Government Backs Society Lottery Reform Plans

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

On 11 September the Government backed recommendations from the Culture, Media and Sport Committee (the “Committee”) to reform the regulation of society lotteries.

In response to a report on society lotteries by the Committee, the Department for Culture, Media and Sport agreed to “accept or explore further” all the Committee’s main recommendations. Ultimately this stance points to an increased scrutiny of larger society lotteries and greater flexibility for smaller society lotteries which may be struggling under the current regulatory framework. The main aspects of the Government’s plans are explored below.

Large Society Lotteries

One concern noted by the Commission, and shared by the Government, has been the creation of umbrella lotteries, where various society lotteries group together under a single brand name. Concern was shown that such organisations can facilitate the bypassing of limits on individual society lotteries. As each lottery in such an organisation retains its independence from one another, providing that none of the lotteries exceeds their own limit on proceeds and prizes, the umbrella lottery can raise up to the aggregate of the maximum amounts of each of the constituent lotteries. The Commission illustrated its point by citing that an umbrella lottery consisting of ten large society lotteries could raise ten times the maximum annual limit of £10 million for a single lottery. In response to this issue, the Government will explore the creation of a separate class of umbrella lottery so as to apply fair regulation to this type of association.

Such concern undoubtedly primarily stems from the advent of the Health Lottery: a large-scale umbrella lottery which has attracted criticism since its inception in 2011 from many in the industry. Camelot, the operator of the National Lottery, have maintained that the Health Lottery provides unfair competition to the National Lottery and indeed unsuccessfully attempted to judicially review the Gambling Commission’s issue of licences to all 51 of its constituent societies back in 2012. Both the Commission’s and Government’s recent acknowledgments that there should only be one national lottery – combined with the prospect of greater regulation for umbrella lotteries in general - will certainly come as welcome relief to Camelot and may yet mean its challenge to the Health Lottery ends in commercial success.

The Government also agreed with the Committee that it is reasonable to expect large established lotteries to contribute more than the statutory minimum of 20% of ticket receipts to good causes. To achieve this aim, the Government is to look into the Committee’s suggestions to return to a cap on operating costs (other than prizes and money set aside for roll-overs) for the largest lotteries. Due to a number of possible unintended adverse consequences (for example encouraging operators to split into smaller parts to sidestep limits), however, they expressed a need to proceed cautiously in this respect. The Government also mooted the possibility of raising the minimum donation to good causes for larger established society lotteries to 32%, and if this is not met the imposition of a 12% lottery duty.

Small Society Lotteries

Whilst exploring the possibility of increasing regulation on large society lotteries, the Government also welcomed suggestions to remove some of the burdens facing small society lotteries. Initiatives that are to be discussed by the Government and the Gambling Commission include: allowing small society lotteries to spread their 20% minimum contribution to good causes across a longer time period; increased flexibility on developing new products; and a review of whether the process for applying for a licence could be simplified and if the regulatory framework is disproportionately burdensome for the charitable benefits produced.

Other Proposals

The Government agreed with the Commission’s concerns surrounding transparency and customer confusion: chiefly that online gambling has removed the distinction between lotteries and betting. In order to achieve this aim it will consider three proposals suggested by Camelot earlier this year: prohibiting all bets on lotteries either in betting shops or online; requiring relevant products to be clearly identified as betting products and not to suggest that they are lottery products; and reclassifying bets on the outcome of lotteries as lottery products.

The Government also accepted the recommendation to review the current limits on sales and prizes and are engaging the Gambling Commission in this review in relation to both small and large lotteries.

Next Steps

The Government’s response to the Commission’s report was a measured one, with the Department for Culture, Media and Sport stressing that advice would need to be sought from the Gambling Commission and that the industry would be engaged in consultation. The fact that many of the suggestions would require amendments to primary legislation and the complexity of the issues were also emphasised.

It will be interesting to see what the sector’s reaction to the Government’s announcement is in the coming weeks, especially any statement made by the Health Lottery. Camelot meanwhile has unsurprisingly already publicly welcomed the Government’s stance, praising the proposed regulation of umbrella lotteries and efforts to make lottery-style betting products more transparent.