Gambling

Written evidence submitted by Hospice Lotteries Association (GA 089)

Gambling

The Hospice Lotteries Association (HLA) wishes to thank the Department of Culture Media and Sport (DCMS) for the opportunity and the extension of time to allow this submission for consideration.

Background and Context.

The HLA currently represents 115 hospices throughout Great Britain, each of which is responsible for operating a weekly society lottery and supplementary annual draws for the purpose of fundraising.

Together, our members raise an income of nearly £50million per annum from about 1 million individual supporters. The average profit ratio is about 50p/£1 to 60p/£1 of proceeds; individual hospices can exceed 70p/£1, - nearly 3.5 times the legal minimum. In many cases the lottery contribution towards hospice costs can be as high as 30% of total hospice requirement – they are a significant fundraising tool.

Lottery memberships also offer donor development opportunities which can lead to players becoming major donors over the lifetime of their relationship with a hospice.

In order to administer their lotteries, our members utilise simple bespoke software in conjunction with personal workstation computers or in some cases may adopt the services of an external lottery manager (ELM). Whilst many of our members are licensed by the Gambling Commission some remain registered with local authorities. The largest hospice lottery has a supporter base of over 38,000 weekly players and an annual turnover of approximately £2m.

Matters for Consideration.

Our submission asks the Committee to address two key operational matters related to the drafting, operation and regulation of the Gambling Act 2005 and a more general point regarding the ability of large commercial organisations to raise unregulated profits using lotteries as a basis of doing so.

1. Remote Operations

The Act is specific on the definition of ‘remote gambling’. Part 1 section 4 states:

‘In this Act "remote gambling" means gambling in which a person participates by the use of remote communication.’

And goes on to define remote communications as:

· Internet,

· telephone,

· television,

· radio,

· electronic technology

These simple and clear statements have had a significant but detrimental effect in terms of workload and cost on hospice lotteries across the whole of Great Britain.

Hospice fundraising has had to improve its incoming ‘cash’ handling operations by accepting online donations, recurring and single credit payments and facilitate paperless direct debits in order to maintain low costs and offer supporters the same convenient 24hr opportunities to transact that are now widely available for all other businesses.

However, hospice lotteries that have taken advantage of this technology and used their hospice online/telephone/credit card donation facilities for the payment of lottery subscriptions have been accidentally ‘captured’ by the Act’s definition of remote communications and have therefore had to apply for a separate and additional ‘remote lottery operating’ licence.

From the early days (c2003 onwards) of consultation with DCMS and the Gambling Commission, it has been asserted by both of these bodies that the payment of lottery subscriptions using the telephone and/or the internet (remote communications) must be classed as ‘remote gambling’ even though it is accepted by all that the actual ‘gambling’ process part is completely isolated from the internet or the phone system and operated by staff manually.

Their argument being that the payment is the prime and material step towards any gamble – ie: the simple act of payment is in fact ‘participating in gambling’ – see definition above.

The HLA has always argued that the spirit of the Act is surely to control, to a much higher level, the transactions and processes when the gamble process itself takes place remotely ie: the gamble software operates online without human intervention. eg: online poker, online bingo, online lotteries, online gaming etc.

Hospice lotteries are administered and operate in isolation to any online gambling process and in all cases have human intervention as part of the process.

The telephone and internet are simply used as a cost efficient method of collecting weekly subscriptions rather than having to collect them door to door or use cheques. With the Payments Council considering how best to replace the paper cheque system and BACS becoming a preferred option for direct payments, such payment processes will increase in frequency and dominate the future.

The HLA would contend, by way of an example, that a telesales call to a prospective lottery player which gains their agreement to play the lottery, after some discussion, by a paperless direct debit should not, as is now the case, constitute ‘remote’ gambling.

In reality, telephone calls conclude with a declaration from the player that they are over 16 and that the lottery has the authority to set up the direct debit from their account.

Moreover, and prior to any payment, an advance notification letter is (must be) sent to each player confirming entry and at this stage the player may elect to terminate the arrangement.

Giving this protective layer of administration, we contend that joining and playing the lottery via this telesales method should not constitute remote gambling.

As another example of the current interpretation, where a person agreeing to join/play on the doorstep, face to face with a recruiting representative who signs all the forms except the direct debit mandate and for security purposes choses to ‘phone in’ their bank details to the lottery office, must be currently be considered as ‘remote’ also. (Gambling Commission September 2011)

The impact of this strict interpretation of the drafting of the Act ( ie: "that payment is gambling") is now reaching major proportions for many hospice lotteries.

Whilst the fees for licences remain low compared with lottery turnover (for which we are exceedingly grateful) the ‘remote’ operational requirements of the Remote Technical Standards, RNG Testing, Security and Third Party Audit requirements plus the extended Licence and Codes of Practice (LCCP) requirements are huge; all this resulting from receiving a payment, perhaps in parallel with a donation, over the telephone or hospice website.

