House of Commons - Society Lotteries - Culture, Media and Sport

Society Lotteries - Culture, Media and Sport Contents

3 Problems with the current legislation

23. In 2010, in the course of our inquiry into the outcomes of the Gambling Act 2005, the Gambling Commission told us that the Act "arguably imposes burdensome requirements on small lotteries that make it harder for small charitable enterprises to use lotteries to raise funds for 'good causes'".[32] The People's Postcode Lottery agreed with this and suggested that the limit on proceeds should be abolished altogether. The Lotteries Council argued that society lotteries did not compete with the National Lottery, so there was no justification for limits on society lotteries. It stated, moreover, that "typically 55% of proceeds" from society lotteries went to good causes while the figure for the National Lottery was 28%.[33]

24. The same criticisms of the current regulatory regime were made by those who gave evidence to this inquiry. The society lotteries benefiting from the Health Lottery stated that larger sums could be raised for good causes if the regulations were relaxed.[34] The PPL argued that the impact of the restrictive regime for society lotteries in Great Britain was demonstrated by the fact that players of its lottery generated £10.2m for good causes in 2013, compared with £101 million in Sweden and £239 million in the Netherlands, both with much smaller populations. It suggested that if its proposed relaxation of limits on ticket sales and prizes were adopted, it would be possible for the PPL to raise as much as £130.2 million per year for good causes.[35]

25. A number of our witnesses referred to a report by the Centre for Economics and Business Research (Cebr) entitled, 'What have we got to lose? How society lotteries could do even more for good causes', commissioned by the Lotteries Council and the Institute of Fundraising and published in February 2014.[36] This report calculated that if the requirement to return a minimum contribution to good causes were raised from 20% to 28%, this would reduce the money raised for good causes by £35.3 million as a result of 16% of lotteries ceasing to operate. Even lower increases in the 20% requirement were estimated to be likely significantly to reduce the money raised for good causes: an increase from 20% to 23% would result in a loss of £15.4 million, and one from 20% to 25% in a loss of £25.3 million and the closure of 8% of lotteries.[37]

26. The Cebr also examined a further proposal to cap operational expenditure at 15% of total proceeds, which it concluded would lead to a loss of £88.3 million in donations to good causes. The Cebr report recommended relaxing caps on prizes and on the overall revenue from ticket sales.

Potential threat to the National Lottery

27. As already mentioned, the advent of the umbrella lotteries, and particularly the scale and reach of the Health Lottery, has led to fears—not least in Camelot—that the unique national nature of the National Lottery and the funds it raises for good causes are under threat. The 51 society lotteries forming the Health Lottery group argued that this was nonsense: industry figures (cited above in Tables 1 and 2) showed that the whole society lottery sector was still much smaller than the National Lottery; the Health Lottery itself accounted for no more than 11% of the society lottery sector; the current model used for the Health Lottery was the third, the previous two having failed, and had succeeded only because of a significant investment in its launch; and in reality the Health Lottery was merely more visible than other society lotteries, because it sold tickets directly to the public rather than only by subscription to members or to visitors to the society's website, but it was not different in kind.[38] Donald Macrae, promoter of the Health Lottery, emphasised the local aspect of the Health Lottery: "We are not operating at a national level except in terms of advertising. We have a national brand, but that is all."[39]

28. The lotteries benefiting from the Health Lottery also noted the suggestion that the Health Lottery model might be attractive to a large commercial organisation capable of competing head-to-head with the National Lottery. They rebutted this argument on the basis that:

The set up costs for new lotteries were prohibitive and similar reach was difficult to achieve;

Given that the Health Lottery, with a network encompassing so many retailers, was still so much smaller than the National Lottery, then even the largest of multiple-outlet retailers could not command the spread and number of outlets needed to pose a threat to the National Lottery;

The returns on investment were limited and not recoverable in a short time-frame (Northern & Shell was "still a long way" from recovering the set-up costs of the Health Lottery);

No society lottery licence holder was permitted to incur anything more than 'reasonable' expenses, which acted as a limit to commercial profitability of ELMs.

