Territorial Considerations
The United Kingdom is not a federal state, nor is it a unitary state divided into provinces that are subordinate to a central administration. Instead, the United Kingdom is composed of four distinct countries, or nations, namely England, Northern Ireland, Scotland and Wales. Until recently, largely distinct legal systems were applied by separate court structures in Northern Ireland, in Scotland and in England and Wales combined, but all executive and legislative powers were vested in a single British Government and a single Westminster Parliament.
Differing proportions of these powers have since been delegated to executive agencies and national assemblies for Northern Ireland, Scotland and Wales.
Despite this constitutional diversity, substantive law on the subject of gambling has remained fairly uniform across the United Kingdom. The principle pieces of legislation currently in force apply, with some essentially procedural exceptions, in England, Scotland and Wales. Although the legislation applying in Northern Ireland has a quite distinct format, its substantive provisions have much the same effect as that of the legislation applying in the other three countries. The differences appearing in the Northern Irish legislation will be dealt with relatively succinctly in this report, in so far as they do not impose additional barriers on the free movement of gambling services. For the most part, this report will refer to “British” norms in the sense of those applicable in the three countries located in Great Britain, namely England, Scotland and Wales.
The United Kingdom also possesses a number of Dependencies which are geographically situated in Europe but, with the exception of Gibraltar, do not constitute part of the European Union. Some of these Dependencies are of considerable significance for the present Study, as they are in fact to a very large degree self-governing and have the competence to legislate on a wide range of subjects including gambling. It is particularly worth referring to Alderney (a part of the Bailiwick of Guernsey in the Channel Islands), to Gibraltar and to the Isle of Man. By virtue of the Treaty of Accession of the United Kingdom of Great Britain and Northern Ireland to the European Communities, the fundamental freedom to provide services extends to Gibraltar, but not to Alderney or to the Isle of Man. Alderney and the Isle of Man will therefore be considered only in the economic sections of this Study, together with other “third countries” that actually supply gambling services to the Internal Market. Gibraltar, on the other hand, holds a very special position. Constitutionally, it remains a United Kingdom Overseas Territory. As a matter of European Law, under Art. 299(4) of the Treaty of the European Communities, it is European Territory for the external affairs of which a Member State (ie. the United Kingdom) is responsible. As a matter of public international law, Gibraltar is a Non-Self Governing Territory. The geographical scope of the present Study, as defined by its Terms of Reference, is limited to the 25 Member States of the European Union. The authors of this Report, who do not wish to make any comments on the legal status of Gibraltar, are accordingly required to deal with that separate jurisdiction inside the legal and economic analyses dedicated to one of the Member States. Given that European Law applies to Gibraltar by virtue of its relationship with the United Kingdom, our comments on Gibraltar will be included in the analyses headed “United Kingdom”. Within the present sub-chapter, for the sake of uniformity of presentation, Gibraltar, together with Northern Ireland, will be mentioned under the subsidiary heading “Provincial”, although Gibraltar is in law certainly not a province of the United Kingdom.
Temporal Considerations
Since 1999, the British government has been engaged in a thoroughgoing review of the law on gambling in Great Britain. It established a broadly representative Gambling Review Body in that year, chaired by Sir Alan Budd. The final report of that Body, generally known as “the Budd Report”, was published in July of 2001 and made a large number of recommendations generally aimed at liberalising the British gambling market. The British government reacted to that report by initially announcing that it intended to implement most of the Budd Report’s recommendations and by instructing the Department of Culture, Media and Sport to draft reform legislation along those lines. Instead of waiting until a final and complete draft was ready for publication, the Department published and asked for public comments on preliminary drafts at several stages of elaboration and reacted to comments by amending the contents of the draft. Additional amendments were introduced into the draft during its passage through the Westminster Parliament. The resulting Gambling Act 2005 is therefore much less of a radical renewal than was envisaged by the Budd Report, but nevertheless represents an important departure from the existing law governing several sectors of the British gambling market.
