The Gambling Law Review: United Kingdom

Overview

i Definitions

'Gambling' in English law is a term that defines a number of different activities. As a general description, it can be said to cover various forms of entertainment involving gain and loss based upon risk. As such, gambling forms part of a wider landscape of activities including financial transactions, contracts, pure entertainment, sports and other activities. The interfaces between some of these different activities are discussed below. However, at its simplest, English law distinguishes between three forms of regulated gambling: betting, gaming and lotteries. For many years, these terms were part of common law, but over the centuries their definitions have been increasingly based in statute. The current legislation, the Gambling Act 2005 (GA), defines each of the forms of gambling.2 These definitions are not exhaustive – in the sense that, for example, the terms 'gaming' and 'betting' are both defined but the underlying concepts of 'game' and 'bet' are not. This, it has been said,3 is deliberately intended to create a measure of flexibility allowing judges to categorise new products and schemes as they arise. However, a summary of terms is given below.

'Gaming' is the playing of a game (being a game of chance or a game that combines skill and chance) for a prize. 'Sport' is specifically excluded from the definition of gaming, (the concept of sport not being further defined4). As to the issue of skill or chance, the amount of chance required to fulfil the test is not defined. Whether a game is a game of chance is a question of fact for the court to determine. There is no formal de minimis level, and certainly not a 'balancing act' to see which of the two factors predominates in the outcome (as is the case in some legal systems). Consequently, any material amount of chance in the game will satisfy the definition. Having said this, tiny amounts of chance in an otherwise fully skilful activity, (such as the toss of a coin to see who will start a game of chess), are not considered to have the necessary impact on the result and are discounted.

The concept of a 'prize'5 is widely drawn, to mean essentially anything of value. However, there are specific exclusions from the definition of gaming machines covering an award to the player of an extended playing experience – which are deemed to be insufficient on their own to be characterised as a prize. This is an important consideration when considering 'social gaming', which is not regulated as a form of gambling.

Further, in the context of video games, 'in-game' prizes or 'loot boxes' are also outside the definition of 'gaming' even if the player pays for the opportunity to win them and they are allocated by chance, provided that the resulting enhanced experience is not tradeable for value in the real world (as opposed to in-game). In practical terms, 'gaming' includes casino games such as roulette, blackjack and poker, dice games, slot machines and games such as bingo.

'Betting' can be summarised as the making of a bet (normally considered to be the hazarding of value on a future uncertain event, or a past event or fact that is not generally known).6 Various species of bet are distinguished under English law. First, one may consider 'pool betting' – also known as a pari-mutuel – in which the organiser takes in the stakes from the participants and then, from that 'pool', returns a portion of those funds to those who were successful, keeping a profit for himself or herself.7 Pool betting also covers betting where the prize is non-monetary. 'Fixed-odds' betting is where the operator (bookmaker) offers odds to potential customers that are calculated to deliver an 'over round' profit, and that are then adjusted as volumes of bets on a particular outcome are received. A further species of betting is 'spread betting', where the bookmaker offers a 'spread' of results, and the participant decides whether the actual result will be above or below the upper or lower limit of the spread.8 The amount to be won (or lost) is a multiple of the staked amount, depending upon the extent to which the actual result exceeds the spread. Such betting carries with it greater risk to both the bookmaker and the participant, and advertising of spread betting is therefore subject to stricter controls. Finally, it is worth considering two forms of betting that created legal uncertainty under the former regime and that were specifically legislated for under the GA. The first of these is 'betting prize competitions',9 which is a definition essentially designed to cover the playing of 'fantasy league' contests, and involves some form of prediction of an event within the meaning of Section 9 of the GA. The second is 'betting intermediaries'.10 A betting intermediary is someone who organises a peer-to-peer betting network, in which the bet is struck directly between two end parties, with the operator organising the market place of 'bids and offers', holding the stakes and paying out the winnings (having deducted a small commission). However, the definition is sufficiently open-textured as to encompass betting agents and brokers. The breadth and uncertainty of the first of these definitions can cause difficulties for the operators of skill-based prize contests, while the second can cause uncertainty in a variety of fields from syndicates to advertisers where a bet is placed as a result of the activities or assistance of third parties.

A 'lottery' is a division of prizes based upon a chance event, where the participants pay for the chance to win the prize.11 The definition includes both pre-determined lotteries (e.g., the purchase of a pre-printed scratch cards) and post-drawn lotteries where there is a draw after all the tickets have been sold. One other term that is frequently used by the public is 'raffle'. The term 'raffle' has no legal meaning. However, practically speaking it is generally used to refer to a species of lottery in which each participant purchases a unique ticket, one of which is drawn to ensure a single winner. This may be distinguished from lotteries in which players may choose their own numbers, and in which it is therefore a matter of chance as to whether the numbers drawn match the selection of none, one or more than one of the participants.

