A successful bid to host the 2012 Olympics in London could cost charities at least £22 million a year, according to calculations based on internal government documents.
They show that ministers' plans to raise millions of pounds from a new Olympic lottery game are likely to poach players from existing games and reduce income to beneficiaries by 4 per cent.
If this figure is applied to the £360 million given to the voluntary sector by the Lottery Community Fund and the £200 million given by the New Opportunities Fund to voluntary sector-led projects, the resulting loss to good causes would be £22.4 million.
Such estimates are bound to be speculative before details of the new games have been announced, but they have caused concern at the Community Fund and to its beneficiaries.
The Government is expected to endorse the bid for the games from the British Olympic Association, which is hoping to be chosen ahead of competition from Paris, Moscow, New York and Madrid.
Primary legislation would be required to establish the Olympics as a separate "good cause" because under current rules, lottery games cannot distribute their entire proceeds to single causes.
A spokeswoman for Camelot said that the lottery operator had provided the Government with a "wide range of suggestions for new and innovative games", including a special Lotto-style Olympic draw and themed scratchcards.
She conceded that could have an effect on the funding to charities. "With new games there is an element of canabalisation that could impact on good causes. But it's too early for us to talk about specifics," she said.
A Community Fund insider said that there was significant concern among the lottery distribution boards that a "single cause" lottery game would set a dangerous precedent. A London Olympic bid was unlikely to be successful so there was no immediate danger, but the principle of "hypothocating" money from lottery games to new specific good causes could be the "thin end of the wedge."
Elsa Davies, director of the lottery-funded National Playing Fields Association, said that charities would be concerned about the effect of the Olympics on them. "We'd love to see some funding for Olympics and a successful bid because that gives you excitement and enthuses people about sport," she said.
"But we don't want it to be to the detriment of organisations working at the foundations of sport. It's hard enough to get money for playing fields from the lottery as it is. If there are cuts, how on earth are we going to get any money for the grass roots?"
Candidate cities must submit their bids to the International Olympic Committee by November next year. A final decision will be made in July 2005.
A recent study by government advisers conceded that Paris was the favourite for 2012 but London would receive backing from Commonwealth members of the International Olympic Committee and some north European countries. The Olympics were last held in London in 1948.