The most important result of these developments for the purposes of the present report is that several of the barriers which have hitherto been placed by British law in the way of free movement of gambling services will soon disappear. Although the Gambling Act 2005 became law on 7 April 2005, its operative provisions will come into force on future dates to be specified by ministerial orders. The British government currently anticipates that these dates will fall into the second half of 2007. While the pre-existing gambling laws will almost all continue to apply until that time, there would be little point in our specifying barriers to free movement of gambling services which the British government has already legislated to remove. This report will accordingly list the very extensive body of gambling-related legislation that is currently in force in Great Britain, so as to provide a legal framework for the economic and fiscal analysis of the British gambling market, but will identify only those barriers to free movement which are to be found in the Gambling Act 2005 and in other enactments that are not to be replaced by the new legislation.
Definitions
Gambling
A general definition of the whole regulatory concept of “gambling” is set out in sec. 3 of the Gambling Act 2005:
“In this Act ‘gambling’ means … gaming, … betting, and … participating in a lottery”.
The purpose of this (not very illuminative) provision is to indicate that activities which involve the contribution of something valuable and an outcome dependant on chance and therefore fall within the theoretical concept of gambling, but cannot be classed as gaming or betting or lottery participation, are to be treated as falling outside the scope of British gambling legislation and gambling industry regulation (Refer to para. 34 of the official Explanatory Notes to the Gambling Act 2005.).
Lottery
The Gambling Act 2005 divides lotteries into “simple lotteries” and “complex lotteries” and defines these variations in subsecs. 14(2) and 14(3) respectively:
“(2) An arrangement is a simple lottery if –
(a) persons are required to pay in order to participate in the arrangement,
(b) in the course of the arrangement one or more prizes are allocated to one or more members of a class, and
(c) the prizes are allocated by a process which relies wholly on chance.
(3) An arrangement is a complex lottery if –
(a) persons are required to pay in order to participate in the arrangement,
(b) in the course of the arrangement one or more prizes are allocated to one or more members of a class,
(c) the prizes are allocated by a series of processes, and
(d) the first of those processes relies wholly on chance”.
Those definitions give the strong impression that a competition which initially requires participants to adduce some kind of skill or knowledge cannot be classed as a lottery, because that is not a matter of pure chance. However, subsec. 14(5) adds a completely artificial extension to the concept of “whole reliance on chance”:
“A process which requires persons to exercise skill or judgment or to display knowledge shall be treated for the purposes of this section as relying wholly on chance if –
(a) the requirement cannot reasonably be expected to prevent a significant proportion of persons who participate in the arrangement of which the process forms part from receiving a prize, and
(b) the requirement cannot reasonably be expected to prevent a significant proportion of persons who wish to participate in that arrangement from doing so”.
That extension is supposed to prevent avoidance of lottery regulation by operators who introduce an entry condition that actually excludes no-one who would be interested in participating (Refer to paras. 70 to 72 of the official Explanatory Notes to the Gambling Act 2005 and to the definition of “prize gaming” under point 2.9. of this section, below.).
As for the other concepts which constitute the definition, subsec. 14(4) provides that the concept of a “prize” that can be won in a lottery
“… includes any money, articles or services –
(a) whether or not described as a prize, and
(b) whether or not consisting wholly or partly of money paid, or articles or services provided, by the members of the class among whom the prize is allocated”
Quite detailed rules are set out in Schedule 2 to the Gambling Act 2005 for determining when participants in a lottery can be said to be “required to pay”. As these have the effect of laying down the conditions under which a business can lawfully offer a prize competition without obtaining a lottery license, they will be considered under point 2.8. of this section, below.
Casino Gaming
Although the term “casino gaming” is not directly defined in British law, the Gambling Act 2005 does define each of the words that make up that term. Thus, subsec. 7(1) provides that
“… a casino is an arrangement whereby people are given an opportunity to participate in one or more casino games”,
while subsec. 6(1) provides that
“’gaming’ means playing a game of chance for a prize”.
An incomplete definition of the fundamental concept of a “game of chance” is provided by subsec. 6(2), which states that the term includes:
“(i) a game that involves both an element of chance and an element of skill,
(ii) a game that involves an element of chance that can be eliminated by superlative skill, and
(iii) a game that is presented as involving an element of chance …”
and specifies, to the contrary, that a sport cannot constitute a “game of chance”. A collateral indication of meaning is given by subsec. 7(2), according to which “’casino game’ means a game of chance which is not equal chance gaming” and subsidiarily by sec. 8, which in turn defines the concept of “equal chance gaming”:
“(1) For the purposes of this Act gaming is equal chance gaming if –
(a) it does not involve playing or staking against a bank, and
(b) the chances are equally favourable to all participants.
