IoF RESPONSE TO DCMS CALL FOR EVIDENCE: SOCIETY LOTTERIES

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1 IoF RESPONSE TO DCMS CALL FOR EVIDENCE: SOCIETY LOTTERIES March 2015 EXECUTIVE SUMMARY The Institute of Fundraising works to create the best environment and understanding for fundraisers to excel. Part of that mission is to ensure that the legislation governing different forms of fundraising works most effectively and so we welcome this call for evidence by the Department for Culture, Media and Sport considering future policy and regulation of society lotteries. Society lotteries provide valuable income to good causes million in 2013/14 income which goes directly to support charities in delivering vital services to communities. Fundraised income through society lotteries has seen growth in recent years, but we believe that there is potential for them to be even more successful and make a greater contribution to the income of the sector. By relaxing and simplifying some of the present restrictions on revenues, individual prize draws and the minimum contribution (the 20% rule ), society lotteries can deliver significantly more for good causes. The Institute of Fundraising s recommendations for change which can achieve this are: An increase in the permissible amount of ticket sales for a single draw from 4 million to 10 million, enabling the bigger, more popular charities to raise more money for little extra effort An increase in the annual income cap on any society lottery from 10 million to 100 million to enable the bigger charities to reach economies of scale and maximise their fundraising An increase in prize values from 25,000 to 100,000 and from 10% of the proceeds to 50% to give operators flexibility on prize values in order to maximise the overall amount raised through increased ticket sales Flexibility in the application of the 80:20 rule to allow the minimum contribution for good causes to be aggregated across all draws. The contribution should be allowed to be met over a longer period of time, ideally up three years. This will remove barriers that charities face in starting society lottery fundraising, allow further investment in lottery programmes and reduce risks. For further information please contact: Stephanie Siddall, stephanies@institute-of-fundraising.org.uk Policy Officer

2 ABOUT US The Institute of Fundraising is the professional membership body for UK fundraising. Our mission is to support fundraisers, through leadership, representation, standards-setting and education, and we champion and promote fundraising as a career choice. We have over 400 Organisational members who bring in more than 9 billion in income, and over 5,500 Individual members. Section 1: The Lottery Landscape Q1. Are the relative market shares of the National Lottery, society lotteries and commercial gambling markets appropriate? Does any action need to be taken to change the current balance or retain equilibrium? 1. While ticket sales for both the National Lottery and society lotteries have shown healthy growth over the last five years, as matters stand, the National Lottery share of the overall lottery market remains over 90% of the total Society lotteries have achieved strong growth in recent years, raising vital extra income for good causes and giving the public a different way of engaging with and supporting charities. What matters for the future is achieving sustainable growth in all sectors and that the National Lottery continues to grow alongside any expansion of society lotteries. 3. Currently, neither the National Lottery nor commercial gambling markets have any restrictions on their sales. The Institute of Fundraising is not calling for the complete removal of the financial restrictions imposed on society lotteries. However we do believe that modest deregulation for society lotteries would create a more equitable system, helping them to achieve their fundraising potential while protecting the important status of the National Lottery. We are not calling for a division of the existing market share but a system that enables growth for society lotteries which will allow more money to benefit good causes. Section 2: Society lotteries Q2. Are the current regulations governing Society Lotteries returns to good causes appropriate? 4. Society lotteries are currently operated by hundreds of national and local charities across the UK. The money raised, 175 million in 2013/14, provides substantial funding to support 1 Department for Culture, Media & Sport (2014), Call for Evidence, A call for evidence exploring the current balance across society lotteries, the National Lottery and competing gambling products in raising funds for good causes and maintaining player protection. Table 1, page 7. _Call_For_Evidence_Document.pdf

3 vital services. 2 CURRENT RESTRICTIONS 5. Currently, the regulations governing society lotteries returns impose caps on fundraising in a way unlike any other form of charitable giving: 5.1. Cap on proceeds: The current limit on the maximum value of tickets that can be sold for one draw is 4 million, while the maximum aggregate value of tickets that can be sold in any calendar year under one licence is 10 million Cap on prizes: Prizes are limited to 25,000 or 10% of the total proceeds, making the maximum permissible prize 400,000. The success of the lottery will inevitably be, at least in part, determined by the size of the prize The 20% rule / 80:20 rule : Society lotteries must donate a minimum of 20% of their proceeds to good causes with the remainder being divided between prizes and reasonable expenses. The 20% rule can and does create considerable difficulties, especially for new lotteries, which need to invest to build a player base and gain momentum. RISKS OF TIGHTENING REGULATORY CONTROLS 6. In February 2014, the Institute of Fundraising and Lotteries Council 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. 3 It examined the contribution made by society lotteries and explored the potential impacts of regulatory change. 7. The Cebr examined the suggestion raised by the Department for Culture, Media and Sport (DCMS) in the announcement of a proposed consultation in December 2012 that the regulatory controls could be tightened and minimum contribution increased. The Cebr looked into the consequences of 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. Tighter regulation may also discourage the formation of new society lotteries, reducing future growth in proceeds going to good causes. 8. The Cebr also examined a further proposal that had been raised and found that a return to capping operational expenditure at 15% of total proceeds could close 31% of society lotteries, potentially leading to a loss of 88.3 million in donations to good causes. 2 The Gambling Commission, Industry Statistics April 2009 to March 2014, p Cebr (2014), What have we got to lose? How society lotteries could do even more for good causes: An analysis of the sector and the potential impacts of regulatory change

