The Lotteries Council — Written evidence (CHA0166)

The Lotteries Council represents hundreds of charities and good causes across the country who operate society lotteries to raise funds to support their work.  We warmly welcome the inquiry by the House of Lords Charities Committee.

1.              EXECUTIVE SUMMARY

1.1              The Lotteries Council believes that society lotteries offer charities a vital and relatively simple way of raising funds, particularly for on-going core services, and, as such, make an important contribution to the financial sustainability of charities. 

1.2              The Lotteries Council believes better regulation of society lotteries could deliver ever-increasing financial support to a vast range of charities, large and small, fashionable and unfashionable and at the same time without any restrictions on the use of the funds.

1.3              The Lotteries Council is calling on the Government to announce its plans for the regulation of society lotteries – ideally proceeding with a lighter regulatory regime - permitting higher prizes, more ticket sales, a lifting of the present annual income cap and aggregating the 20% minimum contribution to charity rule over a longer period for start-up lotteries.

1.4              The Lotteries Council believes that this boost to the revenues of the nation’s charities can be achieved whilst protecting the National Lottery.

2.              ABOUT SOCIETY LOTTERIES

2.1              The Lotteries Council represents hundreds of individual society lotteries in Britain. It has a very diverse membership, including many well-known national charities providing services, support and in some cases world leading research. For example, society lotteries support cancer research, ex-servicemen, the disabled and animals, as well as more locally based organisations such as hospices, air ambulances and football clubs.

2.2              Our members tell us that the great benefit of the income they receive from their society lottery is that it can be used to support the core activity of the charity. Many funds raised by charities have to be to be used for specific purposes. But the day to day activities of charities need to be reliably funded if they are to benefit the people they are seeking to serve. Lottery income gives charities a secure, no strings attached, income for their core purpose.

2.3              There are a number of different kinds of society lotteries, including new, so-called umbrella lotteries, such as the Health Lottery and the People’s Postcode Lottery, who raise money through a branded lottery and then distribute the funds through trusts to which people can apply for support.  This model can greatly benefit those charities which otherwise might struggle to gain popular support from the public for their activities. Umbrella lotteries are also used by smaller charities and good causes, who fear the regulatory burden of running a lottery and who come together for professional support while branding their own tickets in the name of the good cause they support.

3.              SOCIETY LOTTERY FUNDRAISING

3.1              In 2014/15, the society lottery sector generated a record £205 million for good causes across Scotland, England and Wales, a substantial increase on the £155 million raised for good causes in 2012/13. Thanks to the loyal and increasing support of their players, the sector has achieved incredible growth, a clear demonstration that society lotteries are an increasingly popular model for incentivised fundraising in Britain today. A thriving society lottery sector can help tackle the financial pressures faced by many charities and offer financial sustainability as well.

4.              PRESENT RESTRICTIONS ON SOCIETY LOTTERIES

4.1              Unlike any other form of charitable giving, the present restrictions on society lotteries place an actual cap on fundraising. The current limit on the maximum value of tickets that can be sold for one draw is £4 million with the maximum aggregate value of lottery tickets that can be sold in any calendar year under one licence standing at £10 million. Some of the more popular national charities could sell more tickets to their supporters but are prevented from doing so – with the result that more than one well known national charity has taken out two licences to satisfy demand and maximise its return to good causes. This increases the regulatory and cost burden on the good causes and therefore reduces net benefit.

4.2              Prizes are limited to £25,000 or to 10% of the total proceeds, taking the maximum permissible prize to £400,000. As the prize money is declared in advance of sales in order to attract sales, this creates a substantial risk as the lottery then has to sell ten times the amount of the prize to stay legal.  This inevitably drives down the size of prize offered, which also leads to fewer sales.

4.3              Society lotteries must donate a minimum of 20% of the proceeds from each draw to their allotted good cause with the remainder divided between prizes and ‘reasonable’ expenses. We believe that the 20% rule is a reasonable safeguard for players that their money is being spent on their chosen good cause. However, for start-up lotteries, the minimum can and does create difficulties as they need to invest heavily to build a player base and gain momentum.

4.4              On average, Lotteries Council members do much better than the minimum 20% - donating 43% of their funds to good causes, spending 38% on operating expenses (which includes direct marketing and mail shots) and 18% on prizes. However, as demonstrated in the CEBR report (see below), there are significant variances among the proportion of funds going to good causes, prizes and administrative costs – corresponding largely to the length of time an individual society lottery has been operating.

5.              EVIDENCE FOR REGULATORY CHANGE – THE CEBR REPORT

5.1              In February 2014, the Lotteries Council and the Institute of Fundraising commissioned a report by the Centre for Economics and Business Research (CEBR) entitled, ‘What have we got to lose? How society lotteries could do even more for good causes’. It examined the contribution made by society lotteries and explored the potential impacts of regulatory change. The CEBR also undertook an extensive survey among Lotteries Council members to establish what changes they believed would help them grow their fundraising activities.

5.2              The report noted that society lotteries had continued to increase their revenues in every year since the financial crisis, at a time when personal giving to charity had faltered[1]. It concluded that at a time when economic circumstances had placed other revenue streams under pressure, the UK’s society lotteries were a ‘welcome source of financial respite’ within the charity sector.

5.3              The CEBR examined the suggestion raised by the Department for Culture, Media and Sport in the announcement of a consultation in December 2012 – namely that the minimum contribution a society lottery had to return to good causes should be changed.  The CEBR looked at raising the present minimum contribution from 20% to 28% and calculated that it would reduce the money raised for good causes by £35.3 million as a result of some lotteries ceasing to operate or cutting back on the scale of their activities.