Lottery-style schemes that do not include the element of payment,12 or that rely to a substantial extent on skill,13 fall outside the statutory definition and are therefore not regulated as a form of gambling by English law. They may either be considered 'free prize draws'14 or 'skill contests'. Consequently, there are countless consumer contests operated as marketing incentives that avoid characterisation as a lottery by these means. For the avoidance of doubt, a requirement to pay for goods at their normal price in order to obtain a chance of winning a prize, does not constitute a payment for lottery purposes.15 As to the issue of what constitutes the 'normal' price, it is generally accepted that it is the price for which goods or services are sold, where one cannot determine an identifiable uplift constituting a payment for the gambling activity.

Some activities fit within more than one of the statutory definitions above, and the legislation contains a number of further tests to determine how they should be categorised.16 For example, roulette is a form of gaming that shares many of the characteristics of a bet on a future uncertain outcome, and also has the features of a division of prizes by chance – but it is ultimately treated as gaming by virtue of these rules of disambiguation.

Any form of contest for a prize that does not fall within the definition of either betting, gaming or a lottery is defined as a 'prize competition'17 and is not regulated as gambling, though it may nonetheless be subject to some forms of legal control under the general law of contract and some consumer protection legislation.

Finally, some forms of speculative investment, contracts for difference or insurance are taken outside the definition of gambling but are regulated under financial services legislation.18 Spread betting and binary betting are both still technically forms of betting but are regulated by the Financial Conduct Authority and not the Gambling Commission.

ii Gambling policy

Gambling has a long history in Great Britain. In past centuries, many forms of gambling were heavily controlled by reference to the places where they could take place or the nature of the participants. However, gambling has never been the subject of an outright ban and lotteries have a long history as tools of government to raise funds.19 In the past 60 years, Great Britain has experienced a significant liberalisation of its gambling market, and is generally considered one of the more progressive and liberal jurisdictions for gambling in the world, with the second-largest gambling market in Europe. The current legislation permits the existence of casinos, adult gaming centres, high-street bookmakers and bingo halls as well as the location of gaming machines in venues licensed to serve alcohol. Great Britain has both a National Lottery and a range of private lotteries designed to raise money for charities and good causes. The current legislation permits the operation of gambling through remote communication (online, by telephone, etc.) and also permits foreign operators to offer those services to British citizens provided that they are licensed and pay tax. In short, almost all forms of gambling are permitted for those of 18 years and over, and some forms of gambling (lotteries and some small prize amusement machines) are even permitted for those over 16. Since 2005, contracts in relation to gambling (e.g., a bet or a gaming contract, or credit given to permit gambling) are enforceable at law just as any other form of contract.20

The guiding principle of gambling regulation is that individuals should have the freedom to partake in gambling as part of normal adult leisure activity and that, provided that there are adequate protections to ensure that those who operate gambling are fit and proper to do so and operate in a way that ensures fairness for the general public and protections for the vulnerable and children, then gambling should generally be permitted.21

iii State control and private enterprise

Gambling in the UK generally operates in the realm of private enterprise and principles of free competition apply. Private citizens and companies (whether foreign or UK-based) are all entitled to apply for a licence to operate gambling, and the number of licences is not limited provided that the operator fulfils the tests of being fit and proper to operate gambling set out in legislation and subject to approval by the regulator. The one exception to this policy of free competition is the National Lottery. This was established in 1993 and is the subject of separate legislation to other forms of gambling,22 although it is still regulated by the Gambling Commission. Under the legislation, a single licensee is chosen to operate the National Lottery following a competitive tender. Once appointed, the licensee enjoys a monopoly right that was initially set at 10 years and most recently extended to 14 years with the possibility of sub-licences for some aspects of the overall scheme. The National Lottery is protected from competition from other lotteries by virtue of its unique status and government backing, and also because of limits on the prizes available in private lotteries. Taking bets on the National Lottery (and, following a recent change in the law, taking bets on EuroMillions) is prohibited for those with a UK licence. For the avoidance of doubt, EuroMillions is not itself a 'pan-European lottery' (since no legislation exists that could permit such a scheme). Instead, it is a collaboration of several national lotteries, based upon a single draw number and an effective (though not actual) pooling of proceeds. The competition for the next National Lottery licence has just (as at March 2022) concluded with the long-time incumbent, Camelot being unseated and replaced by Allwyn as preferred bidder to take over the operation of the National Lottery from 2024. We will have to see if the appointment is challenged or secured – but whatever the ultimate outcome, it represents a new chapter in English lottery law after almost 30 years.

iv Territorial issues

There is often (even among English lawyers) a good deal of confusion about the British Isles and its various legal subdivisions. The British Isles is a geographical rather than a legal concept and comprises England, the Republic of Ireland, Northern Ireland, Scotland, Wales and a number of islands that have an historical attachment to Britain, including the Channel Islands of Guernsey, Jersey, Sark and Alderney, and the Isle of Man. It should be noted that each of Jersey, Alderney and the Isle of Man are separate legal jurisdictions (being technically crown dependencies) and with completely different gambling law regimes. The same is true of Gibraltar.