4 EVIDENCE AND RATIONALE FOR CHANGE 9. Society lotteries have achieved strong growth in recent years, reflecting their popularity with the public as a means of raising money. However, the Institute of Fundraising believes that relaxing and simplifying some of the present restrictions on revenues, individual prize draws and the minimum contribution (the 20% rule ) would enable society lotteries to deliver significantly more for good causes. These recommendations would benefit both smaller and larger charities: 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. 10. Starting up new society lotteries can be difficult and risky due to the unpredictability of demand and the strict legal requirements on ticket sales to prize ratios. The Cebr 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 growth in the sector. 41% of the society lotteries who took part in the survey wanted to see the 20% rule relaxed. 11. The Cebr also found that 32% of society lotteries see a relaxation of individual prize, draw and turnover limits as their priority for deregulation as increasing prize size could raise lottery demand, boosting overall proceeds without raising operating costs significantly resulting in greater proceeds for good causes. 12. 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 for example, air ambulance services save lives across Britain but often heavily rely on income generated from society lotteries. 13. Although money raised for good causes by society lotteries continues to grow year on year, this growth has slowed in recent years. Between April 2013 and March 2014 the sector generated 175 million for good causes, an increase of around 19 million on the same period in 2012/13. 4 However, this is down from the previous four years over which time the sector saw growth 100 million in 2009/10 to 153 million in 2011/12. There is concern that growth in the sector is currently not as strong as it could be due to the regulatory constraints within which its members currently operate. 14. There is evidence that the existing restrictions on a number of society lotteries could be beginning to inhibit their fundraising potential. Under the current restrictions, each society lottery is limited to an annual 10 million maximum turnover and 4 million for each individual draw. Some of the larger, more well-known charities have already reached these limits. 4 The Gambling Commission, Industry Statistics April 2009 to March 2014, p. 45

5 15. Some large charities that have reached their limits have taken the advice of the Gambling Commission and opened a second lottery. Doing this, however, creates additional cost and administrative burdens, effectively reducing the amount of money going to the good cause. 16. A further beneficial impact of the society lottery model has been the effect of direct marketing on other forms of fundraising, including a robust legacy stream in many instances. The charity PDSA received 39.3 million from legacies in 2012, with 60% of these supporters having been initially recruited as lottery players. 17. Moreover, there is considerable evidence that charities are able use society lottery funding to meet their day to day running costs due to its largely unrestricted nature. This is hugely important as often these costs are not covered through funding from many other sources, i.e., grant giving bodies. RECOMMENDATIONS FOR CHANGE 18. Our key recommendations for changing current regulations governing society lotteries so that they are able to deliver more for good causes are: An increase in the permissible amount of ticket sales for a single draw from 4 million to 10 million, enabling the bigger, more popular charities to raise more money for little extra effort An increase in the annual income cap on any society lottery from 10 million to 100 million to enable the bigger charities to reach economies of scale and maximise their fundraising An increase in prize values from 25,000 to 100,000 and from 10% of the proceeds to 50% to give operators flexibility on prize values in order to maximise the overall amount raised through increased ticket sales. The original cap dates back to , which when adjusted to reflect inflation equates to 160,000 in today s terms Flexibility in the application of the 80:20 rule to allow the minimum contribution for good causes to be aggregated across all draws. The contribution should be allowed to be met over a longer period of time, ideally up three years. This will remove barriers that charities face in starting society lottery fundraising, allow further investment in lottery programmes and reduce risks. PUBLIC TRUST AND CONFIDENCE 19. There have been concerns voiced that the deregulation of society lotteries could harm trust and confidence. There is no evidence to show that this would be the case. On the contrary, as has been demonstrated throughout this response, society lotteries are a highly effective 5 Lotteries and Amusements Act 1976, 6

