Regulatory regime – the basics
Lotteries are governed by a fairly complex legal and regulatory regime. They are illegal except where the law specifically allows them (and the National Lottery, which is separately regulated). 'Society lotteries' are one type of permitted lottery. These lotteries must be run to benefit charities or other organisations with sports, cultural or non-commercial purposes.
Society lotteries are either 'small' or 'large', depending on their level of proceeds (the total amount paid for tickets). A society lottery is 'large' if it generates proceeds of over (i) £20,000 for one draw, or (ii) £250,000 annually. Large society lotteries require a Gambling Commission licence, whilst small society lotteries must be registered with the local authority.
At least 20% of society lottery proceeds must be applied directly for the relevant society's purposes. This means that up to 80% can be used to pay for prizes and 'expenses', which can include fees paid to an external lottery manager (ELM).
Many charities engage an ELM to manage their lotteries, which can include marketing, liaising with retailers and administering records and prizes. ELMs can offer valuable assistance, but charities remain primarily responsible for their lotteries and must ensure that any arrangements with ELMs are reasonable and in the charity's best interests.
Lotteries can offer an additional income stream for charities and help increase public awareness of their work. Conversely, they are a form of gambling and so may not be appropriate for all charities, and the legal regime is complex with some criminal offences for non-compliance. Charities should therefore carry out a full risk assessment and ensure they understand the regulatory requirements before deciding to operate a lottery.
Recent changes
Following a consultation process, changes have now been made to regulations applicable to society lotteries, which affect draws taking place after 29 July 2020. The changes include:
Financial limits
Individual lottery draws may now raise proceeds of up to £5 million (raised from £4 million) and operators may now generate annual aggregate proceeds of up to £50 million (raised from £10 million). The Gambling Commission has made changes to Licence Condition 11 to reflect these changes.
The increased limits mean that charities can now operate larger lotteries and run more lotteries each year, thus providing greater flexibility and the opportunity for increased income. The aggregate proceeds limit for 2020 has been set at £31,311,475, meaning charities can begin to benefit from the increased annual limit this year.
Consumer information
Lottery operators and external lottery managers (ELMs) must provide clear, transparent and easily accessible information for consumers, to enable them to make an informed choice prior to participating in a lottery. This information must include, at a minimum, details of how proceeds are used, the likelihood of winning a prize and how prizes are allocated. The Gambling Commission has added new social responsibility code 4.3.3 into the Licence Conditions and Codes of Practice to codify these obligations.
Updated guidance from the Gambling Commission in this area (available in pdf form here) must also be complied with and explains that:
- consumers should be provided with information before they buy a ticket
- information on prizes should include descriptions of how winners are determined and prizes allocated, the potential prizes available and the likelihood of winning one
- information on proceeds should include total proceeds and the percentage/amount of proceeds applied as prizes, expenses and for the charity's purposes. If proceeds are used to fund grants, information on allocation and recipients is also required
- actual figures should be included where known but otherwise averages or reasonable estimates are acceptable
- information should be understandable, easily accessible and presented in the most appropriate way for the consumer
Conclusion
Lotteries offer the possibility of additional income and increased public exposure for charities, but there are complications and risks involved in running them. The new rules provide greater flexibility in relation to the size and frequency of charity lotteries, but the consumer protection requirements are now greater than ever. We can advise you on setting up and running charity lotteries, so please do get in touch if you would like to discuss this.