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Are Changes Imminent in the Society Lotteries Sector?

I am currently advising a major UK charity, a household name, on how best to maximise the revenue it can raise from its lotteries, in order to, in turn, optimise the sums of money that it can devote to its charitable aims and objectives. A relatively uncontroversial endeavour, one might have thought, and one that all of us would support.

The problem, however, is that the Gambling Act imposes various financial limits on society lotteries, which sit as conditions on every operating licence granted to a so-called “large society” by The Gambling Commission. These limits are prescribed by the legislation in order to preserve the pre-eminent position of The National Lottery, whose monopoly is driven by the view that a single national lottery, with protections, is the most efficient way of generating money for good causes on a national scale.

The National Lottery was established in 1994 and is the only lottery scheme in the country with the capacity to offer life-changing prizes with no cap on annual sales. By contrast, society lotteries cannot raise more than £10 million in ticket sales in any calendar year, or £4 million via a single draw. In addition they are limited insofar as the value of the first prize they can offer is concerned, to £25,000, or 10% of the value of the ticket sales, whichever is the greater.

The problem that my client has encountered, then, is that its lottery scheme has proved to be so successful that it has inadvertently breached the £10 million annual proceeds limit, largely due to the way in which it timed its lottery draws. Whilst The Commission has been broadly supportive and is keen to ensure that the charity concerned can maximise the funds it applies to its numerous charitable activities, the breach of the proceeds limit constitutes a breach of a condition of its operating licence and, accordingly, The Commission has no choice but to impose a sanction, which it has chosen to frame as a corresponding reduction in the lottery proceeds that the charity can raise via lotteries this year.

There is a solution to this situation, however, which consists in the charity establishing a second society, with a separate lottery carried on under a second large society lottery operating licence. The Commission is prepared to sanction such a structure, and produced guidance on the subject in August 2011. There are various hurdles, however, that need to be overcome in order to run a so-called “umbrella” scheme – running multiple lotteries under a single brand.

First, the charitable aims and purposes of each society under the “umbrella” must be clearly and demonstrably distinct. This is not to say that the objects of the overarching charity themselves necessarily need to change, but the purposes for which each society is established must be different. That means that one cannot, for example, have a single charity with one society lottery being run to benefit animal welfare and another in aid of the welfare of donkeys. A scheme with one lottery for Irish dog rescue and another to raise money for Welsh cat rescue would work, though.

Secondly, whilst the general advertising and marketing material relating to an “umbrella” lottery scheme can feature the branding and logo of the main charity, it must make it clear that each draw will be on behalf of separate identified societies. The relative prominence on promotional material and tickets of the name of the umbrella lottery brand compared to the name of the society or societies involved in the promotion of the draw must be such as to ensure that consumers clearly understand which society’s lottery, exactly, they are supporting.

Some six large national charities currently hold multiple society operating licences in respect of separate societies that they have set up, and which meet the distinctiveness tests set down by The Commission. One example is The People’s Postcode Lottery, which has established The Postcode Animal Trust to support animal welfare, The Postcode Children’s Trust to support children’s charities and The Postcode Culture Trust to support museums and other cultural groups and organisations.

After extensive discussions with The Commission in this case, it appears that we have come to an agreement on establishing separate societies that will satisfy both parties. The challenge, of course, is to come up with charitable aims that are both sufficiently distinct to meet The Commission’s requirements whilst still having a broad enough appeal to make entering into the individual lottery remain attractive to players as a means of charitable giving.

Looking at the society lottery landscape more generally, though, it may well be that the law in this area is set to change in the relatively near future. From 11 December 2014 to 4 March 2015, The Department for Culture, Media and Sport held a consultation in the form of a “call for evidence”, looking at the current balance and respective boundaries between The National Lottery, society lotteries and other forms of gambling, many of which, such as some betting-on-lotteries products, are run entirely for commercial gain. At the same time, The Culture, Media and Sport Committee carried out an investigation into society lotteries, specifically examining their role and their place within a system that allows “umbrella” schemes and the arguments for raising or removing the financial limits.