The Health Lottery group concluded "Investment in society lotteries is not a get-rich-quick scheme…";[40] and the Promoter of the Health Lottery described the National Lottery as "pretty well bomb-proof".[41]

29. Camelot, operator of the National Lottery, rejected the idea that big, aggregated society lotteries posed no threat to the National Lottery, stating: "the Health Lottery has in all but name positioned itself as a competitor to the National Lottery".[42] It also noted that the lotteries run by the PPL in the Netherlands and Sweden were significant competitors to those countries' national lotteries, adding: "They offer multi-million pound prizes in those countries and they do not have a level playing field: they are able to put over 25% of their money into marketing … 5%, for example, goes as a management fee back to somebody in the Netherlands who owns the licence..."[43] Andy Duncan, Camelot's Chief Executive Officer, said that the two big umbrella lotteries together were spending almost as much in Great Britain on media marketing as the National Lottery; he added that more than 90% of the Health Lottery's marketing expenditure in the previous twelve months had been paid to other Northern & Shell companies.[44] He also argued that, if these big umbrella lotteries were aggressively marketed, then the National Lottery would have to increase the amount it spent on marketing (currently 1% of turnover), and this money would have to come either from the prize fund or from the contribution to good causes.[45]

30. Camelot and a number of those representing good causes supported by the National Lottery raised concerns that society lotteries were in an advantageous position over the National Lottery as a result of being required to give only 20% of the proceeds of their ticket sales to good causes, whereas the National Lottery returned around 26% to good causes as well as 12% Lottery Duty to HM Treasury.[46] Analysis produced by Frontier Economics Ltd at the behest of Camelot compared the Health Lottery with Lotto, the main draw-based game of the National Lottery suite of games, and concluded that:

· the Health Lottery retained 50p of every pound paid in ticket sales in expenses, in comparison to the 5p of every pound that the National Lottery retained;

· the Health Lottery paid a smaller percentage of the proceeds of ticket sales in prizes (24.1% as compared to the Lotto game's 47.5%);

· the Health Lottery provided a smaller percentage of "returns to society" (defined as payments to good causes plus the return to HM Treasury through Lottery Duty): the Health Lottery was estimated to provide returns to society of 20%, and the Lotto game 41.8%.[47]

Source: Camelot, The Health Lottery Website, Frontier analysis[48]

31. Camelot believed that umbrella lotteries had already caused damage to the National Lottery; analysis commissioned by Camelot in 2012 indicated that over 60% of the Health Lottery's sales were "cannibalised" from the National Lottery.[49] Camelot also listed a number of innovations in the market by the umbrella lotteries, betting operators and retailers launching scratch cards, and by online gambling operators linking betting to lotteries, all of which Camelot claimed, was "causing consumer confusion and clutter in the marketplace".[50]

32. Camelot said that its prime concern was that the high operating costs and expenses obtained by the Health Lottery under the current regulatory regime would encourage other commercial operators to follow the Health Lottery's business model, with the result that society lotteries would be a "profit-making business venture".[51] Members of the Charity Law Association and the National Council for Voluntary Organisations [NCVO] also expressed the fear that society lotteries might become primarily a way of raising money for the profit-making companies running them rather than for the good causes intended as beneficiaries, especially if the rules governing society lotteries were relaxed further. This concern was shared by the National Lottery Forum (the umbrella group for several of the bodies that distribute National Lottery funds to good causes), who believed that society lotteries which operated on a large scale, similar to that of the National Lottery, could bring with them a reputational risk to the lottery sector and that the blurring of a distinction between the National Lottery and other forms of gambling could potentially damage the National Lottery's reputation and prevent some organisations from applying for funding from it. The Charity Law Association working group noted that, because umbrella lotteries relied much more heavily on ELMs to co-ordinate and operate the common brand, this gave much less control to the constituent charities, and where this occurred "it appears that the spirit of the Gambling Act 2005 is not being followed, even if the activities are technically within the law". [52]

33. The Government said it wished to:

Maintain an appropriate balance between products raising funds for good causes to allow them to co-exist successfully while raising the maximum amount possible for good causes

Ensure players of all forms of gambling were suitably protected

It noted that the National Lottery, society lotteries and commercial gambling markets were becoming more standardised in look and feel,[54] and concluded: "While we have no specific evidence that the current arrangements are creating any serious problems, or proving disadvantageous to any one sector, we expect the operators to continue to innovate [and] are aware that new products or entrants to the market may change the market in ways we do not anticipate."[55]

34. In our approach to the suggestions of various changes to the regulatory regime for society lotteries, we have been guided by the principle that the purpose of society lotteries is to raise money for good causes. Unlike other gambling products, they are therefore exempt from gambling and lottery taxes; and the regime governing them should be light-touch and encourage the maximum return for good causes. At the same time, the regime should be carefully adjusted to avoid any perception that charities may be being used mainly as devices to further commercial interests.

35. We have also been guided by the clear intention of Parliament in 1993—which we do not perceive to have altered—that there should be one National Lottery. We do not consider that there is any indication that the Lottery is being significantly affected by any of the society lotteries currently operating, but we accept that the potential for a competitor remains, especially if an External Lottery Manager, in addition to receiving the reasonable expenses permitted by the Gambling Commission, can also profit from promoting its lottery.