(2) For the purposes of subsection (1) it is immaterial –
(a) how the bank is described, and
(b) whether or not a bank is controlled or administered by a player”
Further clarification could be provided by regulations or license conditions formulated under sec. 90, read in conjunction with secs. 75, 77 and 78, in order to delimit the classes of casino games which may be played in licensed casinos and in order to lay down the rules according to which those games must be played. Although no such regulations or conditions have been formulated as yet, guidance as to their likely contents can certainly be obtained from the contents of the current regulations on that subject (Gaming Clubs (Bankers’ Games) Regulations 1994, S.I. 1994/2899). These list the following games:
– roulette
– dice (craps)
– baccarat (including baccarat banque, chemin de fer, punto banco or any other version)
– blackjack (as a specific version of pontoon or vingt-et-un)
– casino stud poker (as a specific version of stud poker)
– super pan 9
– the big six (“wheel of fortune”)
– sic bo
– three card poker
and set out their rules on the basis of a requirement that the casino licensee or its servant always act as the “banker”.
Some of the other concepts employed to define a “casino” and “gaming” are also defined further in the Gambling Act 2005. Thus, subsec. 6(5) specifies that a “prize”,
“… in relation to gaming (except in the context of a gaming machine) –
(a) means money or money’s worth, and
(b) includes both a prize provided by a person organising gambling and winnings of money staked”,
subsec. 353(1) subsidiarily states that a
“’stake’ means an amount paid or risked in connection with gambling and which either
(a) is used in calculating the amount of the winnings or the value of the prize that the person making the stake receives if successful, or
(b) is used in calculating the total amount of winnings or value of prizes in respect of the gambling in which the person making the stake participates”
and subsec. 6(4) introduces additional clarifications to the extent that
“… a person plays a game of chance for a prize
(a) if he plays a game of chance and thereby acquires a chance of winning a prize, and
(b) whether or not he risks losing anything at the game”.
The (rather unexpected) result is that an activity may fall within the concept of regulated casino gaming even if the players involved do not incur the risk of losing any stake.
As for the very broad conception of a casino as an “arrangement”, subsec. 7(4) provides that,
(a) whether an arrangement is provided on one set of premises or on more than one;
(b) whether an arrangement is provided wholly or partly by means of remote communication”.
Finally, as concerns the designation of a person as a “player” and of her activities as “play”, subsec. 6(3) specifies that
“… a person plays a game of chance if he participates in a game of chance –
(a) whether or not there are other participants in the game, and
(b) whether or not a computer generates images or data taken to represent the actions of other participants in the game”
and further attention is given in subsec. 353(1) to the concept of a “participant”:
“’participant’, in relation to a game of chance, includes a person who discharges an administrative or other function in relation to the game”.
It should be noted that the Gambling Act 2005 makes specific provision for forms of gambling that can prima facie be characterised as falling into two regulatory categories, for example as both a lottery and casino gaming. The aim of these provisions (Refer to Harris, J. & Hagan, J, Guide to the Gambling Bill (London, 2004), p. 11, para. 40.) is to facilitate the enforcement of British gambling law by removing conceptual uncertainties in the minds of regulators and operators, as well as to avoid any form of gambling having to comply with two regulatory structures simultaneously.
Thus, in the present context, sec. 17 deals in three steps with “arrangements” that fall with the definitions, as set out above, of both lotteries and casino gaming. First, subsec. 17(2) states that
“An arrangement … shall be treated for the purposes of this Act as a game of chance (and not as a lottery) if a person who pays in order to join the class amongst whose members prizes are allocated is required to participate in, or to be successful in, more than three processes before becoming entitled to a prize”.
Secondly, subsec. 17(3) stipulates that arrangements which qualify as private, charitable or sales promotional lotteries under Schedule 11 (and will be considered below), are to be treated as lotteries and not as casino gaming.
Thirdly, any relevant arrangement which is not allocated as a result of the first or the second step, is to be treated as casino gaming by virtue of subsec. 17(4).