Descending to the next level is the United Kingdom, which comprises England, Wales, Scotland and Northern Ireland. Southern Ireland is a separate sovereign state with its own gambling laws. Northern Ireland shares many statutes and legal principles with England and Wales, but its gambling law is separate (and currently the subject of draft legislation23). In fact, two sections of the GA (Sections 43 and 340) apply directly in Northern Ireland, and in 2013 the government of Northern Ireland announced its intention to reform the existing law,24 to create a more up-to-date legislative framework but those changes remain at the stage of proposals and to date the rules in Northern Ireland somewhat resemble the legislative framework existing in England prior to the enactment of the GA in 2005. However, no progress has yet been made with reform of the law.

The next level is the concept of 'Great Britain', a term that covers England, Wales and Scotland only. The GA generally applies to the whole of this territory, although there are some modifications to language and penalties in relation to offences and procedures that take place in Scotland.25

Within England, Wales and Scotland, there are no further special divisions or territories that affect the application of gambling law, with one exception: the policy in relation to the licensing of gambling premises is, within an overall framework, a matter for local authorities and local licensing committees (which also deal with the licensing of establishments serving alcohol or providing late night entertainment). Technically, the airspace above and the territorial waters around Great Britain are also within the jurisdiction for the purposes of gambling, and rules cover vessels, aircraft and vehicles passing through that territory.26

v Offshore gambling

Prior to the 2005 when the GA was passed, the position was that all gambling that took place outside Great Britain was not a matter of English law. The basic legal principle governing legal culpability in relation to offences such as unlicensed gambling laid down a test by which, if the last act in the actus reus27 took place outside Great Britain, that conduct was not justiciable by the English courts.28 So someone offering unlicensed online gambling services from London would commit an offence, but someone offering gambling services to British citizens from a location outside Britain would not. The only types of offences that could be tried before the English courts would be, for example, the advertising of gambling, which was completed at the point of the advertisement being published or available to British citizens.

The 2005 Gambling Act created a regime that for the first time permitted online gambling within Great Britain. The following question therefore arose: would the new law seek to criminalise those who offered gambling to British citizens from abroad? The answer was, for the first decade of the new regime at least, a rather generous compromise. First, in deference to principles of freedom of movement of services and freedom of establishment of businesses under the European Treaty,29 the legislation provided that any operator established in the European Economic Area30 would be permitted to advertise and offer those services in Great Britain. Further, operators in certain other states who had been approved by the Secretary of State as having regimes that offered an equivalent degree of regulatory protection to that in the UK, could also offer and advertise their services ('whitelisted' states).31 Operators in other states could still provide gambling services, but could not advertise those services (based upon the approach to criminal justiciability discussed above and that had remained fundamentally unchanged, the act of gambling would be taking place outside the reach of the English criminal jurisdiction).

However, that regime was itself amended in 2014. By that time, it had become increasingly apparent as a result of developments in EU case law,32 that Member States were legally able to restrict gambling services to those who were licensed within that particular Member State (French and Italian law being examples of this more conservative approach). There were also pressures for change from those licensed within the British regime, who argued that the then current approach created competitive disadvantages for UK operators from a fiscal point of view compared with operators in white-listed states. The law changed with the introduction of the Gambling (Licensing and Advertising) Act 2014 (GLAA). This provides that any operator that either had gambling equipment located in the UK, or knew or ought to know that British citizens were using its services (wherever that equipment was located) would require an operating licence33 (and would have to pay gambling duty on profits generated from business in Great Britain). Thus, the current position is that all such operators with equipment in or who target the UK market must obtain an appropriate operating licence and pay UK gambling duty in relation to business with UK citizens. The old offence of 'advertising foreign gambling' was repealed, because the strictures of the regime that replaced it render it otiose.

It is uncertain how many operators from overseas continue to take business from British citizens. The British regulator, the Gambling Commission (the Commission), has indicated that it believes that the new regime is being complied with and policed effectively. However, we are not aware of any proceedings or enforcement actions that have been brought since the change in the law and, since gambling offences are not of a type or severity that permit a claim for extradition, the only obvious ways in which the authorities may seek to compel compliance is through asking banks and ISPs to bar or refuse to service those who do not comply. For the avoidance of doubt, it is not an offence for a UK citizen to gamble with a foreign operator, even if that operator is not licensed under the UK regime.

