Before Ireland passed its Gambling Regulation Bill last week, politicians challenged the regulation’s definition of a lottery and questioned why those operating charity lotteries would need to obtain a licence alongside other gambling activities. The rise of sweepstakes casinos in the US is another example of a lottery-style game coming under regulatory scrutiny. Richard Williams, partner at Keystone Law, considers the various lottery options out there and how the vertical has evolved in the UK.
The words “raffle”, “draw” or “sweepstake” have no legal definition, but are commonly used to refer to a lottery. Although a specified category of gambling under the Gambling Act 2005, a true “lottery” isn’t quite so simple to spot in real life. The basic definition of a lottery requires payment and allocation of a prize by chance. So, if I pay to pick numbers in a random draw to win a prize, that arrangement is a lottery.
But if I pay to play a game to win a prize by chance, that’s “gaming”. If my numbers in a draw are selected for me and played as a game, that’s “bingo”, which isn’t defined, but is a sub-category of gaming. But if I select numbers in a lottery which forms part of the National Lottery, that’s not gambling, but is separately regulated.
Paying to guess the numbers I think will be drawn in another lottery (excluding the National Lottery and Euromillions) is considered betting. And then there are “free” draws and skill contests, some of which may look like lotteries but are unregulated, because of a free entry route or exercise of skill.
Confused? You might well be. Lotteries are a complex legal area and there is a good argument for regulating all gambling activity as “gambling”, as the boundary between these different categories of gambling has become more difficult to determine.
What’s the difference between all these lottery options?
True lotteries cannot be operated for commercial gain and a minimum of 20% of ticket sales must go to benefit the good cause (e.g. a charity). Lottery operators can be either small or large and must be licensed by either the local authority or UK Gambling Commission.
Small society lotteries cannot sell tickets valued at more than £20,000 in each lottery or £250,000 in a calendar year. The maximum prize is £25,000. Large society lotteries can sell up to £50m in tickets annually, with up to £5m ticket sales per draw and a maximum prize of £500,000. External lottery managers can obtain a licence to manage lotteries on behalf of societies, provided that 20% of the ticket sales are paid to the good cause.
Increased competition but traditional lottery dwindling
Regulated lotteries have always been considered a low-risk type of gambling, as high odds games are generally played less intensively and with lower stakes than other forms of gambling.
Because of this and because lotteries benefit good causes, they have not been subject to the same regulatory scrutiny and criticism as other types of gambling. Lottery stakes are funded from disposable income and over recent years lotteries, whether large or small, have faced increasing competition from other types of regulated and unregulated gambling.
Physical lottery tickets and scratchcards have become less common, as society lottery operators migrate to online ticket sales. There have been complaints from charities and other good causes, that raising funds from lotteries is becoming more difficult as consumers are attracted by more interactive and exciting gambling games on offer. Picking numbers in a draw isn’t seen as being exciting, when compared to playing fast moving interactive games online.
Society lotteries have also raised concerns about financial restrictions on ticket sales and prizes, which place them at a disadvantage to the National Lottery and other forms of gambling. The lottery limits were raised by the government in 2020. In March 2022, the DCMS concluded that these changes had led to reduced expenses for lottery operators and more returns for good causes.
At that time, only one draw had taken place above the previous £400,000 prize limit. Umbrella lotteries, such as the People’s Postcode Lottery and Health Lottery had benefitted from the changes to the limits and had asked the government to further increase the annual ticket sales limit to £100m.
Still waiting on white paper lottery reform
In recent years, lotteries have also come under pressure from the growth of free draws, where a postal entry route is available as an alternative to paying. Compliant draws are currently free of regulation in Great Britain. Free draw operators do not need to make any contribution to good causes, although many do.
However, voluntary charitable contributions are likely to be well below 20% of ticket sales. Society lotteries have complained that their share of spending is being eroded by these high-profile draw operators, many of whom advertise on TV and radio, with no limits on prizes or tickets sales, and that this is having a knock-on detrimental effect on returns to good causes.
The Government’s white paper on gambling reform, which was issued in April 2023, expressed an intention to review these free draws in order to protect consumers who it said were confused about the difference between free draws and lotteries.
A survey was subsequently issued on behalf of the DCMS, setting out proposals ranging from the introduction of a code of practice, to taxation and regulation. To date, there has been no legislation brought forward to regulate free draws.
Lotteries have been around for thousands of years. State lotteries were used by the Roman empire to raise funds and China’s Han dynasty operated a lottery to fund the construction of the Great Wall.
As technology moves ahead at pace, lotteries have had to evolve to remain relevant and to maintain their market share. Lotteries face challenges, but paying a small stake for the chance to win a life changing amount will no doubt remain a popular leisure activity in the years to come.