Machine Gambling
A general definition of a “gaming machine” is to be found in subsecs. 235(1) and 235(2) of the Gambling Act 2005:
“(1) In this Act ‘gaming machine’ means a machine which is designed or adapted for use by individuals to gamble (whether or not it can also be used for other purposes).
(2) But –
(a) a domestic or dual use computer is not a gaming machine by reason only of the fact that it can be used to participate in remote gambling,
(b) a telephone or other machine for facilitating communication (other than a computer) is not a gaming machine by reason only of the fact that it can be used to participate in remote gambling …”
That definition is supplemented in subsec. 235 (3) by clarifications of the concepts of a “machine” and of being “designed or adapted”:
“In this Act –
(a) a reference to a machine is a reference to any apparatus which uses or applies mechanical power, electrical power or both,
(b) a reference to a machine being designed or adapted for a purpose includes –
(i) a reference to a computer being able to be used for that purpose … and
(ii) a reference to any other machine to which anything has been done as a result of which it can reasonably be expected to be used for that purpose …”
The largest part of the very extensive definitions to be found in subsec. 235(2) is concerned with delineating the boundary between the “gaming machines” for which a specific “gaming machine general operator’s license” may be issued under the Gambling Act 2005, and machines which are incidentally used in other sectors of the lawful gambling market. This is true of subparas. 235(2)(c) (betting machines), 235(2)(d) (lottery ticket machines), 235(2)(e) and (f) (bingo machines) and 235(2)(h) and (i) (machines in casinos which “enable individuals to play a real game of chance”, as distinguished from a virtual game of chance, which is defined in subsec. 354(3) by reference to computer generated images or results or imaginary races, events or processes).
Special reference should be made in that context to machines which are “designed or adapted for the playing of bingo by way of prize gaming”. Under subpara. 235(2)(g), such machines are excluded from the class of “gaming machines” for which a gaming machine general operator’s license is required, provided that they are used pursuant to a “prize gaming permit”. Such permits can be issued by local licensing authorities under Part 13 of the Gambling Act 2005 to holders of bingo operators’ or gaming machine general operators’ licenses, but also to persons wishing to offer “ancillary amusement” at “travelling fairs”. As the last variation is not among the market sectors with which the current Study is concerned, it will not be considered further in this report.
Betting
Subsec. 9(1) of the Gambling Act 2005 purports to provide a definition of “betting”, but actually just provides a description:
“…‘betting’ means making or taking a bet on –
(a) the outcome of a race, competition or other event or process,
(b) the likelihood of anything occurring or not occurring, or
(c) whether anything is or is not true”.
However, a useful indication is to be found in the opening words of subsec. 11(1), which deems certain activities to constitute betting (This again defines some of the boundaries of the private, charitable and sales promotional activities which may lawfully be conducted without a license and will therefore be dealt with under points 2.8. and 2.9. of this section.) even though the punter
“… does not deposit a stake in the normal way of betting …”
The general definition of a “stake”, which is contained in subsec. 353(1), has been quoted above. The combined affect of these provisions would seem to be that a bet is made whenever something of value is staked or put at risk between two parties with reference to some existing or possible fact, occurrence or outcome. This is consistent with subsecs. 9(2) and 9(3), which specify that
“(2) A transaction that relates to the outcome of a race, competition or other event or process may be a bet within the meaning of subsection (1) despite the facts that –
(a) the race, competition, event or process has already occurred or been completed, and
(b) one party to the transaction knows the outcome.
(3) A transaction that relates to the likelihood of anything occurring or not occurring may be a bet within the meaning of subsection (1) despite the facts that –
(a) the thing has already occurred or failed to occur, and
(b) one party to the transaction knows that the thing has already occurred or failed to occur”.
The definition of “pool betting” that is set out in subsec. 12(1) may be of comparative interest:
“… betting is pool betting if made on terms that all or part of winnings –
(a) shall be determined by reference to the aggregate of stakes paid or agreed to be paid by the persons betting,
(b) shall be divided among the winners, or
(c) shall or may be something other than money”.
It is of relevance to note that the concept of “winnings”, as used in the definitions of a “stake” and of “pool betting”, is itself defined as follows in subsec. 353(1):
“’winnings’, in relation to a bet, means anything won, whether in money or in money’s worth”.
