Lottery regulation liberalisation campaign

Introduction

Lotteries have long been a highly effective method of fundraising for good causes. A lottery ask is likely to be in the order of three times more responsive than a mission centred message and can be repeated with much greater frequency without alienating the audience.

Today lottery programmes can be found in the fundraising portfolios of more than half of all local hospices and with recession bearing down, are increasingly being taken up by charities of all sizes, following the pioneering work of key proponents of the 1990s such as PDSA, Age Concern, RNIB and Guide Dogs for the Blind amongst others.

Parliament has recognised lotteries as the sole preserve of good causes, yet perversely the prevailing legislation throws a number of obstacles in the path of fundraisers who wish to use this route. A survey conducted by Joe Saxton of nfpSynergy in the autumn of 2011 drew out a number of concerns and these were clarified further during a summit meeting of some of the key stakeholders on 3rd February 2012.

Obstacles & Goals

  1. Changing the 80 : 20 rule
  1. Definition: The Gambling Act 2005 (the Act) requires that each lottery draw returns a minimum twenty percent contribution of stakes to the good cause after deduction of expenses and prizes. Incidental donations do not count.
  1. Problem: Whilst lotteries are significantly more responsive than mission-led appeals the cost of acquiring new supporters remains high. For example in direct mail a charity might expect a 2% response to a lottery cold mailing with a cost of around 50p per pack. This equates to £25 per new supporter and a likely net acquisition cost of £15. Higherfigures would be expected for telemarketing recruitment and even more for commercial door-to-door canvassing. To achieve an overall return of at least 20% to the good cause the Society would need a substantial number of existing supporters to respond to the same lottery draw, thus making it very difficult to grow a lottery at speed and near impossible to start a new lottery. Recognising that the purpose of the minimum return is to protect lottery activity from unscrupulous exploitation, it should be recognised that charities are already under close scrutiny on fundraising ratios, but in no other area are those ratios prescribed.
  1. Solution:
  2. Allow incidental donation income (ie donations that are generated by a lottery but that are not for the purchase of tickets) to be recognised as part of the overall lottery performance.
  3. Take assessment of the 80:20 rule for all the lotteries an organisation runs rather than any single lotteryand over a five year period rather than in a single financial year
  4. Question: Should we be bolder and press for the abolition of the 80:20 rule altogether? The Institute of Fundraising’s Policy Advisory Board has recommended that this is the approach we should take. How likely would we be to achieve this change in the current climate? What is the solution that is most likely to achieve success with the greatest benefit for fundraising?
  1. Remove age verification for 16 and 17 year old for remote lotteries
  1. Definition: Lotteries which operate by means of remote communication (internet, telephone, text) are required to positively verify the age of players who pay by means of debit card, before they enter, in order to screen out under sixteens.
  1. Problem: The cost of this activity ranges from 90p to £1.50 per record (plus VAT); prohibitively high in relation to typical transaction values. Incidence of under-age play in lotteries is very low; hardly surprising given the slow rate of play and low win ratios which are characteristics of most schemes. These high costs leave charities with the dilemma of whether to remove debit cards as a method of payment; however this means that many older people, and others who don’t like credit cards, are barred from entry.
  1. Solution: Waive the requirement to screen every entry and use self-certification plus random sampling as an alternative control as with credit cards.
  1. Dual licensing of non-remote and remote lottery activity
  1. Definition: The Act stipulates that non-remote (e.g. paper) and remote activity (e.g. online or telephone) must both be separately licensed.
  1. Problem: Compliance and control measures for remote lotteries are set at a higher standard than for non-remote, yet none in the latter are missing from the former. This is a wasteful and bureaucratic duplication of effort and expense in licence application, maintenance and fees.

Solution: Assimilate non-remote licensing into remote such that one licence authorises both activities and the levels of compliance are identical for both remote and non-remote BUT based on the current standards for non-remote licences.

