Joint Committee on the Draft Gambling Bill

Joint Committee on the Draft Gambling Bill First Report

13 Lotteries (except the National Lottery)

590. The draft Bill proposes to retain the four existing legal types of lottery, in addition to the National Lottery: small incidental lotteries,[843] private lotteries,[844] societies' lotteries[845] and local authority lotteries.[846] It would also create an additional permitted category of customer lottery (discussed below).[847] Large society lotteries and local authority lotteries would be licensed by the Gambling Commission;[848] small society lotteries would not require a licence but must be registered with a local authority;[849] and private lotteries, small lotteries and customer lotteries would be neither licensed nor registered.[850] In addition, the Commission would regulate external lottery managers acting on behalf of non-commercial societies or local authorities, such as Inter Lotto and Littlewoods.[851]

591. Budd concluded that lotteries should be preserved for the "exclusive purpose of good causes".[852] The Government accepts this general principle, commenting that:

"Lotteries - whether run by the National Lottery, by societies, or by other lawful means - must be seen as the preserve of good causes".[853]

Accordingly, lotteries run for commercial profit would continue to be illegal under the draft Bill.[854] In order to achieve this general policy objective the underlying law must: (a) clearly define what is, and is not, a lottery; (b) prevent lotteries being used other than for good causes; and (c) be enforced. Following its own review of the current law, the Government identified two areas that threaten this policy: first, ambiguity in the current legal distinction between lotteries and prize competitions; and secondly, lack of enforcement.[855]

Enforcement

592. We have been told that "over the years there has been a lamentable lack of enforcement of the existing law [on lotteries and prize competitions]".[856] At present, there is no single national agency with the remit and resources to take action against unlawful lotteries and prize competitions. The Gaming Board for Great Britain does not have the power to initiate public prosecutions. Instead, it has relied on the police to do so and, understandably, the police have not historically prioritised enforcement of the law in this area: "from the police point of view they do not understand [the issues relating to lotteries] and say 'What is the problem? We have more important things to do'".[857]

593. Another reason the law is not currently enforced is a lack of resources. Hundreds of illegal lotteries and prize competitions are conducted in the UK and the Gaming Board could not pursue all of them. Instead, it has prioritised those schemes about which it has received complaints and has determined that it would not be in the public interest to expend public resources in prosecuting all small-scale schemes.

594. Under the draft Bill the Gambling Commission would be responsible for enforcing the law against unlawful gambling, including unlawful lotteries. It would have the power to initiate public prosecutions, which would enable it to tackle unlawful lotteries directly, without the need to make demands on police resources. As noted above, the Commission will need to be adequately resourced if it is to use these new powers. Even then, it would not be able to prosecute every unlawful lottery, of which there are many at present:

"I do not think for one moment that the Gambling Commission is going to go round having to do hundreds and thousands of prosecutions; one or two well-publicised ones will probably do the trick, and then everybody will know where they are."[858]

595. We recommend that adequate resources should be available to the Gambling Commission to enable it to initiate prosecutions against those conducting lotteries that would be illegal under the Bill and, thereby, help to preserve lotteries for good causes.

Definition of "lottery"

596. Clause 208 of the draft Bill provides the first statutory definition of a "lottery" and Lord McIntosh of Haringey, Parliamentary Under-Secretary of State, DCMS, has told us that the definition is trying to "introduce an element of clarity".[859] It starts by restating the current common law definition of a lottery,[860] providing that an arrangement is a "lottery" if:

a) one or more prizes are allocated to one or more members of a class (or to each member of a class);

b) the system for determining the allocation of prizes relies wholly on chance (but, see the discussion of Clause 208(4) below); and

c) individuals are required to pay in order to enter the Lottery (see below).

Payment to Enter

597. Under the current law an arrangement will only be a lottery if the participants have paid to enter it. This would continue to be the case under the draft Bill and, accordingly, free-draws would not be required to be regulated as lotteries.

