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Gambling Commission Preparing Input Into Government Review Of Lotteries

The Government published its response to the Culture, Media and Sport Committee’s Fifth Report of Session on society lotteries in September, indicating that it would accept or explore further all of the Committee’s main recommendations for reform of the sector. It has asked the Gambling Commission (“GC”) for advice and input in a number of areas, a piece of work that the GC has said should be complete by the end of this month. Here, we look at some of the changes that may be afoot.

The current review has been inspired, at least in part, by the development in recent times of so-called “super-lotteries”, umbrella lottery schemes such as the Health Lottery and People’s Postcode Lottery whereby multiple draws are promoted under a single brand. The Government is contemplating where these sit within the lotteries landscape overall, and how best to regulate them, in order to maximise contributions to good causes whilst ensuring player protection.

The Government supports the Report’s conclusion that lotteries, being the preserve of good causes, are separate and distinct from other gambling products and that their regulation should be as “light-touch” as possible. However, it is concerned that public trust and confidence in charitable lotteries, and the good causes they support, should be maintained and not tainted by any perception that they are being run primarily as devices to further commercial interests. It is also conscious of the need to ensure that The National Lottery continues to be in a position to donate the very large sums that it currently does to good causes, although it acknowledges the Report’s conclusion that there is currently no evidence that society lotteries are posing any threat to it.

The Government says that it will consider the Report’s recommendation that a sliding scale of minimum percentage donations from proceeds be introduced, to alleviate the burden on smaller lotteries, whilst increasing obligations as lotteries become larger. It has asked the GC to review the current monetary caps on proceeds and prizes for small and large lotteries and to advise on whether these should be raised, and if so, to what levels, bearing in mind the need to protect the position of The National Lottery. However, the Government has rejected the Committee’s recommendation that the caps be reviewed every three years as a matter of course, preferring to continue to rely on the GC to keep a watching brief and to tell it when a review is necessary.

In its response, the Government echoes the Committee’s concerns about umbrella lottery schemes operating as devices to circumvent those monetary limits and has asked the GC for advice on this issue, and on introducing a new class of umbrella lotteries, with its own limits on individual draws, annual proceeds and prizes. However, Government recognises that this is a complex area that will need to be handled carefully to avoid any detrimental impact by diminishing the overall return to good causes. It also acknowledges that any change in this area will require amendments to primary legislation, and has promised to consult with the sector before acting.

One of the Committee’s recommendations is that an amendment to the Gambling Act 2005 be brought forward to enable lottery start-up costs to be spread over a period of, perhaps, three years. This would have the consequence that the obligation to donate at least 20% of proceeds to the cause would disappear initially, and would be replaced by an obligation instead to use best endeavours to donate that amount, coupled with an onus being placed on the GC to weed out, through the licensing process, rogue, would-be “phoenix schemes”, designed to make commercial gain and then fold before the three years are up. The Government is concerned, though, about the way in which such a change would apply to small society lotteries, regulated as they are by Local Authorities, and wants to conduct further analysis to see if this proposed solution would be workable and whether it would add unduly to the regulatory burden. For now, it has asked the GC for its view on the subject, and to advise on two other methods advanced to the Committee of giving organisations increased flexibility to develop new lottery products, namely extending the minimum 20% donation to good causes obligation across a year, and enabling entities simultaneously to hold both large and small society lottery licences.

The Committee stressed the importance of transparency in lotteries and recommended that information about the proportions of ticket monies spent on expenses, devoted to prizes and donated to the good cause be included on lottery tickets. The Government agrees that transparency is key and has asked the GC to look at the options for improving the information provided to consumers, and how it should be made available.

The Government also agrees with the Committee that it is not appropriate for the larger, well-established lotteries to donate only the statutory minimum 20% of lottery proceeds to the good cause. The Committee rejected the option of raising this minimum figure, but the Government wishes to explore that possibility further. This is because it fears that the Committee’s alternative recommendation, that a cap on expenses for the largest lotteries be set at 35% of proceeds, might have unintended consequences in that it might encourage operators to divide into smaller entities in order to circumvent the rules, and discourage them from seeking efficiencies below 35%, thereby creating “a race to the top”. The Government therefore proposes to explore both these possibilities, as well as the Committee’s alternative solution that 12% lottery duty be introduced for any scheme that does not donate at least 32% of proceeds to the good cause.

The Government has also taken up the Committee’s recommendation that the licence application process and regulatory framework generally, insofar as it applies to the lotteries sector, be reviewed to ensure that it is not unduly burdensome. It has asked for the GC’s guidance in this regard. It is also pursuing with the GC the possibility that commercial entities be allowed to run lotteries for good causes. Here, the language of the response is unclear, as of course External Lottery Managers are already permitted to do so if they are appropriately licensed. It can only be assumed that something other than this is envisaged, such as non-specialist companies running lotteries as part of their corporate social responsibility activities. The Government has asked the GC to explore this recommendation further, but has cautioned that such schemes may not be capable of being dealt with by way of “light-touch” regulation, particularly at the outset of a venture.

It was suggested to the Committee that the regulatory regime should be more flexible, allowing any society licensed to run a lottery to do so on behalf of other good causes, as long as transparency to players is maintained surrounding who the beneficiary of the lottery is. The Committee endorsed that suggestion and the Government has promised to consider this further, for cases where there is a clear benefit in this happening.

Both Camelot and the GC brought their concerns before the Committee surrounding the blurring of the distinctions between lotteries and betting, as a result of the evolution of online gambling. The Government agrees that transparency and reducing consumer confusion are important, and has asked the GC to evaluate the three possible solutions suggested by Camelot, namely banning all betting on UK licensed lotteries, improving the clarity of marketing materials to distinguish better between betting and lottery products, and redefining all bets on lotteries as lotteries.
It is clear that there is a great deal of work for the GC to do, within a relatively tight timescale. Where the Government takes matters once it has received the GC’s input remains to be seen, but it is likely that some significant changes to the regulation of lotteries are likely to result from this process. We will continue to monitory developments and will report further once the GC’s advice and guidance to Government is made public.