  1. Allowed cloakroom tickets in exempt small lotteries
  1. Definition: Schedule 11 of the Act stipulates that ticket purchasers in exempt small lotteries must receive documentary confirmation.
  1. Problem: Exempt lotteries are intended to be a fleet-footed fundraising exercise, suitable for use by small groups and organised with theminimum of bureaucratic overhead and expense. The need to print tickets to a prescribed specification imposes an unnecessary cost and complexity burden.
  1. Solution: Permit the use of standard pre-printed “cloakroom” tickets.
  1. Give society lotteries proportionate expert regulation within the wider gambling industry
  1. Definition: For almost forty years fundraising through Society lotteries was governed by its own statute (Lotteries & Amusements Act 1976). The decision to absorb lotteries within the wider gambling industry with the advent of the Gambling Act 2005 has given rise to a number of difficulties for fundraisers. Whilst we welcome the opportunity to work within a defined regulatory structure, it would assist the good causes we aim to promote, to recognise the distinct character of lotteries.
  1. Problems:
  2. Notwithstanding some very welcome attempts at modification by the Gambling Commission, the regulatory framework of licence application, maintenance and compliance follows a largely universal model across all sectors of the gambling industry, creating complexity and unwelcome burdens for fundraisers.
  1. The Gambling Commission does not have either the resources or the inclination to provide lottery specific guidance to new market entrants. Whilst we recognise that promoting lotteries is not encompassed by the Commission’s current terms of reference, in other areas, notably tax and data protection, the relevant authorities appear to have much more flexible and co-operative approach.Examples of the types of role models for the Gambling Commission are the HMRC Charity team or the ICO helpline.
  1. Problem gambling is a serious social concern and we welcome attempts to address it. There is at the same time very little evidence to support the contention that lotteries make a significant contribution to the issue, with the sole exception in BGPS (British Gambling Prevalence Survey) 2010 of scratch cards, the majority of which are marketed by the National Lottery. It is therefore difficult to see why good causes, who have their own specific objectives, should be so distracted.
  1. Solutions:
  2. Sector specific primary legislation is required which recognises the distinct nature of lottery fundraising and its role in forging a better social environment.
  3. Raise the threshold to £1 million annual lottery turnover for triggering Gambling Commission licensing, allowing more Societies to operate under the less onerous and less costly system of Local Authority registration.
  4. Permit charities/societies with distributed branch structures to allow those branches to operate small lotteries under Local Authority registration even when the principle Society/charityholds a Gambling Commission licence.
  5. Create society/charity specific process for registration of lotteries and charities – rather than using the same materials as for casinos and commercial gambling activities
  6. Equip the Gambling Commission with a qualified dedicated support team, preferably with charity knowledge, to respond constructively to lottery queries.
  7. Absolve Societies from any obligation to contribute towards the resolution of problem gambling – except for those charities which promote scratchcards?
  8. Create a central ‘stop list’ for those who wish NOT to receive lottery mailings from charities. This could be administered along with the proposed central gift aid database for micro-donations. This would allow the public to know that one registration should reduce the chance of them receiving lottery mailing dramatically. Alternatively it could be administered by the Gambling Commission
  1. Question: Should we argue that proportionate regulation would be for the threshold of turnover for lottery regulation by local authorities to be raised (so less organisations were regulated by the Gambling Commission). Are there other changes we should call for to regulation by local authorities?
  1. Remove turnover limits for society lotteries
  2. Definition: Society lotteries have been subject to financial restrictions for many decades, firstly as a matter of public policy and from the 1990’s as a restraint against potential competition with the National Lottery. The present caps are £4,000,000 per draw and £10,000,000 per yearper organisation and a prize pot of £400k per lottery. Claims that there is no need to raise these levels because they are not being met are untrue; several large Societies have multiple licences. In 2011 the Gambling Commission licensed the Health Lottery, an external lottery manager (ELM) operating a multiple society structure deliberately designed to circumvent the limit system.
  1. Problem: This scenario is farcical, unjustified and undermines the credibility of the law. It prevents fair competition, particularly with unregulated and purely commercial prize competitions, often run by organisations with substantial media access and is therefore not in the public good. We now have the worst of all worlds as the legislation has prevented existing charities from raising substantial sums from lotteries, but the creation of the Health Lottery has created a duopoly with the National Lottery. If the regulation allowed greater competition from the outset we would not have this situation. The time is right to rectify this.
  1. Solution: Remove limits on Society lottery turnover.

We need your views
This document has been put together a group of organisations who believe that the current regulations/legislation are a barrier to charities raising more money from lotteries. We would like to know three things once you have read this paper.
Question 1. Have we missed anything from the regulatory problems we have outlined, and would you propose a different solution to the ones we have set out?
Question 2. What are your thoughts about the two questions we highlight in yellow:
  • Should we be bolder on the 80:20 rule and press for its complete abolition rather than softening its impact by measuring it over time and over all the lotteries a charity runs?
  • Should we press for removing a tier of regulation by suggesting that only the largest lottery operations by charities are regulated by the Gambling Commission and that all those currently regulated by local authorities should be removed from lottery regulation altogether?
Question 3. Would your organisation support the proposals set out in this paper once we start to discuss them with government and the regulatory authorities? (if you support this document please just email us to say so)
Please respond with your views, if only to say you support the objectives of our campaign, to by May 28th2012
The organisations behind this consultation:
The Lotteries Council ,The Institute of Fundraising, The Hospice Lotteries Association, CAF, 121 Fundraising Ltd, the People’s Postcode Lottery, nfpSynergy, the Woods Group, Brightsource, as well as a number of charities who use lotteries in their fundraising but are not being named individually till after the end of the consultation period. The involvement of organisations at this stage does not commit them to supporting the final campaign document and objectives.
April 2012

1Please respond by Monday May 28th