598. The Government has acknowledged that the meaning of "payment to enter" is not clear under the current law, stating:

"Many prize competitions and prize draws currently employ so-called free entry routes which nevertheless do effectively require the participant to make a payment, such as by premium rate telephone call, in an effort to avoid being caught by lottery law. To avoid this abuse of lottery law, the draft Bill will provide clarity about what is meant by payment for entry into a lottery."[861]

It seeks to achieve this in Schedule 7 of the draft Bill which defines "payment to enter".

599. We have received a number of negative comments on the wording of this Schedule. These have highlighted some significant omissions and areas in which the commercial impact of the Schedule could be unexpected. These are set out in the Schedule of Detailed Comments on the draft Bill (Annex 1). In particular, the following areas have been noted.

Premium-rate calls

600. As noted above the Government is keen to ensure that schemes requiring participants to call premium rate numbers in order to enter should be treated as requiring "payment to enter" the lottery.[862] It seeks to achieve this in paragraph 5 of Schedule 7 of the draft Bill which provides that "a reference to paying does not include a reference to incurring the expense, at a normal rate of […] making a telephone call". A normal rate is defined as "a rate which does not reflect the opportunity to enter a lottery".[863]

601. Susanna FitzGerald QC has commented that this definition of "normal rate" is not clear enough to catch premium-rate calls and that, if this is the desired intention, it should be expressly stated on the face of the Bill:

"Let us take the example of a television company because it is popular. The only way of getting hold of this television company might be through a premium rate telephone number so the only way to get into the Lottery is going to be via the premium rate telephone number, so the normal rate for contacting that particular company is going to be via premium rate. Now at the moment, because it is via premium rate it would be held to be a lottery, and under these provisions probably not."[864]

602. Premium rate telephone calls are a very common feature of existing lottery-type schemes and we consider it to be vital that the use of such calls to enter lotteries should be treated as a form of payment to enter under the Bill. We recommend that Schedule 7, paragraph 5(2) of the draft Bill should be amended to clarify that this would be the case.

Normal retail price

603. Under the current law if a person buys goods and with them acquires the chance to win a prize, it would be considered that s/he had paid for the chance. This would be the case even if the goods were sold at their normal retail price. Accordingly, such schemes would constitute lotteries. The draft Bill proposes to relax this rule and states that, in such circumstances, the chance to win a prize will not be considered to have been "paid for" unless the price of the goods "reflects the opportunity to enter the Lottery" (this concept is based on New Zealand law and is commonly referred to as the New Zealand Model).[865] If it cannot be established that the chance of winning a prize is reflected in the price of the goods, the scheme cannot be a lottery and will not therefore be regulated.

604. Evidence has suggested that the introduction of the New Zealand model could threaten the preserved status of lotteries, by enabling unregulated, overseas operators to enter the UK market by the use of bogus sales promotions.[866] Philip Circus has warned that "It is virtually impossible in the majority of cases to establish what the 'normal' price [for goods] is".[867] He also noted that these provisions would put the UK out of step with the rest of Europe and could prejudice the development of the pan-European promotional marketing strategy.[868]

605. We agree with the Government's position, as set out in Schedule 7, paragraph 2(c), that buying goods should not be considered as payment to enter a "lottery" accompanying those goods, unless the price of the goods reflects the chance to win the lottery. However, we also acknowledge the concerns that have been expressed about the possible abuse of these provisions and recommend that the Gambling Commission should issue guidance on the meaning of a "normal price" for goods. For this purpose, it should consider using trading standards rules as a guide to determining what is normal.

