Government intervention needed to clarify legality of house raffles

United Kingdom

This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.

The Gambling Commission's limited mandate means it is unable to clarify the boundaries of legality for homeowners attempting to sell their properties through raffle-style competitions. In light of this, decisive action is needed by the Secretary of State to either nip this trend in the bud or allow it to flourish.

In the current climate of falling property values and tighter lending criteria, the practice of attempting to sell properties by staging raffle-style competitions has become increasingly popular. This concept seeks to exploit the legal grey area between illegal lotteries and lawful prize competitions, and now the Gambling Commission has begun to investigate the boundaries of the concept's legality in earnest.

Broadly speaking, and subject to certain limited exceptions, it is illegal to organise a lottery without a licence from the Gambling Commission. Obtaining a lottery licence would not be practical for property vendors, because such licences currently limit the value of prizes to £200,000, and are conditional upon a fixed proportion of the revenues being given to charity.

Property "raffle" schemes therefore rely on introducing a sufficient element of skill to take the competition outside the definition of a lottery under the Gambling Act 2005. This would have the effect of bringing the scheme entirely outside the remit of the Gambling Commission. In order to do so, the scheme must incorporate a requirement for participants to exercise skill or judgement, or to display knowledge, which can reasonably be expected to either:
  • prevent a significant proportion of persons who participate from receiving a prize; or
  • prevent a significant proportion of persons who wish to participate from doing so.
Some organisers have attempted to do this by limiting the raffle draw to those entrants who correctly answer a qualifying question. However, the key issue is whether the question is difficult enough either to put off enough people from entering, or for enough people who do enter to get it wrong.

And therein lies the first problem. Nobody knows what "a significant proportion" means in these particular circumstances.

Of course, there is also the issue of the clash between the commercial proposition and the protections set out in the legislation. The organisers do not want to make the question so difficult as to put off too many entrants, as success of the scheme depends on sufficient tickets being sold. However, this is exactly what the legislation is designed to prevent.

The Gambling Commission has issued guidance in an attempt to clarify the issue. Sadly, the guidance has failed to resolve the confusion, even, quite possibly, creating a reasonable expectation from property vendors that the Commission would let them get away with these schemes. However, as more and more people attempt to sell their houses this way, the Commission now appears to have done something of an about-turn and has asked organisers, on a case by case basis, to provide evidence that their questions are in fact putting off or excluding sufficient people.

In the Commission's defence, this is all it is capable of doing. It is not empowered to make the law, or to give legal advice. Faced with rather vague legislation, the Commission is powerless but to investigate each case individually, checking the evidence provided as to how many people visited the site but didn't enter the competition, and how many people got the question wrong, and somehow deciding whether or not those numbers are "significant".

It also must be mindful that if it starts giving the green light to these schemes, then more and more will spring up. Considering the risk to the public of scam schemes, and the policy objective behind the Gambling Act of protecting the National Lottery and charity lotteries from competition from schemes set up for private gain, this does not seem a sensible or likely course of action. On the other hand, if the Commission decides that a scheme does constitute a lottery, then the homeowner would in many cases be perfectly justified in challenging the Commission's decision in the courts.

So what we are left with is either a proliferation of unregulated house raffles, or a proliferation of time-consuming and expensive investigations and potentially thereafter court cases, each of which will only be able to be decided on its own merits and therefore is unlikely to provide legal certainty to anyone considering selling their property by this method in the future, or indeed running any other "skill-based" competition where the level of skill is perhaps questionable.

Both of these scenarios are clearly unsatisfactory, and there appears to be only one way to resolve the issue. Under section 14(7) of the Gambling Act, "the Secretary of State may by regulations provide that an arrangement of a specified kind is to be or not to be treated as a lottery". Perhaps it is time for Mr Burnham to give this issue some serious thought.

This article was first published on www.gamblingcompliance.com