For those licensed under the British regime, the Commission has recently imposed, as part of the licensing criteria, an obligation that licensees demonstrate on objective grounds (presumably, at least, a legal opinion from a specialist lawyer) that their operations are legal in all the states in which they do significant business. Apart from that protection, however, there is no explicit prohibition or control on a British licensed operator from taking business in any jurisdiction in the world, although the power to create such a ban remains in the hands of the Secretary of State.34

Legal and regulatory framework

i Legislation and jurisprudence

The law on gambling in Great Britain is set out in the GA (as amended) and, for the National Lottery, under the National Lottery etc. Act 1993. Taxation of gambling is dealt with under the annual Finance Act, which makes amendments to the Betting and Gaming Duties Act 1981. There are more than 70 statutory instruments that inform the detailed implementation of the basic regime set out in the GA.

ii The regulator

The GA created a single regulator for all forms of gambling (now including the National Lottery) in the form of the Commission. The Commission is a statutory corporation with its offices in Birmingham.35 The main officers of the Commission are the commissioners, aided by a staff including enforcement officers and licensing officers responsible for dealing with the day-to-day functions of the regulator. Responsibility for spread betting and binary betting lies with the Financial Conduct Authority.36

iii Remote and land-based gambling

The GA distinguishes between remote gambling and non-remote gambling.37 Remote gambling includes gambling through any form of remote communication (telephone, internet, etc.) but not gambling conducted through postal services (e.g., sale of lottery tickets). Non-remote gambling is generally confined to specific licensed premises, such as betting shops, race courses, casinos and adult gaming centres (and requires a further licence covering the premises themselves, which is issued by the local authority responsible for the area in which the premises are located). There are provisions for temporary licences, which can be obtained for certain premises like sports arenas that allow gambling to be conducted for a limited number of days each year. An operator may provide both remote and non-remote gambling under a 'combined licence'. To give a practical example, a large bookmaker may offer betting through a chain of betting shops, through telephone betting with those shops, and through a website that might offer both betting and gaming products. In such circumstances, it would require a single betting operating licence (non-remote and remote), a gaming licence (remote only) and a premises licence for each of the shops. As far as telephone betting is concerned, this would be covered either by a full remote licence or, in some circumstances, through an ancillary or linked licence permitting certain remote gambling as part of a non-remote general betting licence.

iv Land-based gambling

The GA defines a number of different locations in which forms of gambling can take place, with different restrictions based upon the type of gambling to be performed and conditions imposed by a premises licensing regime.38 There is no upper limit on the number of gambling premises of a particular type that can be granted.

Casinos39 are designed primarily for gaming, in the form of table games and slot machines, but are also permitted to offer ring games such as poker, as well as betting and bingo. Different sizes of casino are defined by the number of table games and the floor area. There are currently 156 casinos in Great Britain.

Betting shops (sometimes referred to as 'licensed bookmaking offices' or 'LBO's) are entitled to offer fixed-odds and pool betting, and to install a certain number of gaming machines (including, usually, certain 'fixed-odds betting terminals'). Apart from bookmaker premises, betting is also offered on tracks and at courses during sporting events. In total, there are currently about 8,000 such establishments in Britain, that number having fallen from a high of just over 10,000 a decade ago.

Bingo halls are entitled to offer bingo (main stage and cash-prize mechanised bingo) as well as some forms of gaming machines. Although the playing of organised bingo has diminished over recent years (especially following the introduction of the ban on smoking in public places), there is still a large number of regular attendees at bingo halls in the UK.

In addition to the above forms of gambling establishment, there are a number of locations that permit the installation of gaming machines or the operation of equal chance gaming (i.e., gaming where there is no 'house advantage'). These comprise: (1) adult gaming centres (a form of 'mini casino' offering only machine gaming rather than table games); (2) licensed family entertainment centres (which provide amusements like 'toy grabbers' and 'penny pushers' mostly of interest to children but that may include some very low-value machine gaming); (3) venues licensed for the sale of alcohol on the premises without food (essentially 'pubs'); and (4) private members' clubs and travelling fairs.

The grant and administration of a premises licence is a matter for local planning authorities rather than the Commission (it being thought that it is a matter of local policy how venues such as clubs, theatres, pubs, restaurants, cinemas, night clubs and gambling premises are located and managed). The detail of the application process is outside the scope of the present summary of the law but has considerable similarity to the process for alcohol licensing – having regard to issues such as the nature of the neighbourhood, proximity of schools and churches, potential for public nuisance, and so on.

v Remote gambling

Remote gambling40 is generally permitted. That means that an operator that is licensed by the Commission may provide gambling services to British citizens in the UK via all forms of remote communication (and using equipment that may be located in the UK or abroad). Equally, a remote operator may be licensed by the Commission to offer gambling services to citizens in any jurisdiction in the world using equipment located in the UK. The Act provides that, for each type of gambling (betting, gaming, etc.), there will be two forms of licence available: remote and non-remote forms.41 Normally, a single licence may only permit either remote or non-remote gambling. However, there are also 'ancillary licences' that permit non-remote operators to offer a modicum of remote services (e.g., permitting a bookmaker to offer a telephone betting service) without the full requirements of a remote operating licence.

