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Gambling on the future: one perspective on the Gambling Act 2005

May 2006 - Media, Entertainment & Sport. Legal Developments by Harbottle & Lewis LLP.

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The Gambling Act 2005 (the Act) received Royal Assent on 7 April 2005. Implementation began in October 2005, when provisions introducing the fundamental concepts used in the Act and creating the Gambling Commission came into force. The full effects are not yet in place - the government aims to implement the Act gradually until September 2007, when the old legislation will be repealed.

This article attempts to give a subjective, schematic overview of the Act. The Act has 362 sections and 18 schedules, so it is impossible to give a full analysis in the space available. As well as describing the general regime, this article will consider possible opportunities for commercial companies, which do not intend to provide gambling facilities, but which might take advantage of new opportunities under the Act for marketing promotions and sales competitions.

Objectives

The Act will modernise and consolidate the law relating to gambling within the UK (except Northern Ireland, and some provisions do not apply in Scotland), and will replace the existing legislation, including the Lotteries and Amusements Act 1976 (LAA).

The objectives of the Act are, first, to update the law to accommodate technological changes giving rise to remote gambling.

Secondly, to relax the restrictions on certain types of gambling where appropriate (partly in response to pressures from offshore remote gambling).

Thirdly, to create a regulatory framework to fulfil the following licensing objectives:

  • to protect children and other vulnerable people from being harmed or exploited by gambling;
  • to prevent gambling from being a source of crime or disorder, being associated with crime or disorder, or being used to support crime; and
  • to ensure that gambling is conducted in a fair and open way.

Gambling Commission

A new Gambling Commission has been created to replace the old Gaming Board of Great Britain. The Commission is already in place, and will have a duty to: (a) pursue, and wherever appropriate to have regard to, the licensing objectives; and (b) permit gambling, in so far as the Commission thinks it reasonably consistent with pursuit of the licensing objectives.

The Commission also has to prepare and publish a statement setting out the principles it will apply in exercising its functions under the Act. A draft statement on these principles has been circulated for consultation.

The Commission must also issue codes of practice for those operating gambling facilities, including arrangements to: (a) ensure that gambling is conducted in a fair and open way; (b) protect children and other vulnerable people from being harmed or exploited by gambling; and (c) make assistance available to people who are or may be affected by problems related to gambling.

Finally, the Commission has a duty to issue guidance to local authorities (a draft of which is currently in circulation for consultation), and to provide advice to the Secretary of State for Culture, Media and Sport.

Gambling Offences

The Act's provisions focus on a series of offences. In brief, these include:

  • Provision of facilities for gambling. For this purpose a person provides facilities for gambling, subject to certain exceptions, if they:

    - invite others to gamble in accordance with arrangements made by them;

    - provide, operate or administer arrangements for gambling by others;

    - participate in the operation or administration of gambling by others.

  • Use of premises. For this purpose, a person commits an offence if they use premises, or cause or permit premises to be used, to:

    - operate a casino;

    - provide facilities for the playing of bingo;

    - make a gaming machine available for use;

    - provide other facilities for gaming; and

    - provide facilities for betting (whether by making or accepting bets, by acting as a betting intermediary or by providing other facilities for the making or accepting of bets).

  • Manufacturing, supplying, installing, or adapting gambling software.
  • Cheating at gambling.
  • Inviting a child or young person to gamble.
  • Inviting a child or young person to enter premises where a casino licence is in force (subject to exceptions).
  • Inviting a child to participate in a lottery.
  • Promoting a lottery (in the context of a wide range of possible activities).
  • Facilitating a lottery (by the printing of tickets or promotional materials, or the advertising of a specified lottery).

Operating Licences

The Commission is empowered to issue operating licences to:

  • operate a casino;
  • provide facilities for bingo;
  • provide facilities for betting and pool betting;
  • act as a betting intermediary (such as Betfair);
  • carry out various activities in respect of gaming machines;
  • manufacture, supply, install or adapt gambling software; and
  • promote a lottery.