Suggestions for specific amendments to relax the regulatory regime

36. The regulations most often cited by our witnesses as hindering the raising of money through lotteries were:

· The requirement that a minimum of 20% of the proceeds from sales must be given to the good causes;

· The limit on the maximum value of tickets that can be sold for a single draw;

· The limit on the annual proceeds from aggregate ticket sales; and

· The limit on prize values.

RESTRICTIONS ON TICKET SALES AND PRIZE LIMITS

37. Several of the individual societies commented on the motivation of those who bought their lottery tickets. Age UK Enterprises Ltd stated that the vast majority of its players saw the lottery as a fun way to donate money rather than the chance to win a big sum; while the Local Hospice Lottery Ltd thought players in its weekly draw were motivated by both the cause and the level of prizes.[56] Essex and Herts Air Ambulance Trust told us that on many occasions, winners had given back to the charity some or all of the prize money.[57]

38. When we asked whether there was any evidence that sales increased in whichever region was benefiting from the Health Lottery that week, we were told "the honest truth is that most players do not care."[58] There was no indication on Health Lottery tickets as to which area was being supported, though it was possible to obtain this information by checking at the point of sale.[59] PPL told us that it was easier to keep its players informed as they had to subscribe to the lottery, and its players were aware of the good causes benefiting from their lottery: a large recent survey of players had shown that just under 82% of players were aware that 25% of the ticket price went to good causes, and could name six good causes that benefited from the lottery.[60]

39. In research undertaken for the DCMS, the Gambling Commission found that consumers continued to perceive society lotteries as a fun way of donating usually small amounts to a specific cause, with the prize being a secondary consideration; whereas the National Lottery was seen mainly as a way of winning a life-changing prize.[61] Camelot accepted that the main motivation for those playing the National Lottery was winning money, though Dawn Austwick of the National Lottery Forum, representing the organisations distributing National Lottery funds to good causes, argued that a third of players were actively interested in knowing which good causes their money supported.[62]

40. The Cebr's survey found that 11% of the members surveyed—particularly the larger society lotteries—wanted the caps on ticket sales relaxed, and 32%—again, in particular the larger societies—wanted prize limits relaxed. The Lotteries Council therefore proposed an increase in the permissible amount of ticket sales for a single draw from £4 million to £10 million, "enabling larger fundraising charities to raise more money with minimal additional cost"; an increase in the annual income cap on any society lottery from £10 million to £100 million "to enable larger charities to reach economies of scale and maximise their fundraising;" and an increase in prize values from £25,000 to £100,000 and from 10% of the proceeds to 50% "to give operators flexibility on prize values in order to maximise the overall amount raised through increased ticket sales."[63] It was supported in this call by the Institute of Fundraising and the majority of the individual charities that gave evidence to us (both beneficiaries of umbrella lotteries and those that ran their own), as well as by the umbrella lotteries.[64] The PPL differed from the Lotteries Council only in calling for an even greater increase in the individual draw limit, from £4 million to £40 million, arguing that the 2009 increase in draw limits from £2 million to £4 million had increased the amount provided to good causes by 53% in the next two years (from £100 million in 2009/10 to £153 million in 2011/12).[65] Age UK suggested an individual draw limit of £30 million, or abolishing the limit altogether.[66]

41. The PPL suggested that increasing the annual turnover limit for a single society lottery to £100 million would benefit its members by allowing it to reduce the number of its constituent operational trusts, cutting operational costs and making the link with the charities supported clearer to lottery players, while not affecting in any way the ability of the PPL or remaining trusts to fulfil their obligations to good causes and having no negative impact on the National Lottery or any other society lotteries.[67]

42. The Health Lottery's main concern was the 10% rule—that prizes must not exceed £25,000 or 10% of the total proceeds of ticket sales, whichever is larger. It explained that, because lotteries had to be sure that their ticket sales would earn at least ten times the maximum prize they wished to offer, lotteries tended to underestimate total sales and therefore 'underbid' the prize. The Health Lottery considered that by raising the limit to 50%, the element of risk would be reduced and lotteries would be able to offer higher prizes without actually offering the maximum.[68]

43. Some witnesses expressed unhappiness that the Government appeared to have abandoned the commitment to a regular triennial review of ticket sale and prize limits, and called for its reinstatement.[69]

44. The Lotteries Council noted that there was already a method of circumventing the existing limits: more than one well-known national charity had taken out two licences in order to run two lotteries to satisfy demand and maximise its return to good causes. It pointed out that, while effective in avoiding the cap, this device resulted in more administration and regulatory burdens.[70] The Office of the Scottish Charity Regulator, which regulates the PPL, raised this issue, which had come to its attention because of the number of PPL trusts being registered for the same or very similar causes, in effect to enable multiple lottery licences. It commented: "As Regulator, our primary concern is the duplication of registrations does mean that the individual PPL charities are spending a higher proportion of their charitable income on administrative expenses." It therefore supported relaxation of the regulations for lotteries, especially the £10 million annual cap on ticket sales.[71]