Payment to take possession of a prize

606. We have also received comments about the effectiveness of paragraph 6 of Schedule 7, which seeks to bring payments necessary to take possession of a prize within the definition of "payment to enter". As currently drafted, this provision would not cover a situation in which a payment (such as a premium rate call) is needed to ascertain whether one has won a prize and/or to find out what that prize is.[869] The Explanatory Notes to the draft Bill state that it is intended that such cases should be covered:

"A payment required to take possession of a prize or to find out what a person has or might have won in a lottery counts as if it were payment to enter it".[870]

607. We welcome DCMS' willingness, expressed in the Schedule of Detailed Comments on the draft Bill (Annex 1), to amend paragraph 6 of Schedule 7 to rectify the existing omissions.

608. In addition, Philip Circus told us that, as currently drafted, paragraph 6 of Schedule 7 is "far too sweeping, because it would rule out, potentially, a lot of very, very substantial and legitimate prizes":

"It would put in doubt, for example, "win this car" but you have to pay insurance and road fund licence. You cannot really take possession of a car until you have road fund licence and insurance. Are we saying that people cannot offer a car as a prize in a promotion because of the effect of this provision?"[871]

609. We do not consider that such sales promotions should be treated as lotteries and recommend that paragraph 6 of Schedule 7 is amended to clarify that this would not be its effect.

Skills Test

Policy Aim

610. Under the current law, if prizes are not allocated purely on the basis of chance an arrangement will not be a lottery. This has lead to the development of arrangements which involve some skill (meaning that they cannot, legally speaking, be lotteries) but in which the level of skill is so minimal that the outcome is, in reality, determined by chance (e.g. "What is the capital of France?").[872] The ultimate winner of such competitions is frequently decided by randomly selecting one out of the many who answered the question correctly. Although such arrangements should be treated and regulated as lotteries, the existence of a minimal skill element means that under the current law they are not.

611. The existing law on illegal prize competitions was developed to prevent these schemes. It prohibits competitions "in which success does not depend to a substantial degree on the exercise of skill".[873] The draft Bill proposes to remove the prohibition on such prize competitions. By so doing, it does not, however, intend to permit schemes employing minimal tests of skill to avoid the laws on lotteries. Instead, the draft Bill seeks to bring these schemes within the statutory definition of a lottery. While Clause 208(1) starts by saying that the allocation of prizes must rely wholly on chance, Clause 208(4) goes on to state that:

" […] a system […] relies wholly on chance despite the fact that persons are required to exercise skill in order to enter a lottery, if the requirement is not likely to prevent persons who want to enter the lottery from doing so".

612. So where a "competition" includes a skill requirement that is not likely to prevent persons who want to enter the lottery from doing so, it will constitute a lottery under the draft Bill. Accordingly, it would be illegal unless it is licensed or falls within one of the limited exemptions in the draft Bill.

613. We have received a wide range of comments on Clause 208(4). Some of these have questioned the policy of seeking to prevent minimal-skill competitions. The Newspaper Society has commented that "If the draftsman had stopped at [Clause 206(1)], all would have been well",[874] effectively recommending that any arrangement which involves even a "scintilla of skill" should not be considered a "lottery".[875] The television industry has made similar comments about the potential impact of the skills test on televised contests, which it notes are a long-standing and integral feature of a number of television programmes. It has also explained that the application of Clause 208(4) will create significant practical difficulties and "might be deemed to require far more arcane and difficult questions than are routinely employed in television competitions at present, and which would not engage or interest viewers"[876]:

"We see no pressing social or economic needs, and no public support whatever, for any legislative measure that might equate such prize competitions to lotteries, or that might render such competitions unlawful."[877]

614. Some of the evidence we have received has commented that the current wording could bring a number of schemes which are presently lawful, such as crossword competitions or fantasy football games, within the definition of illegal lotteries.[878]

615. The majority of our evidence has, however, recognised the need to protect lotteries and to preserve them for good causes. It has acknowledged that this requires minimal-skill "competitions" either to be treated as lotteries (as the draft Bill proposes) or prohibited as unlawful prize competitions (as is the case under the current law):

"If no definition is given to a skill or challenge then the weakest of competitions will be able to operate without regulation when in reality they are pure lotteries, the [skill] element merely being a device to circumvent legislation".[879]

616. We agree with the Government's general policy aim of preserving lotteries for good causes and agree that, if this is to be achieved, it is necessary to prevent competitions in which the level of skill involved is so minimal that they are, in effect, lotteries.