Nowadays, with widely distributed hardware deployment, care needs to be taken about which types of equipment are physically present in the British jurisdiction and whether the location of particular resources will trigger a licensing requirement.

The legislative rules that apply to remote and non-remote operators are generally the same, although there are differences to take into account in matters such as fairness of random number generators, protection against underage gambling and social responsibility issues that arise more in remote gambling given that the player will not be in the presence of the operator when the gambling takes place.

vi Ancillary matters

In addition to the licensing of operators, the legislation provides for the licensing of a number of other activities, outlined in this subsection.

Personal licences42

First, there is the concept of the 'personal licence', which can apply to individuals in gambling organisations who either perform a particular management function or a particular function (e.g., being a croupier or pit boss). Personal licences are a guarantee that those occupying a position of trust within an operator are fit and proper individuals, and are personally accountable to the Commission, having specific reporting requirements in relation to 'key events' within the operator. As such, the granting of a personal licence not only represents a badge of quality, but also gives the Commission 'eyes and ears' within an organisation. The procedure for applying for a personal licence is very similar to that for an operating licence,43 though clearly the type of due diligence performed by the Commission in relation to personal licences is more restricted.

Gaming machine manufacture

The GA recognises that those who make, repair or install gaming machines have a high level of responsibility because they can influence the outcome of gaming, even though they are not the actual operators of the premises where the gaming machine is located. Consequently, those who make, sell or repair gaming machines must apply for an operator licence44 and ensure that all machines that they make comply with technical standards imposed by the Commission.

Software

One potentially difficult area of licensing relates to gambling software.45 Those who produce gambling software on equipment based in the UK or who propose to supply such software to operators licensed by the Commission require a licence.46 The definition of gambling software is limited to software for remote gambling, but otherwise the scope of the term is broad. There are sometimes difficulties in determining whether a provider of software (particularly one who provides third-party operators with access to equipment on which the software is hosted) has become so involved in the delivery of the overall gambling process that it should be reclassified as a full operator. There are also difficult distinctions as to whether software that is essentially ancillary to the gambling process (e.g., back-office accounting) should require licensing at all. The Commission has created a further subcategory of software licences to cover the situation where the provider is a host of the software when in operation.

Unlicensed gambling

Finally, certain very common forms of gambling do not require premises licences. The sale of lottery tickets can take place at normal retail premises or even on the street. Pools coupons can be collected and distributed through newsagents and, of course, private betting and gaming47 is permitted on domestic premises without a licence of any sort. The scope and conditions for this latter exception are complicated and nuanced.

vii Financial payment mechanisms

All forms of payment can be used in gambling, including cash, bank transfer of funds debit cards and a number of electronic payment mechanisms. There are also some systems for the purchase of a 'code' or token using an electronic money issuer that can then be redeemed for the purposes of gambling. However, there is a ban on the use of credit cards for most forms of gambling (except the purchase of lottery tickets). The Gambling Commission has not issued any kind of crypto-asset ban, but it does have strict policies relating to money laundering and source of funds risks applicable where crypto-assets are used. In practice, this makes it very difficult for operators to use crypto-assets as a mechanism of payment or funding for their businesses.

The licensing process

i Applications

Applications for gambling licences are made online through the Commission's e-filing system. The application consists of a series of questions seeking information on an applicant in order to verify its identity and beneficial ownership, its suitability and expertise to hold a licence, the source of funds for the business, a business plan and financial projections, and details of how the applicant will comply with the various policies and procedures. Checks extend to understanding the identity of all officers as well as owners with more than a 3 per cent beneficial entitlement (full checks take place for those with 10 per cent ownership or more).

Some applications pass through the process (normally expected to take between 15 to 20 weeks) without significant difficulty. However, based upon experience, and particularly in light of the recent pandemic, most applications can be expected to take longer – in some cases many months. The process usually involves a degree of individual investigation and due diligence by the Commission. Sometimes the decision will be taken by a licensing officer but, in complex cases, the ultimate decision may be taken by the Regulatory Panel, but in complex cases, the ultimate decision may be taken by the Regulatory Panel, which meets periodically to review difficult licence applications and is composed of several of the Commissioners as well as the executive board of the Commission.