A new concept of remote gambling is introduced, which will, for the first time, permit on-line gambling equipment to be located in Great Britain pursuant to a remote operating licence. Remote gambling is defined as gambling in which persons participate by the use of remote communication, which includes communication using the internet, telephone, television, radio or any other kind of technology for facilitating communication.

There are also requirements for personal licences in respect of people who occupy specified management roles in connection with the provision of facilities for gambling.

Premises licences must be obtained from local authorities in respect of:

  • the operation of a casino;
  • the provision of facilities for bingo;
  • making certain gaming machines available for use; and
  • the provision of facilities for betting, as above.

As is well-known, the Act prescribes that no more than one regional, eight large and eight small casino premises licences may have effect at any one time. There is currently speculation that the ODPM plans to increase these limits.

Definition of Gambling

For the first time the Act creates a definition of ‚Äėgambling'. Gambling is gaming, betting and participating in a lottery. Gaming means playing a game of chance for a prize. For these purposes, ‚Äėgame of chance' cannot be a sport, but otherwise includes a game that involves both an element of chance and an element of skill; a game that involves an element of chance that can be eliminated by superlative skill; and a game that is presented as involving an element of chance.

We turn now to the definition of a ‚Äėlottery' and to the possible opportunities for commercial organisations under the Act.

Lotteries

The objective of the Act in relation to lotteries is primarily to constrain their promotion, by commercial and other organisations, other than in certain tightly controlled circumstances. This is partly to protect the public from a proliferation of commercial lotteries for private gain, and also to protect the National Lottery and societies' lotteries.

The LAA, while rendering many lotteries illegal, famously does not define a ‚Äėlottery'. The courts defined a lottery as ‚Äėthe distribution of prizes by chance where the persons taking part in the operation, or a substantial number of them, make a payment or consideration in return for obtaining the chance of a prize'.

Section 14 of the Act, which came into force on 1 October 2005 although only for the purposes of the Act, codifies this, and clarifies the legality (or otherwise) of various historic evasion schemes.

There are two types of lotteries under the new regime: simple and complex.

Simple lotteries

A simple lottery is an arrangement where:

  • persons are required to pay in order to participate;
  • one or more prizes are allocated to one or more members of a class; and
  • prizes are allocated by a process that relies wholly on chance.

A ‚Äėprize' includes any money, articles or services, whether or not described as a prize, and whether or not the participants contribute to the prize pool.

This closes off a possibility under the old law that a service such as a non-transferable backstage pass did not amount to a ‚Äėprize' since its financial value was unclear.

‚ÄėWholly on chance' is also clarified. A process that requires people to exercise skill or judgement or to display knowledge will rely wholly on chance if the requirement cannot reasonably be expected to prevent:

  • a significant proportion of participants from receiving a prize; and
  • a significant proportion of people who wish to participate from doing so.

So it is now clear that facile multiple-choice questions and unjudged tiebreakers will comprise a process relying wholly on chance.

This test is intended to be practical. The explanatory notes to the Act therefore state that:

‚Äė... the level of skill or judgement required to win or go forward to the next round of a children's competition should be set at an appropriate level for the age of the children at which the competition is aimed. Equally, a competition in a specialist magazine needs to be suitably challenging for the specialists likely to read the magazine and enter the competition.'

The definition of a ‚Äėpayment' to enter has been broadened. ‚ÄėPayment' is paying money, transferring money's worth and paying for goods or services at a price or rate which reflects the opportunity to participate. Depending on the value of the relevant chance and data, it could be argued that the capture of personal data for general marketing purposes (other than only for the administration of the competition) would comprise payment, since it would be possible to put a financial value on such data. Any communications expense at a higher rate that reflects the opportunity to participate will comprise payment, but communications expense at normal rates will not.

