The ‘choice of free entry’ has given unlicensed operators carte blanche to run commercial lotteries with impunity

Introduction

The last line of the Laurence Olivier production of “Cat on a Hot Tin Roof” has Brick (Robert Wagner) saying “Wouldn’t it be funny if that was true.” The line came to mind recently when I was scrolling through the Gambling Commission website. The Commission summarises the prohibition against commercial lotteries in broad terms: “Lotteries can only be run either to raise money for good causes or for fun. They cannot be run for private or commercial gain.[1]” That was certainly the intention of the Gambling Act 2005, and may even be a correct, if somewhat aspirational, statement of the law. But the reality is rather different. There are dozens of lotteries run for commercial gain these days: on television, on the radio, over the Internet – I see one or more promoted every day – and to judge from some of the intensive advertising campaigns, it is not fanciful to suspect that substantial commercial gain is the goal.

How did we get there – in Great Britain no less, where unregulated gambling is supposedly unthinkable, and where the ‘normalisation’ of gambling is anathema to the point where many think a betting shop logo should not be on a professional footballer’s shirt?

This article will suggest it is because the Gambling Act 2005 has given a protective shield to any lottery promoter who bothers to offer the choice of a ‘free entry route’, however unrealistic it may be to suppose anyone will take advantage of it.

Before the Gambling Act 2005

The regulation of lotteries is centuries old; variously addressing concerns that they encourage gambling by those least able to afford to lose[2], that they are vulnerable to fraud[3], or simply to protect the revenues of state-run lotteries[4]. Lord Widgery gave the classic common-law definition of a lottery in the Readers Digest case:

“A lottery is the 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 their chance of a prize.”

To circumvent regulation, no end of imaginative schemes has been dreamed-up, hoping to disguise the elements of chance and payment, and remove the scheme from the definition of ‘lottery’. They have been given short shrift by the courts. In a case concerning the meaning of ‘bet’, but equally applicable to the meaning of ‘lottery’, Lord Wilberforce said[5]:

“With only moderate success Parliament has endeavoured to keep up with the enormous variety of these activities which has arisen from the ingenuity of gamblers and of people who exploit them. It is impossible to frame accurate definitions which can cover every such variety; attempts to do so may indeed be counter-productive, since each added precision merely provides an incentive to devise a variant which eludes it. So the legislation contains a number of expressions which are not, or not precisely defined: bet, wager, lottery, gaming are examples of this.”

In determining whether an activity was or was not ‘betting’, Lord Wilberforce preferred a common-sense appraisal of the facts, rather than “refined analytical tools”, which he said “are not suitable instruments in this context.”

Mr. Justice Caulfield put it more bluntly in the Readers Digest case:

“I would not like to define a donkey. I would not like to define a lottery. But the fact that I do not define does not prevent me from recognising a donkey or a lottery when I see it. I think the approach to cases of this sort is to examine the facts, and not then to decide whether or not the facts satisfy a particular definition., but whether the court can then declare that the facts show a lottery.”

Thus, before their hands were tied by the 2005 Act, the courts unhesitatingly looked at the reality and substance of a scheme. They were happy to find a distribution of prizes by chance in arrangements which had been presented as requiring the exercise of skill, but in reality did not do so[6]; and they had no difficulty in finding de facto payment in promotions which suggested they were ‘free of charge’[7]. In Singette Ltd. V Martin, Lord Pearson said: “In deciding whether a competition is a lottery or not a realistic view should be taken and regard should be had to the way in which the competition is actually conducted”; and he cited a string of cases dating from 1883 to 1967.

Choice of Free Entry: the 2005 Act

One might almost think it was an act of defiance to draft the Gambling Act 2005 so as to achieve precisely what Lord Wilberforce had identified in Seay v Eastwood as the regrettable consequences when precise definitions are attempted rather than “general meanings… left to be decided by the Courts as cases arise under the common law.” Not content with defining ‘lottery’ and ‘prize’, and then spelling out when a process must be treated as relying ‘wholly on chance’, the Act goes on to tell us (schedules 1 and 2) “when an arrangement is to be or not to be treated… as requiring persons to pay”.

