‘Proceeds’ and ‘profits’ of a lottery
Section 254(1) of the Act (opens in a new tab) defines the proceeds of a lottery as ‘the aggregate of amounts paid in respect of the purchase of lottery tickets’ (the total amount paid for tickets before any deductions). The Act also specifies the way in which the proceeds of a lottery must be distributed, as follows under section 99(2):
99 Mandatory conditions of lottery operating licence
(2). The first requirement, is that at least 20% of the proceeds of any lottery promoted in reliance on the licence are applied-
(a) in the case of a licence issued to a non-commercial society, to a
purpose for which the promoting society is conducted
(b) in the case of a licence issued to a local authority, for a purpose for
which the authority has power to incur expenditure.
The Act describes the proportion of the proceeds remaining after prizes and expenses have been deducted as the ‘profits’ of the lottery ( Section 254(2) of the Gambling Act (opens in a new tab)).
The Commission’s view is that the intention of the requirement to apply ‘at least’ 20% of the proceeds to the purposes of the promoting society is to maintain the fundamental principle set out in the Act for society and local authority lotteries that they are only permitted as a mechanism to enable fundraising for purposes other than that of private or commercial gain. Society and local authority lottery operators are reminded that 20% is the minimum amount of proceeds from each lottery that must be applied to their purposes. In the Commission’s view the ‘purposes’ of a society are the aims and objectives for which the society primarily exists. The ‘profits’ of a lottery cannot be used for any other purpose.
Lottery promoters should also take note of the licensing objective in the Act that requires all gambling to be conducted in a ‘fair and open way’. This has specific relevance to society or local authority lotteries who advertise a specific percentage return to their purposes from each lottery on tickets or in marketing material. Societies and local authorities must ensure that the advertised percentage rate of return is met if they are to avoid acting in a manner inconsistent with the second licensing objective.
The level of expenses and prizes allocated from the proceeds must not be such as to reduce the profits to below 20%. In addition to profits the proceeds can only be used to:
- provide prizes
- pay expenses ‘reasonably incurred’ organising the lottery.
In circumstances where the proceeds are insufficient to pay the total expenses and the cost of providing prizes in the lottery, the society or local authority must still ensure that 20% of the proceeds are applied to its purposes. In such cases the society or local authority may have to pay the expenses of the lottery and/or the cost of prizes from other (non-lottery) sources of income such as their financial reserves and the lottery may result in an overall financial loss for the promoting society or local authority.1
In ensuring all lotteries are conducted in a ‘fair and open way’, societies are required to publish each year the proportion of all lottery proceeds (as a percentage) that were returned in the previous calendar year to the purposes of the society (or, in the case of local authorities, applied to purposes for which the authority has power to incur expenditure).2 The purpose of this is to provide the consumer with information to enable them to see how their money is spent and make decisions about where they spend it.
Societies and local authorities should calculate the proportion of lottery proceeds returned as profit to the good cause as follows: total profit (amount returned to good cause) in a calendar year, divided by total proceeds (ticket sales) in a calendar year, multiplied by 100 to provide a percentage figure.
The percentage must only take account of money related to the lottery proceeds (money collected from ticket sales), it must not include funds raised through other activities of the good cause, charity or local authority.
There is no prescribed way of making this information available, although it should be in a manner that is easy for the consumer to find and understand through the most commonly used medium for that society. Many societies may decide to add the information to the lottery pages of their website, to their annual report or in their annual membership/subscriber newsletter. They can also add the information to their current lottery campaign material. There is no restriction on societies and local authorities providing supporting information about the importance of the work carried out via the lotteries they promote.
Social responsibility codes attached to all lottery operating licences include a requirement to take account of the Commission’s guidance on providing information to lottery players about how proceeds are used and the likelihood of winning a prize and how those prizes are allocated. This information must be available prior to participating in a lottery.
Further information about these requirements can be found in the Commission’s guidance: Information to lottery players: proceeds and prizes.
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The expenses of a lottery - lottery proceeds
Last updated: 14 April 2021
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