45. The NCVO believed it was not possible at present to come to any conclusion on whether a substantial increase in the sizes of prizes or the individual draw and annual proceeds cap was desirable as there was insufficient evidence of how many lotteries were hitting the limits, and would therefore benefit from being able to sell more tickets with higher prizes. It therefore recommended that the Gambling Commission start collecting intelligence on the matter, with a view to increasing the caps in two or three years if it became clear that they were a real hindrance to a significant proportion of society lotteries.[72] Sterling Management Centre Limited, an ELM working for individual societies, considered there was no evidence that the regime was seriously hindering lotteries in their fund-raising efforts, though the annual limit and the cap on prizes were a problem for some lotteries.[73]

46. The Charity Law Association working group thought the current limits were "not insubstantial" and commented: "In the working party's experience, these restrictions have limited adverse impact on society lotteries' ability to grow." It noted, however, that there was a case for increasing the percentage limit on the top prize or removing it altogether, which would allow societies and ELMs the freedom to determine the top prize that would be appropriate to promote a particular lottery—a point also made by Age UK Enterprises Ltd. However, both the Charity Law Association and Age UK recognised that raising the prize limit could mean that societies were exposed to a higher level of risk where proceeds from tickets sales failed to cover the cost of increased prizes.[74]

47. Unsurprisingly, Camelot 'fundamentally' opposed an increase in prize caps in society lotteries, reasoning that this would serve further to blur the distinction between the National Lottery and umbrella lotteries such as the Health Lottery.[75] The Government noted: "In practice, even the largest society lotteries rarely reach the maximum jackpot amount, while the National Lottery as a matter of course offers jackpots in the multiple millions."[76] Camelot confirmed this: "In fact they [the largest lotteries] are currently only offering £100,000 prizes so they are nowhere near the £400,000 limit anyway."[77]

48. The Charities Trust recommended an alternative approach. While advocating a removal of the cap on ticket sales and prize limits, it was concerned that there should be a stronger link between lotteries and the good causes they represented. The Trust advocated a sliding scale of the percentage of tickets to go to good causes, for example:

· For annual ticket sales of up to £10m, a minimum of 20% to charitable causes

· For annual ticket sales of up to £30m, a minimum of 30% to charitable causes

· For annual ticket sales of up to £50m, a minimum of 40% to charitable causes

· For annual ticket sales over £50m, a minimum of 50% to charitable causes

The Trust suggested: "A sliding scale similar to the above would have the effect of capping prizes (so reducing the risk of making a society lottery appear more attractive than the National Lottery) and of capping profits to commercial organisers of lotteries."[78]

49. A sliding scale of the percentage of ticket prices to be donated to good causes has some attractions, but we believe that the example suggested by the Charities Trust is too restrictive. We consider that there should be more distinctions between society lotteries, lifting burdens on the smallest and increasing them as the lotteries grow in size.

50. We are sympathetic in principle to the idea that both ticket sale limits and prize limits should be reviewed, but we note the concern expressed by the NCVO and others that society lotteries should not become just another gambling product. We see clear dangers, not least in possibly tempting societies to take risks in advertising prize limits that they cannot afford and in losing contact with their real supporter base. As far as the National Lottery is concerned, though there is a theoretical risk—especially if caps were removed completely—it seems to us that in practice there is no immediate risk of a real rival coming up from the ranks of the society lotteries.

51. Umbrella lotteries, such as those run by the Health Lottery and PPL, are in law groups of individual society lotteries, marketed under a national brand. However, provided that none of the individual lotteries exceeds the current limits on proceeds and prizes, the total amount that the umbrella lottery is permitted to raise is the aggregate of the maximum amounts each of the constituent lotteries may raise: in other words, an umbrella lottery formed of ten large society lotteries would be permitted to raise ten times the maximum £10 million for a single lottery per year. We consider it wrong that the maximum limits on society lotteries should be bypassed in this way.

52. We therefore recommend an amendment to legislation to recognise a class of umbrella lotteries, with its own set of limits on individual draws, annual sales and prizes. A number of options are possible: setting overall limits on the amounts that may be raised or paid out in prizes, limiting the number of individual society lotteries that may join together under an umbrella lottery (and thus limiting the multiplier effect) or stipulating different 'large society lottery' limits on the constituent societies. We recommend that the Gambling Commission consult widely on such a change.

53. We note that there have been no increases since 2005 in the caps on sales and prizes for small lotteries. We received no evidence suggesting specific figures for these caps, and accordingly we consider that the Gambling Commission should review the caps on ticket sales (for both a single draw and for the annual aggregated draws) and on prizes for small lotteries, and should make specific recommendations.