It always was the law (it had to be, as a matter of logic) that notwithstanding the sale of tickets to some participants, there was no requirement to pay to enter a lottery if anyone could just as easily enter it without paying. But, as we have seen, the courts would look at the realities of a scheme and at what actually happened when it was up and running, and they were prepared to interpret the concept ‘require’ loosely.  Lord Widgery in Reader’s Digest implied that even if there were a free entry route, there would be a lottery if in reality “a substantial number” of people paid to take part.

Paragraph 8 of Schedule 2 to the 2005 Act put an end to what some might think was a commendable way of dealing with “the ingenuity of gamblers and of people who exploit them”[8]. Instead of the application of common sense, case-by-case, we have –

Paragraph 8(1)

For the purposes of section 14 and this Schedule an arrangement shall not be treated as requiring persons to pay in order to participate if under the arrangement—

(a) each individual who is eligible to participate has a choice whether to participate by paying or by sending a communication,

(b) the communication mentioned in paragraph (a) may be—

(i)   a letter sent by ordinary post, or

(ii) another method of communication which is neither more expensive nor less convenient than entering the lottery by paying,

(c) the choice is publicised in such a way as to be likely to come to the attention of each individual who proposes to participate, and

(d) the system for allocating prizes does not differentiate between those who participate by paying and those who participate by sending a communication.

Paragraph 8(2) says that ordinary post means ordinary first-class or second-class post (without special arrangements for delivery).

It follows that if, for the purposes of section 14, an arrangement is not to be treated as requiring a person to payin order to participate, it is not a lottery within the definitions given by section 14, and it is therefore unregulated by the 2005 Act. In other words, an unlicensed lottery promoter who offers the choice of ‘paid entry’ or ‘free entry by post’ is given carte blanche to proceed with a profit-making lottery, even if no one is likely to, or does, take advantage of the free postal route – or to put it another way, even if everyone pays to enter. The idea of determining whether a scheme is or is not a lottery by taking a realistic look at the way in which the thing is actually conducted has been thrown to the winds.

And lottery promoters have lost no time in exploiting that.

Lawful commercial lotteries

• Entry by text

A number of television programmes invite their audiences to text a 5-digit number for “a chance to win” a large sum of money. “Text ‘WIN’ to 12345” is a typical promotion. Countless similar lotteries are advertised on the Internet. (A Google search will find hundreds of them[9].) The text costs the caller a pound or two over and above the standard rate.  A person entering the lottery does not need to do anything other than text the given number: the payment appears on the caller’s phone bill as a charge at the relevant premium rate. Entry to the lottery is completed in a matter of seconds.

These lotteries offer a “choice of free entry” alternative to texting: it amounts to sending one’s contact details on a card or in a letter to a given address. What is doubtful is whether many people exercise that choice. Cost and convenience are relevant factors.

Cost of entry

If the likes of Lord Wilberforce or Mr. Justice Caulfield were assessing the realities of these lotteries-by-text, I suggest they would conclude that it is unlikely that many would opt for the postal route in preference to the text route. Even at the current rates of postage[10] there is little difference between the two in the actual cost of entering.

Convenience

Convenience is another matter. Few would dispute that there is a world of difference between the ease of texting “WIN” to a 5-digit number, and the time and trouble of writing, addressing, finding a stamp and posting a letter. Only the paragraph 8(1)(b)(ii) ‘free’ route (“another means of communication”) requires it to be “neither more expensive nor less convenient than entering the lottery by paying”. The 8(1)(b)(ii) ‘free’ route (“letter sent by ordinary post”) has no such qualification. The mere availability of free entry by post is all that is necessary to legitimise what would otherwise be an unlawful scheme. It is immaterial that the postal (free) route may be far less convenient than the text (paid-for) route.