Sec. 16 makes specific provision for forms of gambling that can prima facie be characterised as both casino gaming and betting. Subsec. 16(2) envisages that this could be the case of pool betting and stipulates that it is to be treated as betting, rather than as casino gaming.
Subsec. 16(3) stipulates that anything else which could be characterised in both of these ways is inversely to be treated as casino gaming, rather than as betting.
Sec. 18 makes specific provision for forms of gambling that can prima facie be characterised as both lotteries and betting. It is a simplified, two-step version of the allocation rules as between lotteries and casino gaming. Thus, subsec. 18(2) stipulates that arrangements which qualify as private, charitable or sales promotional lotteries under Schedule 11 (and will be considered below), are to be treated as lotteries and not as betting. Any relevant arrangement which is not allocated as a result of the first step, is to be treated as betting by virtue of subsec. 18(3).
Finally, it should be noted that “spread betting” is entirely excluded from the scope of the Gambling Act 2005, by virtue of sec. 10. This refers to “regulated activity within the meaning of sec. 22 of the Financial Services and Markets Act 2000”. That regulated activity includes (By virtue of subsec. 85(1) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, S.I. 2001/544) the grant and acceptance of
“… rights under –
(a) a contract for differences; or
(b) any other contract the purpose or pretended purpose of which is to secure a profit or avoid a loss by reference to fluctuations in –
(i) the value or price of property of any description; or
(ii) an index or other factor designated for that purpose in the contract”.
It is apparently “accepted” (Refer to para. 61 of the official Explanatory Notes to the Gambling Act 2005.) that spread betting falls within one or more of those categories, along with hedge and futures contracts and entirely speculative insurance arrangements.
These matters are currently and will continue for the foreseeable future to be supervised by the British Financial Services Authority (FSA), rather than by the Gambling Commission.
Bingo
No general definition of “bingo” is provided by British law, except for the following entirely tautologous statement in subsec. 353(1) of the Gambling Act 2005:
“’bingo’ means any version of that game, irrespective of by what name it is described”.
Media Gambling Services
We are not aware of any definition of media gambling services in British law.
Sales Promotions
The Gambling Act 2005 does not provide any definition of sales promotions or of promotional gambling. However, given that sales promotions which involve elements of chance and winning usually take the form of prize competitions, it is pertinent to quote sec. 339:
“Participating in a competition or other arrangement under which a person may win a prize is not gambling for the purposes of this Act unless it is –
(a) gaming within the meaning of section 6,
(b) participating in a lottery within the meaning of section 14, or
(c) betting within the meaning of sections 9 to 11”.
Thus, prize competitions may freely be offered, in order to promote the sale of goods or services or for other reasons, as long as those competitions do not fall within the scope of the definitions of any of the main types of gambling regulated by the Act. The definitions of lotteries and of betting, in particular, contain somewhat complicated elements designed to distinguish between bona fide prize competitions and disguised lotteries or betting arrangements. These elements focus on the requirement to make a payment as a precondition of participation in the competition and on the degree to which the winners of the competition are determined by chance.
As concerns lotteries, subsec. 14(5), which has been set out above, provides that a skill or knowledge test which actually prevents participation by hardly anyone who wishes to participate, or would prevent hardly any participant from winning, is to be ignored when determining whether the results of the competition are determined wholly by chance. It is envisaged (Refer to para. 73 of the official Explanatory Notes to the Gambling Act 2005) that this principle will be applied to particular cases having regard to the characteristics of the persons who would wish to participate. Thus, a business that wishes to launch a lawful sales promotion aimed at children could require answers to much simpler questions that those that would have to be posed by a business that wishes to launch a lawful sales promotion aimed at readers of a professional development magazine, if the business wished to avoid the need to apply for a lottery license. As businesses in fact often find it unattractive to impose skill or knowledge tests which a large number of potential customers are unable to pass, they tend to present their sales promotional competitions as free to participants. Given the financial incentive of businesses to introduce an element of disguised payment, subsec. 14(6) and Schedule 2 to the Gambling Act 2005 provide detailed rules for determining when participants are required to pay in order to have a chance of winning. Thus, subpara. 2(c) of Schedule 2 specifies that payment includes
“paying for goods or services at a price or rate which reflects the opportunity to participate …”
para. 3 specifies that it is irrelevant to whom the payment is made or to whose benefit it accrues and paras. 6 and 7 deem requirements to pay in order to determine whether a prize has been won, or to collect a prize won, respectively, to be equivalent to a requirement to pay up front in order to have a chance of winning. Para. 5 specifies that, where participants are required to incur postal or telecommunications charges at a “normal rate”, which “does not reflect the opportunity to enter a lottery”, then this does not constitute a requirement of payment to enter the competition. Para. 8, finally, authorises prize competitions potential participants in which are offered a choice between paying for entry and making a (postal or telephone) communication which is no more expensive or onerous than the payment option, as long as
“(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”.