Whilst the current £250k pa. ‘remote operating turnover limit’ reduces some of the full remote requirements, the hospice movement is now witnessing its lotteries moving ever closer to this limit and therefore anticipating incurring the major costs and processes that the full ‘remote operating’ requirements demand.

As evidence, one hospice lottery has now exceeded the £250k remote operational annual limit following a campaign to reduce staff and collection costs and improve its use of online direct debits as a preferred payment system for subscriptions.

The member is now faced with engaging a third party auditor at a cost of £4000 and paying its software provider to carry out a full RNG ‘European Gambling Commission accredited test’ of its software.

In reality, there continues to be the two staff operating the same two workstation computers that have ‘chugged’ along for the last 14 years administering the local hospice lottery; we believe that this surely is an ‘over the top’ situation.

This continues to be a growing and escalating problem for hospice lotteries who must take advantage of cheap and easy modern payment methods to minimise their operating costs.

· We ask the committee to help hospice lotteries and reconsider the drafting/interpretation of this part of the Act.

· We ask that the payment of lottery stakes via remote communication is not in itself sufficient to be interpreted as ‘remote gambling’.

· We ask that the Act/interpretation be revised to allow the isolated payment of lottery subscriptions over the telephone and/or the internet to be allowed within non-remote operations.

2. Small Scale Exempt Lotteries – the need for a ‘de minimus group’

The Act defines large and small society lotteries and two groups of exempt lotteries (Schedule 11)

Only one type of lottery, an Incidental Non-Commercial lottery (Sch 11 Part 1) is realistically easy and simple to administer and continues to be a useful fundraising tool. However, even these lotteries are constrained to be sold at an event, only to attendees of the event and the prizes allocated at the event together with prize and cost limits.

The second group, Private Lotteries, are also exempt but are restricted to specific classes of persons who may enter and are therefore not a practical way of using small lotteries to raise money from the general public.

Therefore, a non-commercial society can only utilise a ‘small society lottery’ for this purpose but these are fully regulated by the local authority (LA) and require advance registration and the keeping of accounts/records together sometimes with the submission of a return to the LA.

Fundraisers have always (prior to the 2005 Act) used small scale local draws, raffles, tombolas and the like (all lotteries of course) to raise funds. As the Act is now drafted, these are no longer possible.

We propose that there should be an additional ‘de-minimus’ group of lotteries which are exempt and allow advance sales of tickets to the general public without the need for registration or the keeping of formal accounts and records.

Such a ‘Small Scale Exempt Fundraising Lottery’ could be defined by limits on costs and prizes as those currently set out in Statutory Instrument 2007 No.2040 of £500 prize cost and £100 cost limits which currently apply to Incidental Non-Commercial Lotteries only.

Such a lottery should only be open to players of 16 years old and over. The ticket requirements should be similar to those for Private Lotteries. The need for registration with a local authority should be waived. Differing ticket prices (as with Incidental Non Commercial Lotteries) should be allowed such that discount and bulk purchase benefits and promotional arrangements could be passed on to supporting players.

Such a lottery could then be used by Friends groups of hospices and hospitals in order to sell ‘raffle tickets to members of the public for small prizes at low costs in advance of events etc.

Charity shops could offer a ‘raffle’ to supplement turnover. Fetes could sell tickets for a ‘tombola’ to the public in advance to boost proceeds and improve their profit ratios.

· We ask that the Committee consider this request and allow greater fundraising to take place through the use of small scale ‘de-minimus’ lotteries.

3. Operating within the Spirit of the Act

The Association remains concerned that the Act as drafted, whilst regulating the use of lotteries to prevent private / commercial gain continues to enable commercial lottery managers (ELMs) to use lotteries to effectively provide un-regulated profit.

It appears that over the last few years, there have been a number of commercial enterprises that have recognised the increase in lottery players as a commercial opportunity and taken advantage of this trend. The last prevalence study confirmed that lottery players increased from 8% of the population to 25% in a year. Also, that playing a ‘lottery’ is the 2nd most popular form of gambling to the 1st being the National Lottery.

Whilst the Act stipulates that 20% of lottery proceeds go to the non-commercial society’s purposes it does not control or allow regulation of how much profit a commercial society can extract from ‘managing’ a non-commercial society’s lottery (s) on its behalf.

This therefore enables a commercial organisation to establish an ELM company and set up non-commercial societies to be the ELM’s clients. Linked to only having to set aside 20% of the lottery proceeds for the society’s good causes, the ELM then has access to 80% of the proceeds for commercial gain and prizes. If high value prizes are insured and the chance of winning them low, then a considerable surplus can be achieved this way from operating lotteries which are ostensibly meant to be solely for good causes.

Hospice lotteries believe that like them, operators should minimise their costs and prizes to maximise the benefit to the cause and that the benefit should always be the maximum possible. Operators should not be able to set a maximum value of 20% (the legal minimum) and then expend the varying balance of proceeds elsewhere.

We believe that this is not what was intended within the spirit/ethos of the Act.

· We ask that the Committee take note of this concern and seek from DCMS and the Gambling Commission some positive means of preventing this from happening in the future.

October 2011

Prepared 17th November 2011