These moves were undoubtedly motivated by the recent furore surrounding the best-publicised “umbrella” scheme, The Health Lottery, which launched in October 2011 and is a consortium of 51 society lotteries defined by geographical region but which operates across the country and can, accordingly, raise up to £510 million annually in ticket sales. A high-profile challenge to The Health Lottery, brought by Camelot, who operate The National Lottery, in the High Court failed in the summer of 2012, but the case raised concerns that the new “umbrella” scheme was placing the unique national nature of The National Lottery and the good cause funds it raises under pressure. The Coalition Government of the day’s stated position was that maintaining the health of The National Lottery was essential and that it was prepared to bring forward changes to regulation, if necessary to achieve this.

The consultation was launched with this approach in mind and with a view to gaining more of an understanding of how the current market operates and the competing interests of those within that market, before adopting any reforms.

The call for evidence had the benefit of advice from the Commission on the boundaries between The National Lottery, society lottery and commercial gambling markets and how any changes therein might affect both public perception and returns to good causes from The National Lottery and society lotteries. The information provided established that the market share of lottery income to society lotteries has risen slightly between 2009/10 and 21013/14, from 6% to 9%, whilst the share to The National Lottery has fallen, from 94% to 91%. However, taken as a proportion of national gambling spend, the proportion taken by the lottery sector overall has remained constant.

Society lotteries have achieved great success in recent years, with sales having risen rapidly over the last five years. In 2008/9, £178.6 million sales were achieved. This more than doubled to £376.9 million in 2013/14, with £175 million going to good causes. Societies must donate a minimum of 20% of proceeds to the good cause and in practice the percentage donated varies considerably from society to society, with some donating the bare minimum and others considerably more. The average donation across the society lottery sector is 42%; this contrasts with The National Lottery, which donates approximately 26%, although Camelot does pay 12% on top of this in lottery duty to The Treasury.

The sheer scale of The National Lottery, though, means that it has been very successful and has donated an eye-watering sum of money to good causes, over £32 billion to date. Since its inception it has made over 450,000 individual awards, which amounts to a quite staggering average of 138 for each postcode district in the UK.

The Commission’s advice to the consultation was that, in terms of quantum, The National Lottery continues to dwarf the society lottery sector and that impacts generated from potential threats posed by “umbrella” society lottery schemes are currently small. It did not rule out greater impact occurring in the future but thought this unlikely, given the considerable commercial barriers to such schemes achieving genuine consumer traction, including the current financial limits that apply to them.

Against this backdrop, the Lotteries Council of Great Britain, which represents the interests of society lotteries, submitted a strong response to the consultation, in which it argued for the relaxation of the financial limits to £100 million annually and £10 million from a single draw. It also issued a plea for a new first prize limit of £100,000 or 50% of proceeds. It maintained that market share of society lotteries remains extremely small, even since the launch of The Health Lottery, and that increasing the financial limits in this way would enable charities to raise considerably more money to do good, without affecting a thriving National Lottery. It believes that there is scope for this to happen, given the generosity of the British public, combined with more sophisticated modern fundraising methods. It also takes the view that increasing financial limits would do away with the need for charities to create multiple lotteries, with the additional cost and bureaucracy burden that this brings, and points to the fact that it is at present possible to circumvent turnover restrictions in this way calling into question  the need to have them at all.

The current Government is still considering the responses to the consultation, and various meetings have been taking place behind the scenes. Thus far, it is unclear what, if any, reforms it will decide to implement. However the tide appears to be turning at present as far as the charitable sector is concerned, with new legislation promised to curb excessive marketing, cold-calling and touting for donations. In this context it may well be that the relaxation of the rules that the society lottery sector so craves may not be forthcoming. We will continue to monitor developments in this area and will issue a further update when one is available.

For further information please contact Anna Mathias at