The Commission will consider the application based upon statutory criteria,48 but with a large degree of discretion as to suitability and likely compliance with the licensing objectives.49 At the end of the process, the Commission may grant the licence, refuse the licence or grant it subject to conditions that are attached to the licence.50 Certain licence conditions are imposed directly by statute,51 another group are imposed as a result of the operation of the standard Licence Conditions and Codes of Practice52 and a third level may be imposed individually on licensees.

Licences are granted without time limit and can last indefinitely,53 but are always subject to annual fees.54 The Commission also has the power to review a licence55 and, if it finds that an operator has breached a licence condition, has the power to impose a range of sanctions56 including revocation of the licence (see Section III.ii). Each form of licence has a different application fee based upon the complexity of the application, and the likely turnover of the business in question. Licences may be surrendered or a variation of the scope57 of the licence sought at any time by notice to the Commission. A change in corporate control of a licence holder will trigger the requirement for the new owners to be investigated and approved. If this does not take place, the licence will be deemed surrendered.58

ii Sanctions for non-compliance

The sanctions regime is set out in Sections 33–36 of the GA. It states that anyone who provides 'facilities for gambling' will commit a criminal offence unless they are properly licensed. Thus, operating without a licence (or with a licence but in breach of its conditions) constitutes the primary offence under the GA, carrying a maximum sentence of 51 weeks imprisonment and a fine of up to £5,000, as well as the revocation of the licence. The most serious offence under the GA, however, is that of cheating at gambling,59 which carries a sentence of up to two years' imprisonment. There are a host of other offences including, for example, inviting someone under the age of 18 to gamble, illegal advertising of gambling and the promotion of an unlicensed lottery. Prosecutions may be brought either by the police or by the Commission itself. Criminal prosecutions are generally reserved for serious matters and, in particular, circumstances where gambling has taken place without a licence. Although the fines available for offences under the GA are limited, practitioners should be aware of the possibility of a successful prosecution resulting in an application under the Proceeds of Crime Act 2002 (or related legislation) for a confiscation of assets gained through the unlawful conduct – for example the proceeds of illegal gambling.

In addition to criminal sanctions, the Commission has a range of regulatory penalties that include a simple warning letter, a financial penalty,60 the imposition of further conditions on the licence and ultimately to the revocation of the licence.

Apart from operators, it is technically possible for those who provide funds for gambling or advertise gambling to commit some of the ancillary offences. However, in practice, it is unlikely that the Commission would initiate a prosecution in relation to these or related inchoate offences, where a licensee was identifiable as a clearer target for prosecution.

Wrongdoing

The cornerstone of the GA is its three licensing objectives.61 These involve ensuring that gambling is conducted fairly and only by those who are suitable, with due protections for children and the vulnerable, and with the aim of keeping gambling free of crime. The Commission has a team of investigating officers with powers to enter and inspect premises and investigate suspected wrongdoing.62 It is a criminal offence to supply false information to the Commission.63

Over the past years there has been an increasing focus on money laundering issues and customer protection issues. Although the Commission has a power to initiate prosecutions, it would normally restrict its investigatory powers to receiving and distributing information for the benefit both of sporting organisations (in the case of betting integrity matters) and the police or National Crime Agency in the case of criminal matters such as money laundering or dealings in the proceeds of crime.

Taxation

The provision of gambling services is considered to be a trade or profession like any other. Therefore, companies that operate as bookmakers or casinos will expect to pay corporation tax at normal rates. Those who operate businesses as sole traders will be liable for personal income tax.

Gambling services are generally subject to a form of gambling duty, which generally operates at a rate of 15 per cent on net profits,64 except for remote gambling duty, which has been set at 21 per cent since April 2019. The duty applies to all profits generated under the operating licence in relation to transactions with UK citizens (or all transactions if the operator is based in the UK). There are slightly different rules for the calculation of duty in relation to betting and gaming, and separate duties for amusement machines and gaming machines. Taxation of betting exchanges and intermediaries is calculated at the same rate, but in relation to commission earned by the operator.

Lotteries are theoretically liable for lottery duty but, in deference of the fact that lotteries are primarily designed as a mechanism for raising funds for good causes (and must use at least 20 per cent of the proceeds for such purposes), the only lottery that is currently obliged to pay lottery duty is the National Lottery.

Gambling services are generally exempt from value added tax (VAT), which can cause a difficulty for operators since they will be liable for input VAT, but will often be unable to set such a liability off against the majority of their (exempt) output services.

Finally, one must distinguish between operators and customers. Customers (i.e., individual gamblers) will not normally be liable for income tax on gambling winnings. The philosophical basis for such a policy is that the majority of customers will be net losers and, therefore, a move to tax winnings might give rise to arguments that gambling losses were tax-deductible by parity of reasoning. In the modern gambling environment of online gambling, 'professional' poker players and the use of betting exchanges, it is sometimes difficult to tell a customer from an operator, and careful assessments need to be made in judging liability for tax in such cases, based on whether the gambler exhibits the 'badges of trade'.