5.4              The CEBR also examined a further proposal that had been raised in the media – a return to capping operational expenditure at 15% of total proceeds, which they concluded would lead to a loss of £88.3 million in donations to good causes.

5.5              The report recommended relaxing caps on prizes - the top priority for 32% of the society lotteries surveyed - and relaxing the restriction on overall revenue - supported by 11% as their top priority.

5.6              The CEBR also surveyed the likely impact of reducing regulation and found that relaxing the minimum 20% contribution rule for new, smaller society lotteries would be likely to encourage more start-ups and growth in the sector. The CEBR found that 41% of the society lotteries who took part in the survey wanted the relaxation of this rule as a top priority and recommended aggregating it over three years.

5.7              For many society lotteries, relaxing all three of the present regulatory requirements - sales, prizes and the minimum contribution – would be their preferred option. The CEBR report found, on the whole, larger lotteries are more focused on relaxing the constraints on revenues and prizes, while the smaller lotteries have a stronger preference for movement on the 20% rule.

6.              FURTHER RATIONALE FOR REGULATORY CHANGE

6.1              Society lotteries not only provide valuable income to good causes, but in many cases support charities which deliver services that do not benefit from state funding. Such an example would be air ambulance services, which save lives across Britain but often heavily rely on income generated from society lotteries.

6.2              Another important element to consider is that because the society lottery sector is so diverse the public has the freedom to choose which lottery they would prefer to play and the specific charities – national or local – they want to support.

6.3              The impact of any form of gambling, however soft, is rightly a subject of concern for legislators. Problem gambling among society lottery players is and has remained low according to the available statistics. Figures commissioned by GamCare in 1999[2] showed a problem gambling prevalence of 2% among ‘any other lottery’ players, while the most recent figures published by the Gambling Commission in 2012[3] estimated a problem gambling prevalence of 1.8% among players. These figures cover the period when, under the 2005 Gambling Act, there was modest deregulation of the society lottery sector which suggests that further relaxation of the rules would not have an adverse impact on problem gambling.

6.4              A further beneficial impact of the society lottery model has been the effect of direct marketing on other forms of fundraising. The charity PDSA received £39.3 million from legacies in 2012, with 60% of these supporters having been initially recruited as lottery players.

7.              RECOMMENDATIONS FOR REGULATORY CHANGE

7.1              The Lotteries Council would propose the following changes to existing legislation:

              An increase in the permissible amount of ticket sales for a single draw from £4 million to at least £10 million, enabling larger fundraising charities to raise more money with minimal additional cost

              An increase in the annual income cap on any society lottery from £10 million to at least £100 million to enable larger charities to reach economies of scale and maximise their fundraising

              An increase in prize values from £25,000 to £1,000,000 in order to remove the risk involved in having to sell tickets equivalent to ten times the prize offered, while also putting a cap on prize levels to avoid direct competition with the National Lottery

              The aggregation of the present 20% minimum rule to allow newly created small society lotteries to spread the requirement for draws over an extended period (possibly up to three years), thereby removing barriers to entering the market and reducing the risks associated with setting-up and recruiting players

8.              NO ADVERSE IMPACT ON THE NATIONAL LOTTERY

8.1              Some concern has been expressed in the past that deregulation of society lotteries could undermine support for the National Lottery. However, a 2012 report by NERA Economic Consulting, commissioned by the Department for Culture, Media and Sport and the Gambling Commission, did not find evidence supporting the notion that a more buoyant society lottery sector impacted on the National Lottery.

8.2              Moreover, raw data comparing the National Lottery to the entire society lottery sector puts things into perspective. The National Lottery’s income can be counted in billions – with the most recent figures showing the turnover of society lotteries as £437million, dwarfed by the £7.6 billion revenues generated by the National Lottery.

8.3              Figures appear to demonstrate that society lotteries have been able to grow their player base and charitable contributions alongside the equally successful National Lottery. Indeed, concerns expressed by Camelot, the National Lottery operator, that Richard Desmond’s Health Lottery would poach players away when it was launched in 2011 has not been borne out by the facts. Between 2010 and 2011 gross income of the National Lottery increased by 5.7%. In the following year – the first year of the Health Lottery – the income of the National Lottery increased by 10.5%. In the ten years either side of the launch of the Health Lottery, the National Lottery’s total income has only decreased twice. In the previously mentioned Government-commissioned report from NERA Economic Consulting, entitled ‘Assessment of Lottery Market Issues’, the impact of the Health Lottery and similar multiple society lotteries in the wider lottery market and the distribution of money going to good causes was considered. According to the report, the initial findings of the research indicated: “to date there is no clear evidence that the Health Lottery has taken very significant revenues from the National Lottery or that it poses a threat to existing society lotteries. It is likely, therefore, to have increased the total amount of money raised by lotteries for good causes.”

8.4              Of even greater importance is the fact that the CEBR report noted that the deregulation it proposed would increase donations to good causes and ‘complement rather than detract’ from the National Lottery. In essence, both society lotteries and the National Lottery can prosper together.

9.              WHAT GOVERNMENT CAN DO

9.1              The Government announced it would launch a consultation into the regulation of society lotteries in December 2012. Since then, the House of Commons Select Committee on Culture Media and Sport have conducted their own inquiry and the Department their own consultation.  In the summer of 2015, John Whittingdale, the Secretary of State for the Department for Culture Media and Sport asked the Gambling Commission to come forward with proposals for the regulation of society lotteries. We await its conclusions in the hope that it will allow some modest deregulation.

9.2              We believe that the Government should lift some of the present restrictions to make it simpler and easier to raise more money for the nation’s good causes.

27 September 2016