Drafting

Clarity

617. Despite agreeing with the general policy aim, many commentators have expressed concerns about the way the skills test is incorporated into the draft Bill. The Gaming Board itself which, under the guise of the Gambling Commission would be responsible for enforcing the new law, has stated that the proposed wording "does not provide the clarity in the law that the Gambling Commission will need",[880] and even the lawyers Philip Circus and Susanna FitzGerald QC have commented that they are not clear about the meaning of the words "if the requirement is not likely to prevent persons who want to enter the Lottery from doing so".[881] The latter told us: "I think the drafting is tortuous and it is very difficult to know exactly what it means".[882]

618. We acknowledge and agree with the Government's aim to preserve non-commercial lotteries and to distinguish them from commercial prize competitions. We are not, however, persuaded that Clause 208(4) of the draft Bill is sufficiently clear to create a workable and certain regime that will achieve this. We recommend that further thought should be given to the wording of this Clause.

A separate statutory definition of prize competitions

619. Many of the suggestions as to how the drafting of Clause 208(4) could be improved are included in the Schedule of Detailed Comments on the draft Bill (Annex 1). However, one comment which was repeatedly made by our expert witnesses was that the Clause seeks to do too much in a very limited number of words:

"perhaps Clause 208 is trying to be all singing all dancing and losing clarity by doing it. Perhaps we should take a deep breath and start again and keep the concept of the Lottery separate and concept of a prize competition separate, so you have two separate clauses dealing with it rather than one".[883]

The Lotteries Council also told us that "the definitions need to be tightened but if you do not have a separate category of prize competitions then you are opening the way to some of the abuses which were mentioned earlier on."[884]

620. Such comments reflect the perception that a clearer distinction would be drawn between lotteries and prize competitions if the latter were defined in the draft Bill, rather than treating some prize competitions as lotteries that are unlawful, unless regulated, and ignoring all others, as in the current draft of Clause 208. In the Schedule of Detailed Comments on the draft Bill (Annex 1), the Government has responded to such comments as follows:

"The Government does not intend that the Gambling Bill regulate or control prize competitions. As Susanna FitzGerald QC explained during her evidence to the Committee, some prize competitions are more akin to gambling than others. The effect of the Bill is that, where a so-called 'prize competition' does actually represent gambling - whether it is betting, gaming, or a lottery - the Gambling Commission will be able to take action if that gambling has been offered unlawfully. The Government is not convinced that there is anything that a clause about prize competitions in this Bill could usefully say. It is not intended that prize competitions be subject to a licensing regime, and […] we do not think it would be helpful to replicate the existing law at Section 14(1)(b) of the Lotteries and Amusements Act 1976."[885]

621. We would suggest that greater clarity could be achieved by including a definition of prize competition in the draft Bill. This would make it easier to draw a distinction between lotteries, on the one hand, and prize competitions, on the other. If a definition of prize competition were provided, it would then be easier to distinguish between those prize competitions which are illegal, because they have an inadequate skill element, and those which are legal, because the skill element is adequate.

Hybrid competitions

622. In addition to seeking to merge lotteries and unlawful prize competitions in one definition, Clause 208(4) seeks to address hybrid schemes, such as those starting with a skill test in which the ultimate winner is randomly selected from many correct answers. Of this, Susanna FitzGerald QC commented:

"Bring hybrid competitions into legislation, therefore, and decide what a hybrid competition is going to be so that you can have a mixture of skill and chance, and then you can decide how you are going to do it and you can put in a definition of what skill is or however you word it, and just do it perhaps in two clauses and make it rather simpler."[886]

623. The Government has acknowledged that "there is scope for increasing the clarity of the Bill in so far as it applies to schemes which have different stages, some of which require skill, others depending purely on chance."[887] We urge the Government to clarify the treatment of hybrid schemes under the draft Bill.