Advertising and marketing

The current regime for advertising and marketing of gambling services is often misunderstood or misstated. Advertising of gambling is generally permitted in Great Britain. There remains an offence of advertising 'illegal gambling'65 (which will apply, for example, if gambling services that are not correctly licensed are advertised). However, the former offence of 'advertising foreign gambling' has been repealed66 and replaced by a modified offence, as follows:

it is an offence to advertise remote gambling services (i) capable of being used by British citizens or (ii) where the relevant equipment is located in Britain and where no relevant licence is held.67

Technically speaking, that offence does not prevent the advertising of gambling taking place in the UK, provided that the services are not made available to UK citizens. This has been a source of controversy since many foreign operators found it commercially useful to advertise gambling services on the shirts of football teams whose matches were widely viewed on television (e.g., across Asia) and that could therefore penetrate markets where there were explicit bans on such advertising (and indeed such gambling). The legislative regime does not specifically prevent such advertising, provided that the operators effectively prohibit British citizens from using them, and it is also possible to obtain a UK licence that permits advertising, notwithstanding that the British public is not being heavily targeted as a matter of practice. Generally, despite the lack of a legal ban, the Commission has suggested that it believes that all advertising in the UK must be by those who hold a licence, and it has made strong representations to relevant sporting bodies not to accept sponsorship from unlicensed operators.

As regards the content and style of advertising, there are no statutory rules or criminal sanctions, with regulation being effected through a series of voluntary codes to which all operators subscribe. The first of these is a voluntary code for gambling operators, but this is supplemented both by general and industry specific rules, which are dictated by rules on advertising in the broadcast and non-broadcast media by the Commission on Advertising Practice and policed by the Advertising Standards Authority.68 The rules seek to prevent gambling from being attractive to those under 18 or being seen as more than an entertaining pastime.

The year in review

One cannot ignore the enormous impact that the second year of restrictions caused by the covid-19 pandemic has had on the economic situation and the daily lives of everyone in the UK. Millions were confined to their homes for months and have had to find ways of passing the time without being able to enjoy the normal daily pleasures of shopping or a trip to the cinema, pub or gym. The pandemic clearly had a significant negative effect on the land-based sector, with casinos and amusement arcades remaining shut for large parts of 2021. Bookmakers with large retail estates were also hit, being 'non-essential' retail outlets. However, 2021 did see a recovery in the sports sector with football matches being played, albeit with significant restrictions on public attendance. This meant that the essential fuel of the betting industry – events on which betting could take place – returned with vigour.

The long term effects of the pandemic on attitudes to gambling and leisure are still not fully apparent, but it appears likely that certain sectors of the market such as retail betting and retail sales of lottery tickets will be permanently impacted by a move to the convenience of purchases and bets by mobile phone. This trend appears to be in sharp contrast to the casino market, which – because it offers a fuller entertainment experience – was both hardest hit by the lockdowns and also experienced a significant rebound in the past few months. We will have to see whether the summer of 2022 brings in the influx of high value players that characterised the London market until 2020. At the same time, online gaming, which increased markedly during the pandemic, seems to have held onto its market share gains.

From a regulatory perspective, 2021 was one of highs and lows. During the course of the year, the Gambling Commission made a number of high-profile regulatory interventions, with very significant fines being levied against operators mostly for perceived failures in money laundering or player protection, as well as several revocations of operating licences and at least one prosecution leading to a jail term. The Commission has not been without its critics within the operating community for what some see as a 'heavy handed' approach to regulation characterised by an ex post facto fault finding exercise that makes general criticisms based upon outlying examples, and then concludes that the compliance systems in question are necessarily flawed. Whatever the merits of its policy, the Commission shows no sign of changing its harsh approach, being one that, it must also be said, chimes with a general public and political opposition to the gambling industry. Furthermore, the levels of gambling-related harm and levels of addiction, continued to show a marked fall in the level of gambling related harm and a continuing reduction in gambling by children and young people. But little positive credit was shown to the industry as a result, the attitude appearing to be that there is no acceptable level of gambling-related harm.

The Commission has also been the target of considerable and growing criticism. In March 2021, Football Index collapsed leaving thousands of customers with unrecoverable losses amidst much public anger that the Commission had not fully understood the structural weaknesses of the Football Index business model and had failed to intervene appropriately or early enough. A government enquiry was launched in April 2021, reporting in September 2021 that Football Index had not informed the Commission of certain changes to its operating model but, at the same time, the Commission had reviewed the Football Index website on two separate occasions without spotting the changes that rendered it unstable and prone to collapse. A full licence review that had been initiated in May 2020 did not conclude or lead to decisive action until almost a year later in March 2021, by which time it was too late. The Financial Conduct Authority was also identified as having failed to take a proactive enough role in the face of a novel product that it should probably have regulated. In March 2021, Neil McArthur, the CEO of the Gambling Commission announced his immediate resignation from the post though not, according to the Commission's press release, for reasons connected with the Football Index scandal.