54. As far as individual large lotteries are concerned, we note that some of the new limits suggested by the Lotteries Council represent a very rapid rise from the current level. We recommend that the Gambling Commission should consider whether the limits on ticket sales and prizes should be relaxed, bearing in mind that the regime for large lotteries was changed in 2008, more recently than that for small lotteries. We recommend that the Gambling Commission consult on the appropriate levels.

55. We also recommend that the limits on society lotteries be reviewed every three years, and that the Gambling Commission gather and publish information on the annual turnover, single draw size and maximum prize awarded by individual society lotteries to demonstrate the degree to which societies are finding the current limits restrictive.

REQUIREMENT FOR 20% OF PROCEEDS TO BE GIVEN TO GOOD CAUSES

56. The Lotteries Council argued that the 20% rule created "considerable difficulties, especially for new lotteries, which need to invest heavily to build a player base and gain momentum."[79] The Sterling Management Centre Ltd, an ELM, had found no evidence that this rule was a barrier,[80] but when the Cebr undertook a survey among Lotteries Council members as to what changes they thought would help them to grow their fundraising activities, it found strong support for the view that relaxing the minimum 20% contribution rule for new, smaller society lotteries would be likely to encourage more start-ups and growth in the sector. 41% of the society lotteries who took part in the survey—in particular, the small lotteries—wanted the relaxation of this rule as a top priority.[81]

57. Members of the Charity Law Association raised concerns about the ability of societies in practice to negotiate contracts with ELMs if they no longer had the protection of the statutory minimum of contributions to the good cause. As legal advisers to societies in negotiations with ELMs, they had perceived:

Although in theory societies should have the capacity and confidence to negotiate a significantly more advantageous arrangement with ELMs than receiving the Statutory Minimum, in practice this does not always happen. ELMs often have the upper hand in negotiations and are able to drive down the proportion of lottery proceeds which go to the good causes so that it is at or close to the Statutory Minimum. The working party's concern is that if the Statutory Minimum is lowered then it could assist unscrupulous ELMs to push this lower, which in turn undermines the primary objective of a society lottery. On this basis, there is also a case to be made for increasing the Statutory Minimum from 20% to 25%.[82]

58. Both the NCVO and the Charity Law Association working party were very concerned about the impact that a relaxation of the minimum contribution would have on the defining characteristic of society lotteries, that they were intended to raise funds for good causes. They feared that a diminution of this might not only change public perceptions of lotteries but also result in reputational damage to the good causes themselves. They therefore urged caution. [83]

59. The Lotteries Council proposed an amendment to the present 20% minimum rule to allow newly created small society lotteries to spread the requirement for draws over an extended period (possibly up to three years), thereby removing barriers to entering and reducing the risks associated with setting-up and recruiting players.[84] They were supported in this call by the Institute of Fundraising, Camelot, the People's Health Trust, the Health Lottery, the National Trust, the Local Hospice Lottery Ltd and the Northumberland Wildlife Trust.[85] The Charity Law Association also supported an element of flexibility in this requirement for the first months or years of the operation of a society lottery, while acknowledging the practical problems that this could bring about:

if the return to good causes is an average over a specified time period then the society lottery must operate for the entire time period. A mechanism would be required to ensure that the return to good causes is not reduced because a society lottery does not run for the specified time period (for example, if the ELM ceases to exist during the time period); and

They suggested that one approach to the first problem would be to make it a condition that the holder of a society lottery licence should use their 'best endeavours' to raise as much money as possible for the good cause; it would then be for the Gambling Commission to decide, in the case of a short-lived lottery, whether this had been the case.[87]

60. We understand that the requirement for at least 20% of the ticket receipts for each lottery to be given to the good cause from the offing may well deter societies from running lotteries, when many of the expenses (for organising the lottery and recruiting players) will also be incurred at the start. We therefore recommend the amendment of the present 20% minimum requirement to allow newly-created small society lotteries to spread it over an extended period, possibly three years.

61. We recommend that the Government draft an amendment to the Gambling Act 2005 to achieve this, taking into account the issues raised by the Charity Law Association about distinguishing between repeat and one-off lotteries, and the need to make provision for lotteries that do not survive for the full three years. We note the suggestion that this could be achieved by requiring lottery licence holders to use their 'best endeavours' to ensure a return of 20%, and by requiring the Gambling Commission to ensure that its licensing processes filter out any would-be 'phoenix' lotteries, being set up with the intention of folding within three years. We consider that the Government should look at these and other options.