Statutory definition of "lottery" and the National Lottery

624. As discussed above, the National Lottery will not be regulated under the draft Bill. The draft Bill achieves this in Clause 222 by providing that the Bill should not apply to the National Lottery. We have, however, received evidence from the National Lottery Commission (the NLC) that it would be useful if the definition of "lottery" provided in the draft Bill were also applicable to the National Lottery. The NLC can only authorise lotteries and it would be useful for it to be able to rely on a statutory definition rather than the existing case law.[888]

625. We consider that there would be advantages to the single statutory definition of "lottery" covering the National Lottery. We welcome the Government's statement, in the Schedule of Detailed Comments on the draft Bill (Annex 1), that they will consider this request and urge it to amend Clause 222 accordingly.

Rapid-draw lotteries

626. Clause 79(2) of the draft Bill would impose a mandatory condition on lottery operating licences, requiring there to be a lapse of 24 hours between the sale of a ticket in a regulated lottery and the prize draw.[889] The Explanatory Notes to the draft Bill state that "this restriction is intended to limit the possibility for repetitive play in lotteries".[890] The Committee has received a number of submissions commenting that there is no evidence that rapid draw lotteries contribute to problem gambling.[891] The charity Addiction Today stated in its submission: "we highlighted the fact that there was no evidence that rapid-draw lotteries cause excessive play" and requested "If you have such evidence, please do show it to me".[892]

627. Much of the evidence we have received has noted how damaging this prohibition would be to many existing lotteries. Inter Lotto commented that Clause 79(2) "by restricting the frequency of society lotteries, would render the existing business of Inter Lotto illegal, resulting in the withdrawal of its only game and removing a vital source of income from the charities for which Inter Lotto operates".[893] It has noted that "If applied to the National Lottery, all the current games (with the exception of 'Instants') would be unlawful".[894] The Lotteries Council told us that the provision would prevent half time lottery draws in rugby, football and cricket matches,[895] a consequence recognised by Lord McIntosh of Haringey, Parliamentary Under-Secretary of State, DCMS,[896] and later by the Secretary of State for Culture, Media and Sport.[897] GamingKing have commented: "What is the magic of 24 hours? If the objective is to prevent rapid draw games then a much smaller period of time such as 2 hours would be more than sufficient".[898] The Secretary of State has added that she is "looking into the options for reserving a flexible power to deal with these types of lotteries."[899]

628. If the Government has evidence as to the risks of rapid draw lotteries, we recommend that it publish this evidence and that it apply any proposed restrictions equally to the National Lottery. If rapid draw lotteries do pose risks, we recommend that the required period between ticket purchase and draw be set at that necessary to address this risk, rather than at 24 hours as currently proposed in Clause 79(2). We recommend that the Gambling Commission be given the discretion to attach a condition to this effect.

Statutory limits

629. Budd recommended that the existing limits on the size of stakes, prizes and maximum annual proceeds of society lotteries should be removed.[900] This proposal has been rejected by the Government on the basis that "removal of the current limits would allow charities to compete head to head with the National Lottery"[901] By statutory instrument, the Government instead doubled the proceeds limit for a single lottery to £2 million; the aggregate annual total for a single charity or local authority to £10 million; and the maximum possible prize to £200,000.[902] These limits, already in existence since 17 June 2002, have been included on the face of the draft Bill as mandatory conditions of lottery operating licences.[903]

630. The Lotteries Council has stated that society lotteries need the ability to operate with "Freedom from arbitrarily applied limits on maximum lottery size"; "the ability to charge for entry into a lottery whatever the public are willing to pay"; and "The ability to feature prizes which retain their attraction in relation to inflation".[904] It has told us that:

"we did not request [removal of the limits] in our submission to the gambling review because we did not think we would get away with it but when the review body came out in favour of it and also the Gaming Board itself did not see a problem with it, we have pursued it vigorously ever since. We do believe, as I said earlier, that lotteries should be allowed to find their own level."[905]

631. The "inordinate amount of time [spent] accounting for lotteries and ensuring that they do not breach arbitrary limits" and the desire "to clean away administrative bunkum" has also been described to us.[906]

632. The Lotteries Council explained that they consider the Government's concerns about head to head competition with the National Lottery to be unrealistic:

"A more important point, perhaps, going to the reason why those limits are there is that I simply cannot - and this is purely an impressionistic view - envisage any consortium of really big charities ever getting together on a scale which would seriously threaten the operations of the National Lottery. I think that is the crucial thing."[907]

633. It has been also noted that the decision to include the proposed limits on the face of the draft Bill is inconsistent with the aim of achieving flexibility and avoiding the frequent need for primary legislation. We have received suggestions that any limits imposed should be capable of variation by statutory instrument or by the Commission in consultation with the Secretary of State (these are set out in the Schedule of Detailed Comments on the draft Bill (Annex 1)). DCMS has commented, in the Schedule, that a power will be added to enable the Secretary of State to amend the financial limits on lotteries, without the need for primary legislation.[908]

634. We believe that the Budd recommendation to remove financial limits on lotteries has merit and recommend that it should be achieved progressively over time. We welcome DCMS' acceptance that the limits should be capable of amendment by secondary legislation. We recommend that Clause 79 of the draft Bill should include an additional delegated power of this type and that the Secretary of State should use this power on the recommendation of the Gambling Commission.

Customer Lotteries

635. We have heard some concerns about the introduction of the new category of legal lottery - the customer lottery which will neither be registered nor licensed. This will allow an occupier of any business premises to promote a lottery for the benefit of its customers.[909] Susanna FitzGerald QC has expressed concerns about their potential scope:

"Sainsbury's, Tesco's, Boots, W H Smith, you think of a high street national chain, would be able to do this nationally, across the country. The potential for people to enter these things is huge - you are talking about millions of people every week going into a customer lottery. Has this been thought out? Has it been worked out what the ramifications are?"[910]

636. Many such outlets are major sellers of National Lottery and/or society lottery tickets and customer lotteries could compete with these sales. To illustrate the eagerness of commercial operators to use customer lotteries, Sky have queried in written evidence whether it could use such a lottery to enable BSkyB to operate a weekly lottery for Sky Digital customers.[911]

637. We note that there are conditions relating to tickets[912] and the price of tickets for such lotteries - no ticket may result in the winner receiving a prize worth more than £50, rollovers are prohibited and only one draw is allowed in any seven day period.[913]

638. We believe that some of the examples used to illustrate the potential for the abuse of "customer lotteries" may be exaggerated. However, while we agree that small raffles by local businesses should be regularised, we recommend that DCMS re-consider the existing wording in Part 3 of Schedule 8 to remove any possible scope for abuse.

843 Schedule 8 Part 1 Back

844 Schedule 8 Part 2 Back

845 Schedule 8 Part 4 and Clause 78(1)(a) Back

846 Clause 78(1)(b) Back

847 Schedule 8, Part 3 Back

848 Clause 78(1) Back

849 Schedule 8, Part 5 and para 34 Back

850 Schedule 8, Parts 1-3 Back

851 Clause 78(1)(c) Back

852 DCMS, Gambling Review Body Report, Cm. 5206, July 2001, para 28.2 Back

853 DCMS Statement "Law on prize competitions and lotteries - statement by the Department for Culture, Media and Sport", June 2003 Back

854 DCMS, A safe bet for success - modernising Britain's gambling laws, Cm. 5397, March 2002, para 4.40 Back