It could be that the draftsman of the 2005 Act, not being familiar with the advances of the Internet, assumed that sending an entry by post would never be less convenient than paying to enter by some other means. Many competitions on the labels of various purchased products require entries – often the labels themselves – to be sent by post. Perhaps text-messaging was unfamiliar to the draftsman, or even daunting? Texting SMS messages on mobile phones, however, had been steadily growing in popularity since its introduction in the late 90s: by the time the Gambling Act was passed in 2005 there were some 30 billion text messages sent annually, and the number grew year-on-year to 2.2 trillion in 2020.

It is difficult to believe, even in 2005, that anyone thought that there would be much enthusiasm for a cumbersome postal entry when a 10-second text entry was available. But whatever the draftsman thought, what was drafted is legislation which allows the mere existence of a choice of free entry to legitimise a commercial lottery, albeit that the ‘choice’ is one that no one is ever likely to take advantage of.

• Website lotteries

There are some lotteries advertised on television and the Internet which offer substantial property prizes, valued in the millions, together with luxury cars and thousands of pounds in cash. There is more to entering them than sending a simple text message on a mobile phone: one has to log on to a website and enter the lottery there. The ‘free entry route’ is usually advertised alongside the paid routes[11]. On one such website I recently visited there is a range of options for entering via the paid route, offering 15 entries for £10, 40 entries for £25, 85 entries for £50, and 320 entries for £150. Thus, the more entries you buy, the cheaper each is – which the website is at pains to point out. (Tempting players to spend more in this way is not permitted in regulated lotteries: section 99(6) of the 2005 Act makes it a condition of a lottery operating licence that all tickets in the lottery should be the same price.)

The method of payment is no different from any other on-line purchase: a couple of clicks take one to ‘express checkout’ by Apple-Pay or PayPal, with the slightly longer option offered of providing Mastercard, Visa or AMEX card details.

The ‘free postal entry’ route on the website I visited is undoubtedly more time-consuming than the paid-for mouse-click routes; but it may be thought only marginally so. One has to write or type one’s full legal name, address, email address, city, postcode and telephone number (optional) on a blank sheet of paper or card, together with the name of the Prize Draw in question, and post it to the UK address of the promoter. The inconvenience of single-entry free postal routes when compared with single-entry paid-for routes, however, is the tip of the iceberg.  Multiple-entry is what lies under the water.

The website I visited (and there are many like it) stipulates a maximum of one free entry per postcard or envelope sent/received. So, if I wanted to enter 15 times I would need to send 15 letters/cards. Similarly, if I wanted to enter (free of charge) 40, 85 or 320 times – all of which are single-purchase packages on the paid-for route – I would need to send 40, 85 or 320 letters/cards.  It is easy to see where the balance of convenience lies if one wanted to make multiple entries to this lottery.

Then there is cost. Someone who pays £150 for 320 entries online can do so not only in a few clicks of the mouse, but for considerably less money than the £217.60 postage (second class at today’s rate) that I would have to find for my 320 ‘free’ postal entries. Even the paid-for 15 entries for £10 is cheaper than 15 ‘free’ postal entries costing me £10.20 postage.

From 3 April this year, my 320 ‘free’ entries will cost me £240 postage– rather more than the £150 if I had chosen to pay instead.

Paragraph 5 of Schedule 2 to the Act provides that the expense of sending a letter by ordinary post does not count as ‘payment’ to enter a lottery. The paragraph turns a blind eye to what most people would regard as ‘free’, and whether a ‘choice of free entry’ saddled with a substantial postal charge is a choice likely to be exercised. If the message needs to be spelled-out more clearly –

320 ‘paid-for’ entries cost £150

320 ‘free’ entries cost £240

Which would you choose?

The Gambling Act may say that the cost of postage is not payment – but the person funding it may have other views.

Does it matter?

