People's Lottery only two-and-a-half months ago.

"One new judge turns up and somehow manages to turn a number of them round."

The decision was also greeted with anger from within the Lottery's own ranks after commissioner Hilary Blume, who had been the sole supporter on the five-strong panel for Sir Richard's bid, resigned.

She said: "I could not agree with the decision to award the licence to run the Lottery to Camelot. I believe the Lottery needs a relaunch to arrest declining sales."

A spokesman for No 10 appeared to suggest that the bidding process - the cause of months of wrangling - may now be overhauled.

The decision over the game's future had first been due in June but delays saw the deadline roll over through the summer until the commission announced in August that neither bid was up to scratch.

The commission, under Dame Helena Shovelton, decided to exclude Camelot from playing any further part in the selection process. It announced it would only hold talks with organisers of The People's Lottery to iron out shortcomings in their proposals.

Camelot went to the High Court, where the commission's decision was overturned. Dame Helena resigned and was replaced by Lord Burns.

Dianne Thompson, who took over as Camelot's chief executive yesterday, said: "Our bid offers something for everyone. It offers players a greater choice of games, more ways of playing, greater chances of winning and of becoming a millionaire, and a commitment to keeping the National Lottery at the heart of every community."

She promised £1bn of investment in new terminals, marketing and infrastructure.

Comment - Page 12