62. The Alzheimer's Society suggested a wider scope to the amendment, to average the 20% minimum contribution requirement across several draws. It wanted the 20% limit to apply to the year as a whole, rather than to each draw, to enable charities to develop their lottery programmes by carrying out smaller scale, test raffles.[88] Rachel Wellman, a member of the Charity Law Association, suggested an alternative approach: to enable societies to hold both a large and a small lottery licence simultaneously, so that they could carry out deliberately small-scale lotteries if they wished.[89] Of these two options, we think the second appears more attractive; but we ask the Gambling Commission to consider the advantages and disadvantages of these suggestions, and any others in this area, and make recommendations to Government accordingly.

63. Camelot suggested that the minimum contribution to good causes should be increased from the current rate of 20%, to align it more closely with the returns delivered by the National Lottery—in other words, 32% (the 20% minimum plus 12%, representing Lottery Duty but going instead to the good causes).[90] Donald Macrae, promoter of the Health Lottery, argued that if the limit were raised from 20% to 25%, then the 5% would probably come from the marketing budget, which might well lead to a reduction in sales. In his view, the key point was not the percentage of the ticket sales remitted to the good cause but the total amount. He compared the National Lottery to a hospice lottery—"28% of £6.7 million is a lot more valuable than 50% of £1 million".[91] The concept of raising the 20% limit was vehemently opposed by several of the beneficiaries of the Health Lottery, fearing it would lead to less money being available for good causes.[92] The NCVO and others pointed out that, according to figures compiled by the Gambling Commission, society lotteries gave an average of 44.5% to good causes over the years 2009-13 anyway.[93] The NCVO intended that its lottery would return 40% to its members from the start.[94] Many—especially among the small and single cause lotteries—gave much more: the National Trust told us that over 80% of the ticket sales from its own lottery was 'profit' to be used for its charitable purpose, and the Essex and Herts Air Ambulance Trust returned on average 60% of the ticket sales to its good cause.[95]

64. The Lotteries Council stated that information on the actual amount of money that would be donated to the designated good cause is "clearly available to customers and is included on promotional material, on the website and in welcome packs and is, of course, subject to the minimum 20% rule."[96] However, the NCVO suggested that information on the breakdown of a society lottery's ticket among prizes, expenses and good causes can be "difficult and in some cases impossible to find." Noting that this could have negative consequences on how the public understood the role of charities and other organisations in running society lotteries, and could lead to unhelpful speculation on how much money went to good causes, the NCVO proposed that society lotteries should print the breakdown of lottery proceeds going towards prizes, expenses and good causes on their lottery tickets, as well as including this information within their written terms and conditions.[97] There was some divergence of opinion on such transparency in the absence of further information: while Stephen Ravenscroft of the Charity Law Association wondered whether publishing the fact that only 20% of the cost of the ticket went to a good cause would damage the reputation of the charity and fund-raising in general, Karl Wilding, Director of Public Policy for the NCVO, thought the greater danger came from public ignorance of this fact.[98]

65. The NCVO also argued that the Gambling Commission should maintain up-to-date and publicly available data tables that showed the proportion of its sales each lottery gave to its good causes, prizes and expenses. [99]

66. We agree that there is a public interest in transparency, and we therefore endorse the recommendation that information about the proportion of lottery receipts given to the good causes, distributed in prizes and used for operational expenses should be clearly shown on each ticket. We also recommend that the Gambling Commission should maintain a database of this information for each lottery on its website, so that the public can make informed decisions about whether or not they should take part in a lottery.

67. However, transparency alone may not be enough. Instead, Camelot recommended the reintroduction of a cap on expenses, adding that expenses should be capped at 15% for large lotteries.[100] This was opposed by both the Health Lottery and the PPL, which argued that the Gambling Commission already had significant powers in limiting 'expenses' to what it considered reasonable, and lotteries needed to spend considerable sums on marketing and recruiting new players just to survive, let alone expand. Moreover, the umbrella lotteries emphasised that their model exploited the efficiencies of scale in operating expenses.[101]

68. The cap on expenses established by the Betting, Gaming and Lotteries Act 1963 was set at either the actual expenses incurred or 10% of the whole proceeds of the lottery, whichever was less.[102] By 2005 this had risen to 35% of the lottery proceeds, but the Gambling Act 2005 removed this cap and instead put in place the provision that the minimum amount to be returned to good causes was 20%.[103]

69. Many smaller lotteries return a greater percentage of their total lottery proceeds to their good cause than larger ones, but lotteries often grow through spending more on marketing in order to recruit more players. The Lotteries Council told us that, on average, its members donate 45% of their lottery ticket income to the good cause, spend 38% of it on expenses (including direct marketing and mail shots) and hand out 18% in prizes. It added that there were large variations in this, mostly reflecting for how long the society had been operating and whether it had recovered its start-up costs.[104]

