They blamed the increasing popularity of scratchcards and instant win games, which only contribute around 10p in the pound to grant funding, at the expense of big draws like Lotto, which average 30p.
The Commons Public Accounts Committee also criticised the “favourable” renegotiation of Camelot’s contract and unpopular “tinkering” with lottery’s format, such as increasing the number of Lotto balls and so reducing the chances of winning.
Camelot’s profits were 122% higher in 2016-17 than 2009-10, while returns for good causes grew only 2% over the period and declined 15% over the final year.
The committee said one of the founding principles of the lottery - raising money for good causes - was now “under threat”.
Its chair Meg Hillier said: “It would be a sad and significant loss to many deserving organisations and individuals if that funding, which has amounted to some £37bn since 1994, should dissipate as a result of inaction now.
“Our report lays bare the need for a concerted effort from Government, the Gambling Commission and Camelot – a monopoly supplier whose profits more than doubled in seven years while returns for good causes grew by just two per cent.”
The cross-party group of MPs criticised the 2012 redrawing of Camelot’s licence, which allowed the company’s profit to increase to one per cent of sales after tax compared to 0.6 per cent originally anticipated by the original 2009 license, and runs for 14 years with no scope for the Commission to change the terms without the company’s agreement, unlike other contracts which often include break clauses.
“Lessons must be learned from the renegotiation of Camelot’s licence in 2012, which was too generous to the provider and too inflexible to protect the interests of grant recipients,” Ms Hillier said.
“Tinkering” with the format of the lottery agreed between Camelot and the Gambling Commission has also failed to have the desired effect, leading to falling sales of Lotto tickets while both the firm and regulator remain unwilling to reverse unpopular decisions such as increasing the number of balls, whcih reduced the chances of winning.
The affordability of lottery funding of good causes is now regarded as a “high risk” by the Government, the committee said.
It also urged the Commission to agree game changes proposed by Camelot intended to reverse declining returns.
A Gambling Commission spokeswoman said: “We are extremely disappointed that returns to good causes have declined and we will continue to hold Camelot to account for the performance of the National Lottery. Over the past 12 months we have required them to carry out a review of the effectiveness of their board. We have also strengthened our approach to assessing their performance.
“We will continue to work hard to ensure Camelot maximises returns to good causes.”