The UK lottery industry generated almost £3.7 billion and donated £1.9 billion to charitable causes in 2015-16, reports the Gambling Commission. In fact, lotteries accounted for 27 percent of the entire gambling market’s gross yield, representing a profitable business opportunity. However, the industry is strictly regulated with a focus on raising money for good causes, so how do lottery businesses actually work?
How The Gambling Act Defines A Lottery
UK lotteries are regulated by the Gambling Industry and laws laid out in the Gambling Act 2005. Under the Act, a lottery is defined as something people pay to enter that has at least one prize allocated by a process of pure chance. Examples of a lottery include a raffle, tombola or sweepstakes. The National Lottery is the UK’s largest example and is regulated by the National Lottery Commission under its own legislation.
To operate outside of the Gambling Act, businesses can run competitions instead but this means introducing an element of skill, judgement or knowledge. For instance, if players have to answer a question to enter a prize draw, it’s classed as a competition rather than a lottery. Similarly, if there’s no cost to enter, like in the Free Postcode Lottery, then the draw is defined as a competition rather than a lottery.
Before starting any lottery, businesses need to find out whether they need a licence to operate. The following types of lotteries are exempt from licensing:
- Incidental lotteries – held at events like fetes to raise money for good causes. Tickets can only be sold at the event and no more than £500 can be spent on prizes and a maximum £100 deducted for expenses.
- Private society lotteries – must raise money to support their own work, a charity or good cause.
- Work and residents’ lotteries – should be non-profit to raise funds for good causes. Only residents or colleagues on the premises can enter the lottery.
- Customer lotteries – are only for customers and should take place on the business premises, with a £50 limit per prize.
These types of lotteries do need to be registered or licensed under the Gambling Act and must give at least 20 percent of their revenue to charity or good causes:
- Small society lotteries – must be non-commercial and raise money for charitable causes. These lotteries must be registered with a local authority and ticket sales shouldn’t exceed £250,000 a year or £20,000 per individual lottery. The maximum prize for each lottery is £25,000.
- Large society lotteries – should generate at least £20,000 in ticket sales per lottery or £250,000 per year. Businesses need a licence from the Gambling Commission and the lottery should raise money for culture, sport or charitable projects. The maximum prize limit is £200,000 per draw. Launched in 2011, The Health Lottery is a good example of a large society lottery. For every £1 ticket sold, at least 20p is donated to health-related projects across the UK.
- Local authority lotteries – these also need a licence to operate. Authorities can use the net profits from their lottery to help cover their running costs. Again, the maximum prize per draw must be £200,000.
All the above lotteries need to follow rules laid out in the Gambling Act. These include making sure all players are 16 or over and that tickets aren’t sold in the streets. All tickets should include the price, date of the draw, name of the society and name and address of the lottery organiser.
In addition, lottery businesses must submit regular financial reports and they can hire an External Lottery Manager to run the business, as long as they hold a lottery manager’s operating licence. If large society or local authority lotteries can be played remotely, via the internet for example, then the business must hold a remote operating licence.
You can find out more about how UK lottery businesses work in this guide from the Gambling Commission.