I can envisage the question being asked: why does it matter? A number of considerations suggest the answer:

• It is perhaps reminiscent of the Mad Hatter’s tea party or a plot from a Gilbert and Sullivan operetta, and it brings the law into disrepute, that a commercial lottery is lawful if it is promoted with a choice of free entry that no one takes, but is unlawful if it is promoted without a choice of free free entry that no one would take if there were one. What is the mischief in the unlawful lottery that is not precisely replicated in the lawful one?
• Then there is the normalisation of gambling to children, and even the spectacle of children actually gambling. Anyone with a mobile phone can enter the “text-to-win” lotteries. There is no age-verification. To test the situation, I recently entered one of the lotteries promoted on television. I typed “WIN” as the text message and sent it to the 5-digit number on the TV screen. I received an instant reply: “£2 entry confirmed. Text Win again and we’ll add 2 entries for the price of 1!”. There was nothing to stop a child doing exactly as I had done – and being encouraged to gamble again exactly as I had been encouraged. (Incidentally, I have since been sent daily messages from another operator urging me to participate in other lotteries, at £2 a time. My mobile number has obviously been shared. I assume that a child would be put under similar marketing pressure.)
• Some commercial lotteries dress themselves up as charitable. They boast of high percentages of their net profits going to well-known charitable causes. The genuine charitable lotteries in the UK have to give a minimum of 20% of their proceeds to good causes, and they are prohibited from making a profit. I hope it is not too cynical of me to wonder if the commercial lotteries’ net profits (from which a slice is taken for charitable purposes) are calculated after salaries and bonuses are paid to the directors and shareholders? I regularly hear complaints from charities that commercial lotteries clothing themselves as charitable lotteries are diverting much needed funds away from good causes.
• Unregulated commercial lotteries, saved from prosecution by a token ‘choice of free entry’, are not required to have (and probably do not have) any social responsibility codes, excessive gambling codes, affordability checks or Know Your Client or Anti Money Laundering policies. No software licence is required for the manufacturer of the random draw element: there are no technical standards to be complied with to ensure a truly random and fair draw.
• Perhaps most importantly of all, there is no reason to suppose that those ultimately in charge are suitable to run a gambling business. Applicants for operating licences have to demonstrate suitability, which the Gambling Commission explains by reference to the identity of the ultimate owners of the business and other persons relevant to how it is run, their financial circumstances (past and present) and whether they have the resources necessary to operate a gambling business, their proven honesty and trustworthiness, their competence (experience, qualifications etc.), and any criminal record. No such assessment, or any assessment of any kind,  is made of the people who promote these unregulated lotteries. There is no one with authority to do so.

Conclusion

Postal free entry routes are an anachronism in the digital age. It is to my mind absurd that what would otherwise be an unlawful lottery is given legitimacy by the simple expedient of providing a choice of free entry by post, which on analysis can be more expensive and far less convenient than a paid-for entry, and may never be used.

The consequence is unregulated gambling on a scale which I would not have thought credible until I began to research this article.

 

Gerald Gouriet KC

Francis Taylor Building

Inner Temple                                                           6 March 2023

 

Acknowledgement: I am most grateful to Carl Rohsler of Memery Crystal for proof-reading a draft of this article and suggesting some compelling answers to the question “does it matter?”, which I have incorporated into the text.

 

 

[1] https://www.gamblingcommission.gov.uk/licensees-and-businesses/page/societies-running-lotteries-for-other-good-causes 7 June 2021

[2] Lord Widgery in Reader’s Digest Association Ltd. V Williams(1976) 1 WLR 1109.

[3] See Herman & Glimne, Encyclopaedia Britannica (Feb 2023)

[4] A history of lottery regulation in England is given in chapter 15 of “Smith & Monkcom: The Law of Gambling” 4^th edition.

[5] Seay v Eastwood [1976] 3 All E 153

[6] Singette Lyd. V Martin [1971] AC 407.

[7] Imperial Tobacco v AG [1981 AC 718 and the cases cited therein.

[8] Lord Wilberforce in Seay v Eastwood

[9] My Google search “Text to win” produced half a billion results. But a good number of those were commentaries about play-by-text lotteries rather than the lotteries themselves.

[10] The cost of stamps is set to rise on 3 April 2023 (first class £1.10, second class 75 p)

[11] The Advertising Standards Agency requires the ‘free’ route to be explained “clearly and prominently”. See the ASA ruling of 07/10/2020: https://www.asa.org.uk/rulings/omaze-inc-g20-1073875-omaze-inc.html