The old ‚Äėno purchase necessary' route has always been misunderstood. The strict test was not that the route was available, but that a substantial number of participants did not pay to enter, regardless of the availability of the route. This has always been difficult to apply, and indeed it was impossible for a promoter to know whether it has complied with the law until the promotion was finished. The Act changes the emphasis to publication of the route. The route works if:

  • every eligible individual has the choice;
  • the choice is publicised so as to be likely to come to the attention of each individual who proposes to participate;
  • communication is at normal rates or in a way which is neither more expensive nor less convenient than participating by paying; and
  • the prize allocation system does not differentiate between those who participate by different routes.

So a well-advertised, properly administered ‚Äėno purchase necessary' route should avoid being classed as a lottery. An obvious example of a simple lottery is a prize draw.

Complex Lotteries

A complex lottery is a lottery that fulfils the requirements of a simple lottery, but where the prizes are allocated by a series of processes, the first of which relies wholly on chance. This might include, for instance, a scheme whereby the number of participants in an essay competition was determined first by a prize draw from a larger number of initial entrants. It might also include a dual-process scheme where the first process relied wholly on chance, such as a series of facile multiple-choice questions, and the second process was a prize draw, or involved skill. A complex lottery that also falls within the definition of gaming, but has more than three processes, will be classified as gaming rather than a lottery.

The Secretary of State has power to introduce regulations stating what is, and what is not, intended to be a lottery. This will give the Act flexibility in the light of evolving circumstances.

Exempt lotteries

Schedule 11 of the Act sets out a number of exempt lotteries, which will not be subject to the offences in relation to lotteries under the Act if properly structured and administered. These broadly reflect the old excepted lotteries under the LAA.

There are a number of lotteries relevant to voluntary organisations, such as incidental, non-commercial lotteries, and large and small society lotteries. Of most relevance here, however, is a new type of permitted lottery called a customer lottery. A lottery will be a customer lottery if:

  • it is promoted by a person who occupies premises in Great Britain in the course of business;
  • no ticket is supplied to person except when they are on the premises as a customer;
  • no profits are made;
  • advertisements for the lottery are only on the business premises;
  • each ticket is a document, and may only be sold by or on behalf of the promoter;
  • rights conferred by the ticket are non-transferable;
  • each ticket includes certain required information;
  • the price for each ticket is the same, shown on the ticket and paid up front;
  • there is a maximum prize value of ¬£50;
  • rollovers are not permitted; and
  • at least seven days elapse between each draw.

Prize competitions

Section 14 of the LAA states that:

‚Äė... it shall be unlawful to conduct in or through any newspaper, or in connection with any trade or business or the sale of any article to the public... any... competition in which success does not depend to a substantial degree on the exercise of skill.'

This is confusing and difficult to apply. Not only does it require a delicate conceptual analysis of what might comprise a ‚Äėcompetition', but it also raises a nigh-on nonsensical judgement call about relative skill, since s14 usually requires enough skill to involve a ‚Äėcompetition' (ie where participants actively compete), but not so much skill as to mean that the competition depends to a substantial degree on the exercise of skill. As a result, s14 has tended to be overlooked.

Section 339 of the Act (not yet in force) states that participating in a competition under which a person may win a prize is not gambling, unless it is gaming, betting or participating in a lottery within the meaning of the Act. This provision will abolish the prize competition restriction, so that this will no longer be a concern to those structuring promotional competitions.

Conclusion

The Act seeks to follow a responsible course between deregulation - to ensure that, for instance, the practical implications of Internet gambling can be regulated onshore - and the protection of vulnerable people and the prevention of gambling-related crime through the pursuit of the licensing objectives.

Within this framework, the lotteries regime has been modernised. Although in some respects it has been tightened up, in others it will provide opportunities for commercial organisations to continue to offer promotional competitions.

By Robert Porter, solicitor, Harbottle & Lewis LLP.

E-mail: Robert.porter@harbottle.com.

Telephone: +44 20 7667 5129.

For more information please visit www.harbottle.com.