The Lottery Commission was correct to award Camelot the second licence to run the National Lottery, says the National Audit Office.

However, in a new report the NAO warns that the company has an unfair advantage in future bidding wars, due to the risk associated with switching operators.

Controversy surrounded the bidding in 2000, when the commission was forced to consider Camelot's bid by a high court ruling, after entering exclusive talks with Richard Branson's "The People's Lottery".

"The commission's decision to award the second licence to Camelot was soundly based," said Sir John Bourn, chief executive of National Audit Office.

"However, there are constraints which may deter potential bidders and unless decisive steps are taken there may well be no competitive pressure next time.

"The Commission and the Department [of culture, media and sport] must do all they can to level the playing field and eliminate unnecessary demands on bidders."

The report recommends that the commission requires less information from competitors, and allows it to finalise certain details after the licence is awarded.

The National Audit Office also endorsed a move being considered by the commission to help with bidders' costs, after it was estimated that the average direct cost of launching a bid can reach between £3 million and £4 million.

However, the report warns against supporting flawed bids.