As concerns betting, sec. 11 of the Gambling Act 2005 envisages that some prize competitions will involve the participants guessing facts or the outcome of events of the sort which are often the subject of betting and deems such competitions to constitute betting if the participants are required to make a payment, on the reasoning (Refer to para. 64 of the official Explanatory Notes to the Gambling Act 2005) that the elements of prediction and wagering, being the essence of betting, are both present:
“(1) … a person makes a bet (despite the fact that he does not deposit a stake in the normal way of betting) if –
(a) he participates in an arrangement in the course of which participants are required to guess any of the matters specified in section 9(1)(a) to (c),
(b) he is required to pay to participate, and
(c) if his guess is accurate, or more accurate than other guesses, he is to –
(i) win a prize, or
(ii) enter a class among whom one or more prizes are to be allocated (whether or not wholly by chance.
(2) In subsection (1) a reference to guessing includes a reference to predicting using skill or judgment”.
Subsec. 9(1) has been quoted above. Subsec. 11(3) and Schedule 1 to the Act define the element of payment in virtually the same terms as are used in respect of lotteries. Business wishing to offer promotional prize competitions that involve participants guessing in much the same way as bettors, but do not wish to apply for a betting operator’s license, are therefore effectively permitted to do so as long as they do not require participants to make payments which are wholly or partly referable to the purchase of a chance of winning.
Charitable Gambling
Although the term is not formally defined there, the Gambling Act 2005 contains a number of provisions from which it is possible to distil a definition of the concept of “charitable gambling”.
Under Part 14 of the Gambling Act 2005, it is permissible to offer both “prize gaming” and “equal chance gaming” on a “non-commercial” basis without having to obtain a license.
The first of those types of gaming is defined in sec. 288:
“Gaming is prize gaming for the purposes of this Act if neither the nature nor the size of a prize played for is determined by reference to –
(a) the number of persons playing, or
(b) the amount paid for or raised by the gaming”.
The definition of the second of those types of gaming has been set out above. Principles for determining when gaming of any type can be said to be “non-commercial”, are set out in sec. 297:
“(1) … gaming is non-commercial if it takes place at a non-commercial event (whether as an incidental activity or as the principal or only activity).
(2) An event is non-commercial if the arrangements for the event are such that no part of the proceeds is to be appropriated for the purpose of private gain.
(3) For the purposes of subsection (2) the proceeds of an event are –
(a) the sums raised by the organisers (whether by way of fees for entrance or for participation, by way of sponsorship, by way of commission from traders or otherwise), minus
(b) amounts deducted by the organisers in respect of costs reasonably incurred in organising the event”.
The key concept within those principles is that of “private gain”, which is to be understood, by virtue of subsec. 353(1), in the manner set out in the last subsection of sec. 19:
“(3) The provision of a benefit to one or more individuals is not a provision for the purpose of private gain for the purposes of this Act if made in the course of the activities of a society that is a non-commercial society by virtue of subsection (1)(a) or (b)”.
That subsection in turn provides that:
“(1) … a society is non-commercial if it is established and conducted –
(a) for charitable purposes,
(b) for the purposes of enabling participation in, or of supporting, sport, athletics or a cultural activity, or
(c) for any other non-commercial purpose other than that of private gain”.
For the definition of “charitable purposes”, subsec. 19(2) refers, in the cases of England and Wales, to the general law governing charities, and in the case of Scotland, to the legislation governing income tax.
In the result, gambling is acceptable under the Gambling Act 2005 as “charitable gaming” if it takes the form of either prize gaming or equal chance gaming and if all of the proceeds are attributed to an organism that exists for the exclusive purpose of supporting charity, sport or cultural activities.
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