70. The Chief Executive of the Gambling Commission confirmed that it carefully reviewed the expenses claimed by ELMs, and that much of the 'operational' overhead was attributable to marketing and upfront IT costs. She added that this illustrated the question of whether it was efficient to allow a number of big lotteries to compete, as opposed to limiting the market to a monopoly provider.[105]

71. We accept that lotteries have to invest in order to grow, and that the total money raised is important, but we remain of the view that, to be society lotteries, they must show a substantial return to their good cause. We have ruled out an increase in the minimum contribution to good causes rule, in the light of the need of newer and innovating lotteries for greater flexibility, but we do not consider it appropriate that large, well-established lotteries should provide only that minimum. We therefore recommend a return to a cap, to apply only to the largest lotteries, for all operating costs other than prizes and money set aside for roll-overs. From the information provided by the Lotteries Council, we think the initial rate should be set at 35%. This rate also should be subject to regular, three-yearly reviews by the Government.

72. The Minister for Civil Society told us: "I am not in favour of society lotteries being commercial activities, so if they were to become commercial activities they should be taxed in the same way as the National Lottery".[106]

73. In the event that the Government decides not to re-introduce a cap on operating costs, we recommend that the largest lotteries be made subject to Lottery Duty on the same basis as the National Lottery, unless they are giving at least 32% of their proceeds to good causes.

OTHER MEASURES

Regulations regarding set up

74. The NCVO argues that the process of setting up a society lottery is onerous, and that this disadvantages smaller organisations with fewer resources the most. It considers that simplifying this process would allow more organisations to start and maintain their own lotteries.[107] Other restrictions also appear too burdensome for the benefit gained: for example, the Local Hospice Lottery Limited noted that it was not permitted to sell tickets in a town centre unless the vendor was located in a booth—presumably to make it easier to distinguish between 'legitimate' lottery ticket sellers and fraudsters. It is not clear, however, how effective this may be.[108] Several witnesses, including Camelot, suggested that a common licence for both online and traditional society lotteries might be helpful.[109] We recommend that the Gambling Commission look again at whether the administrative burdens of applying for a licence could be simplified any more for small, start-up lotteries, and at whether other regulations on lotteries are disproportionately burdensome for the benefit produced.

Allowing the private sector to run lotteries on behalf of good causes

75. More radically, members of the Charity Law Association and the Charities Trust suggested that societies should be allowed to operate with a commercial partner without the commercial partner requiring an ELM licence, where the commercial business wished to donate goods or run a lottery on behalf of a charity, as part of its own programme of charitable giving or corporate social responsibility. This might be in the form of running a lottery among its staff for the benefit of a local charity. Another example would be a national supermarket company that donated some vouchers for its goods as prizes in a draw that could be entered by the customers who were willing to add a discretionary small sum onto their grocery bill. The bill would act as a lottery ticket, and the administration of the operation could be dealt with by the company at little or no cost to the charity. The Charity Law Association working group suggested: "With no ELM or licensing costs, the proportion of proceeds going to good causes is likely to be far above the minimum 20%." However, it recognised that safeguards would be needed, in particular compliance with strict codes of conduct to ensure transparency and accountability. [110]

76. We recommend that the Government and Gambling Commission consider whether this proposal is feasible, given the potential major benefits to good causes. It may be the case that commercial entities would have to be licensed to run such lotteries, but it may be possible to establish a relatively light-touch regime for existing companies for which the running of a lottery is clearly part of their corporate social responsibility activities rather than a commercial opportunity.

77. A proposal allied to this was put forward by Rachel Wellman, a member of the Charity Law Association, in her personal written evidence to us.[111] She suggested that any society lottery should be able to raise money for another good cause: she cited a sports club that might wish to raise money for a health charity if one of its members was diagnosed with a disease or was injured. This would require an amendment to the Gambling Act 2005,[112]and she suggested that the amendment should require the licence holder to state which charity would receive the funds from a specific lottery. We endorse this suggestion.

The overlap between society lotteries and betting

78. The Government told us that one of the developments since it first announced that it would consult on regulations for society lotteries was the appearance of a series of new gambling products looking and feeling like lotteries, but with different characteristics and no obligation to return any money to the good causes.[113] The Minister and Camelot explained to us that betting on the outcome of the National Lottery is illegal, but for many years in betting shops it has been possible to place bets on the outcome of international lotteries and lottery-style draws conducted specifically for the purposes of betting.[114] Concerns about this have risen recently because this trade is now possible online, where the demarcation between lotteries and the sort of gambling undertaken in betting shops is blurred, and there is greater potential for confusing the consumer, especially where the products look similar (low stakes, frequency of play, large jackpots), and gaming or betting is offered under the same brand as lotteries. The Government is also worried that the confusion between lotteries and other forms of gambling online may attract young adults (aged 16 or 17) who are permitted to take part in lotteries but not gaming or betting.[115]

