What's in store for charity lotteries?

Relaxation of regulation could open the way for more charity lotteries, write Sarah Payne and Lucinda Ellen.

Lotteries are an important and growing source of unrestricted income for many charities. This year, the government has promised to loosen the rules and present new opportunities for charity fundraising.

In addition, the Parliamentary Committee on Culture, Media and Sport recently published its report on regulation of society lotteries and the National Lottery. This report makes some important recommendations which could encourage more charity lotteries.

What is a “society” lottery?

If a raffle or prize draw meets the following conditions, it will be a lottery which engages gambling regulation:

(a) payment is required to participate;

(b) one or more prizes are awarded;

(c) those prizes are awarded by chance.

A society lottery is one which is promoted by a non-commercial “society” that is set up to further good causes. A charity qualifies as a society under gambling regulation.

A society must register its lottery or lotteries as a "small society lottery" with a local authority if it puts less than £20,000 worth of tickets on sale for any one lottery or sells less than £250,000 worth of lottery tickets in a year. If either of these thresholds is exceeded, a Gambling Commission licence is required.  

The Gambling Act 2005 sets out numerous offences including offences relating to promoting and facilitating a lottery which is not registered with a local authority or licensed by the Gambling Commission.

What are exempt lotteries?

It is possible for a charity to promote an exempt lottery without registering with either a local authority or with the Gambling Commission. An exempt lottery is an arrangement which meets the three conditions set out above but is structured to fall within an exemption from gambling regulation. 

The exemptions are relatively limited. For example, a raffle at a non-commercial event, such as a fundraising gala, may fall within an exemption but only if the winner is announced at the event and certain other requirements are met. Other types of exempt lotteries (such as private society, workplace and residents’ lotteries) are not permitted to raise funds for charities. 

What changes are proposed to exempt lotteries?

The Government has promised to relax the restrictions on exempt lotteries. This includes removing the current restrictions which prevent private society, workplace and residents’ lotteries proceeds from being donated to charity and other good causes. This change will increase the circumstances in which a charity’s supporters can hold a fund raising raffle without engaging gambling regulation. 

The Government has also decided to abolish the requirement for the results of incidental non-commercial lotteries to be announced during the event. This will allow for more lotteries, such as balloon races, to fall within the scope of the exemption and will reduce the circumstances in which local authority or Gambling Commission registration is required.

What else could change in the lotteries sector?

In December 2014, the Department for Culture, Media & Sport issued a Call for Evidence to consider, amongst other issues, whether the current regulations governing returns for good causes and umbrella lotteries are appropriate.

Good Causes

Under Gambling Act 2005, a society is required to distribute a minimum of 20% of the proceeds of each lottery draw to good causes (Statutory Minimum). Societies have the flexibility to apply a higher percentage of proceeds for good causes and in practice a significant number do so. Society lotteries must report on their return to good causes to either the relevant local authority or Gambling Commission (depending on the lottery’s size).   

Some argue that the Statutory Minimum is a significant barrier to entering the market for many societies and, if it were reduced, it would ultimately result in an increase in funds raised for good causes.

Others argue that the Statutory Minimum is an essential safeguard for charities. Although in theory charities are free to negotiate their arrangements with commercial providers of lottery services (External Lottery Managers - ELMs), in practice this does not always happen. Our experience is that, often, ELMs drive down the proportion of lottery proceeds which go to the good causes so that it is at or close to the Statutory Minimum. There is concern is that if the Statutory Minimum is lowered then profit-driven ELMs will seek to push this lower.

Currently, the Statutory Minimum applies no matter the size of the organisation or lottery or its stage of development. The Culture Media & Sport Committee report recommends retaining the Statutory Minimum but that for new lotteries this requirement should be spread over an extended period, to help lotteries cope with high start-up costs.

The report also recommends that there should be greater differentiation between the regulations applied to lotteries which are small and local in nature and those applied to larger ones, especially those run by commercial organisations, which tend to return smaller proportions of their funds to the charity.

Umbrella Lotteries

Large society lotteries, licensed by the Gambling Commission, are subject to limits on the maximum value of tickets they can sell in one year (currently £10 million) and on the value of the prizes they can award (currently 10% of ticket proceeds up to a limit of £40,000). These limits are, at least in part, intended to prevent society lotteries undermining and competing with the National Lottery which contributes around 26% of its proceeds to good causes. 

However, since these restrictions were devised there has been a growth in the number and profile of umbrella lotteries – these are groups of society lotteries which are promoted under a common brand which cumulatively exceed the maximum sales limit for a single society lottery. The Health Lottery for instance consists of 51 different societies.

The Parliamentary Committee report expresses concern about the growth of umbrella lotteries and suggests that existing legislation should be amended to recognise umbrella lotteries as a separate class of lotteries which have their own limits on draw size, annual sales and prizes.

Implementation

The changes to the requirements for exempt lotteries require primary legislation before they can be implemented. 

The Government is due to publish its response to the Parliamentary Committee report in June 2015. There is little, if any, party political division in this area and so there are good prospects that the changes will be implemented by the new Government.

Sarah Payne is a solicitor in the Charity and Social Enterprise Team at Bates Wells Braithwaite. Sarah was part of a Charity Law Association working party which submitted evidence to the Committee enquiry. Lucinda Ellen is a paralegal at Bates Wells Braithwaite with a particular interest in society lotteries.