6 means of reacting new supporters, who then engage more widely with the causes they support. 20. Recent research from nfpsynergy suggests that members of the public would be supportive of changes that allow society lotteries to raise more money for charity. 7 74% of people surveyed felt that there should be no laws to stop society lotteries raising as much money as the National Lottery. While we are not suggesting total deregulation, this research demonstrates that the public would support the changes we recommend. The research also revealed that 72% of people were opposed to capping the number of tickets that charity lotteries can sell and 59% were against capping the size of charity lottery prizes. 21. The impact of any form of gambling, however soft, is also rightly a subject of concern for legislators. However, it is significant to note that society lotteries can be considered as one of the safest forms of gambling, with the latest figures indicating that problem gambling among society lottery players is and has remained low. Figures commissioned by GamCare in 1999 showed a problem gambling prevalence of 2% among any other lottery players, while the most recent figures published by the Gambling Commission in 2012 estimated a problem gambling prevalence of 1.8% among players. 8 Q3. Are the regulations from the 2005 Gambling Act still fit for purpose in dealing with umbrella society schemes? 22. Umbrella society schemes are a natural extension of society lotteries, allowing charities to seek ways to maximise efficiencies and returns to good causes by working with an external lottery manager. The emergence of these larger society lotteries has stimulated greater revenue in the sector overall, boosting knowledge of lotteries through their advertising spend and challenging the monopoly. The Cebr report details evidence to support this by indicating that not only has the National Lottery continued to grow as the society lottery sector has raised more funds, but that these two strands are, and would continue to be, complementary. 23. The income from umbrella society lottery schemes supports a range of organisations that would find it difficult to run their own society lottery or raise sufficient funds by themselves. We are confident that our proposals for relaxing present restrictions would enable larger society lotteries to raise more money for good causes. Q4. Is there a risk that Society Lotteries and Umbrella Societies adversely impact on the National Lottery? If so, how should this be countered? 7 nfpsynergy (2014), Just the Ticket: Public attitudes towards the regulation of charity lotteries p1 8 Sproston et al. (2000) Gambling Behaviour in Britain BGPS%202000%20-%20Jun% pdf

7 24. The 2012 NERA Economic Consulting report referenced in the Call for Evidence, 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. Moreover, a comparison of the scale of the National Lottery to the entire society lottery sector supports this. The most recent figures showing the turnover of society lotteries as 355 million are dwarfed by the 6,731 million revenue generated by the National Lottery Evidence following the growth in society lotteries since 2009 suggests that society lottery expansion can boost proceeds to good causes without negatively impacting on National Lottery growth. At September 2014 there were 754 society lottery licences in the UK, up from 542 in March 2009, at that time raising a record 163 million for good causes. Over the same period, the National Lottery s returns to good causes has not been negatively impacted. 26. The motivation behind taking part in the National Lottery or a society lottery is fundamentally different. The motivation for buying a National Lottery ticket is often to win a life-changing sum of money for personal use, while the public buy charity lottery tickets to donate to good causes with the simultaneous chance of winning a prize being a secondary consideration. 27. Those running society lotteries with prizes of up to 100,000 cannot compete with the multimillion pound prizes of the National Lottery, nor do they want to. The primary purpose in engaging with society lotteries is philanthropic and we think it is important that the regulations recognise the distinction in consumer perception and intention. 28. The Cebr report specifically noted that the deregulation it proposed would increase donations to good causes and complement rather than detract from the National Lottery. We do not believe the recommendations for change we propose would adversely impact on the National Lottery. Q5. How far is it appropriate for the National Lottery to compete with, for example, commercial online gambling and bingo products, in order to maintain or improve returns to good causes? What are the implications for regulation of each? We do not have anything to comment at this time. Q6. How far should the National Lottery be protected from, or enabled to meet, competition? 9 Gambling Commission Industry Statistics, Sheet 6: commission.gov.uk/docs/industry-statistics- April-2009-to-March-2014.xlsx

8 29. The monopoly status of the National Lottery is enshrined in law through the National Lottery Act, providing sufficient protection for the National Lottery. 30. Following a modest de-regulatory shift in 2009 that increased the sales limits per draw from 2 million to 4 million, a substantial increase in revenues was seen for both society lotteries and the National Lottery. This evidence supports the Institute of Fundraising s view that the society lotteries sector does not compete against the National Lottery but has a complementary effect that helps to increase the amount raised for good causes as a whole. To restrict society lotteries further would reduce this benefit. 31. Furthermore, it is worth again highlighting that people buy charity raffle tickets and a National Lottery ticket for different reasons. We therefore do not see direct competition for disposable income between the National Lottery and society lotteries and, as a result of that, no need for additional protection. Q7. Does the emergence of lottery-like betting products and betting on lotteries (in permitted circumstances) create risks or opportunities that need to be addressed? We do not have anything to comment at this time.