79. Camelot offered a number of examples of games, including 'MyLotto24.co.uk', run by Tipp24, which bets on the outcome of EuroMillions and German Lotto games with the chance of winning multi-million pound jackpots. Tipp24 also offers to bet on the outcome of the German Lotto game on behalf of sports clubs, foundations and charities: this is known as Lotto Network and is marketed to consumers under titles such as Arsenal Lotto or Aston Villa Lotto, which, Camelot argued, makes it appear to be a lottery-type game with a large jackpot. Camelot noted that Lotto Network was promoted to clubs as "a forward-thinking alternative to the traditional lottery model": in contrast to the latter's 'uncompetitive' prizes and capped annual incomes, Lotto Network is said to offer "supercharged multi-million-pound jackpots", no upfront fees or licences, and 26% of the revenue of the game. Other examples were the Jackpot Millions game (in which the Health Lottery was the marketing partner for Lotto Network), Cashcascade, Health Lottery Bet (a partnership between the Health Lottery and Coral to bet on the outcome of the Health Lottery, offering a jackpot of £1 million); and Health Jackpot (a bet on the outcome of the German Lotto game launched by the Health Lottery under a licence granted by the Alderney Gambling Control Commission).[116]

80. Camelot argued that all these developments reduced the 'clear blue water' between lotteries and other forms of gambling. In research conducted in relation to a EuroMillions betting product, only 14% of respondents understood that it was a betting product while 61% thought it was a way of participating in the EuroMillions Lottery.[117] Camelot suggested three options for addressing this:

(i) Prohibition of betting on lotteries either in betting shops or online. The 'loophole' which allows operators to offer bets on the EuroMillions draw as promoted in another country should be closed; and the ban on betting on the National Lottery should be extended to all UK licensed lotteries.

(

118

Camelot recommends that all betting transactions on lotteries or lottery-style draws should be classed as lotteries, and therefore the operators would have to acquire a lottery licence and comply with all the restrictions applicable to lotteries.

81. Subsequently, Camelot also raised concerns about another betting industry product, a range of scratchcards launched by Coral, which made a donation of 20% of the card price to the charity Children with Cancer UK. The cards carried images of horseracing and card games. Camelot considered that these images, together with the donation to charity, further blurred the line between betting and lotteries.[119]

82. MyLotto24 responded to the case made by Camelot by emphasising the extent to which it worked with the Gambling Commission to ensure that its products were marketed distinctly as bets and not lotteries.[120] It also argued that there was no evidence that it 'poached' from the National Lottery: when the latter's tickets doubled in price, there had been no significant change in the number of people betting on MyLotto24 products.[121]

83. We asked the Gambling Commission about these products and the difficulty of preserving the distinction between betting and lotteries. The Chief Executive told us that both the Government and the Gambling Commission were already reviewing advertising to ensure that customers understood whether they were betting or buying a lottery ticket, and the current call for evidence on the general regulatory requirements would, she believed, help to identify how to keep the distinctions between the National Lottery, society lotteries and betting products. She considered that the Commission itself had wide enough powers at present to make sure that licensing conditions upheld its three core principles of protection. However, she conceded that there were difficult issues to address, such as that raised by the ability to bet on EuroMillions draws outside the UK, where any changes might have significant consequences, so it was better to proceed with caution.[122]

84. Like Camelot and the Gambling Commission, we are concerned that the evolution of online gambling is removing the distinction between society lotteries and betting. We recommend that the Gambling Commission advise the Government on all three measures recommended by Camelot, to determine which would be most effective in reducing consumer confusion.

85. We think that the value of society lotteries to the charitable and voluntary sector means that the changes to the regime we have recommended are important. We see no reason why the Gambling Commission and the DCMS should not press ahead to be ready with proposed changes for the new Government soon after the general election, given the lack of party political divisions in this area.

32 Culture, Media and Sport Committee, First Report, para 232 quoting Ev 237 Back

33 Ibid., para 234, quoting Ev W 62 (PPL) and Ev W 99 (Lotteries Council) Back

34 Health Lottery Society Lotteries (SOC0020), para 7.3 Back

35 PPL (SOC0007), paras 3.2 and 5.6 Back

36 Centre for Economics and Business Research (CEBR); http://www.cebr.com/wp-content/uploads/2014/02/2014-02-26_Society-lotteries-report.pdf (February 2014) Back

37 Cited in Scope (SOC0013), para 4.1 and also in People's Health Trust (SOC0008), para 6.2 Back

38 Health Lottery Society Lotteries (SOC0020), paras 2.3-2.4 Back

39 Q20 Back

40 Health Lottery Society Lotteries (SOC0020), para 6.3 Back

41 Q44 Back

42 Camelot (SOC0035), para 1.5 Back

43 Q90 Back