Each year charities benefit enormously from the generosity of the public who, via competitions, raffles and lotteries, seek to raise funds for good causes. However the regulation of these types of fundraising is also complex and can risk catching out charities and generous donors seeking to make a contribution.
Lotteries are particularly heavily regulated and charities running small 'society' lotteries will need to seek registration with the relevant local authority. For each 'large' society lottery, where ticket sales exceed £20,000 for a single draw, or £250,000 for draws over the year, the charity will need to register and seek a licence from the Gambling Commission instead, and abide by its social responsibility code and licence conditions.
Fundraisers should also be aware that it can constitute an offence under the Gambling Act 2005 for a charity to 'promote' or 'facilitate' a lottery without local authority registration or a licence from the Gambling Commission, or to be in breach of conditions imposed by those authorities.
Charities and their benefactors should therefore take care to only participate in and help to run lotteries in compliance with the Gambling Act 2005 and the Gambling Commission's guidance.
A charity that fails to carry out due diligence on a lottery, which is promoted separately by an 'external lottery manager' without a proper licence, might also be held liable for the external lottery manager's failures. The charity's failure to carry out due diligence could also lead to it benefiting from unscrupulous gambling practices, which might have a serious impact on its reputation.
However it can also be very difficult in practice to distinguish easily between a lottery or raffle and certain types of prize competition, which are not as heavily regulated. This problem is particularly acute in the context of donors who seek to 'raffle' their homes and distribute proceeds to charities, which may or may not fall within the Gambling Commission's usual regulatory remit.
A 'simple' lottery is an arrangement for prizes where participants must pay to enter and prizes are allocated by a process reliant 'wholly on chance'. However a prize competition will typically not charge an entrance fee and will require participants to demonstrate some ability which will earn them the right to prize.
Those running 'competitions' might choose to set the bar for participants' ability very low, for example by asking a self-evident question. This could inadvertently render an otherwise legitimate prize competition s an illegal lottery, if combined with an entry fee.
14(5) of the Gambling Act therefore notes that a process which requires persons to exercise skill or judgment or to display knowledge shall be treated for the purposes of this section as relying wholly on chance if—
(a) the requirement cannot reasonably be expected to prevent a significant proportion of persons who participate in the arrangement of which the process forms part from receiving a prize, and
(b) the requirement cannot reasonably be expected to prevent a significant proportion of persons who wish to participate in that arrangement from doing so.
The Gambling Commission will use this definition to distinguish between genuine prize competitions and lotteries asking artificially easy question. We note that its guidance emphasises that it is the 'element of skill, knowledge or judgement' which must prevent persons from participating. It provides a practical summary of the question to be asked - 'Did the skill, judgment or knowledge requirement in fact eliminate a significant proportion from participation or success and, if it did not, on what basis did the organisers conclude it was reasonable to expect that it would have done so?' – and a list of indicators as a guide to how that test might be satisfied.
Charities can and should accommodate the generosity of donors whenever possible and seek new and innovative means of fundraising. However we recommend that both charities and donors seek independent legal advice before starting or participating in a lottery, or any arrangement which could be treated as a lottery.
Due diligence will be crucial for both organiser and beneficiary to ensure the maximum amount can be raised for charity transparently, legally and with minimal risk.