In January 2022, the All Party Parliamentary Group on Betting and Gaming published its report on the Gambling Commission. In somewhat intemperate terms, it roundly criticised the Commission. It described the Commission as follows:

We believe that so far the Commission has been ideologically focussed on thinking that everyone is vulnerable and that any regulation, however un-researched, un-warranted, onerous, intrusive, costly, disproportionate and unnecessary is worthy of implementation if it sacrifices the regulated industry on the altar of Public Health. Never has so much damage been done to an industry by its regulator pandering to whims of a minority of militant academics, activist anti-gambling groups and a willingness to throw the baby out with the bath water.

On a more positive note, statistics released by the Commission during the course of 2021 made it clear that the incidence of problem gambling had fallen in the UK to new lows. So some aspects of the Commission's remit, to protect the young and vulnerable, seem are certainly being achieved.

Finally, as a stop press, the Gambling Commission announced on 15 March 2022 the result of its two-year tendering process for the National Lottery Licence. For 28 years the licence had been held by Camelot, but following a fierce competition, the Commission declared that the preferred bidder was a consortium known as Allwyn, the main backer of which is Sazka Group, a European lottery operator of some note. Perhaps inevitably, as with all matters where the stakes are high and decisions difficult, Camelot announced in April 2022 its intention to challenge the Commission's decision (presumably by judicial review), and so it seems likely that the matter will be mired in litigation for several months to come.

Outlook

To some extent, everything might always be said to be at a crossroads. But the metaphor seems particularly apt for the gambling industry in the UK today. April 2022 saw the first International Casino Exhibition since 2020, hosted at the ExCel Centre in London. It has been interesting to witness the change of scale and atmosphere – many of the larger suppliers to the land-based industry having decided not to exhibit this year, but with still a strong showing from visitors and a lively atmosphere. But we should also reflect that between April 2020 and April 2021, the ExCel centre became a Nightingale hospital with the capacity for up to 4,000 beds. So, it will take time to get back to the activity levels of 2018–2019 – but the recovery has been strong.

In the meantime, reform of the law is promised as a result of the Review of the Gambling Act, but the white paper promised first in late 2021 has not materialised, and may not appear until summer 2022. There has been much speculation about what measures and recommendations might be included in the report, and how membership (which has already involved three different ministers) might influence its tone and conclusions.

What areas may be the subject of change and development in the law?

First, we highlight the potential for changes in the advertising of gambling. Adverting was significantly liberalised in 2005, and in the subsequent two decades, gambling operators have been both quick and relentless in pursuing campaigns in support of their services. There has been a particular concentration of advertising around live sporting events and (because of watershed issues) in the late evenings on commercial radio and television. Although it is hard to determine whether there is a clear link between the advertising of gambling and problem gambling or gambling amongst young people, there is a general sentiment that the amount of advertising creates an excessive focus on gambling with sport, and it, therefore, seems likely the Review of the Gambling Act (the Review) will include curbs or at the very least encourage the industry to volunteer tighter self-regulation.

Second, an area of gambling law that seems in need of reform is the interface between gambling and non-gambling products. There are three key areas that challenge at the margins of betting: (1) prize competitions and skill-based contests; (2) free prize draws that cross the line into being lotteries; and (3) some novel forms of prediction game. Each of these areas marks an interface between regulated activity and non-regulated activity – and, therefore, becomes controversial in various ways.

Lotteries 'that are not lotteries' has been an area of difficulty for years. No one really raises objection to a true 'free prize draw', particularly when offered as part of a product promotion, but prize draw mechanics have been used more and more creatively to drive commercially profitable businesses. This is often done by the creation of a free entry route that requires the player to post a letter to receive an entry – but given that the price of postage has far outstripped inflation, it is possible to sell tickets online for a price lower than the permissible 'free route' – and so commercial lottery operations hide under the fig leaf of a free entry because it is cheaper to buy a ticket than to pay the costs of a free one.

Other opportunists have created contests that seek to avoid classification as a lottery despite the fact that they contain only a trivial amount of skill. Such mechanisms have long gone unchallenged, and so commercial operators are able to offer them with a good degree of confidence. Again, one might ask whether these operations are actually harmful, since prize draws even if actually breaking the rules are unlikely to give rise to problem gambling behaviours. But that is to miss the fact that these mechanisms are having an increasingly damaging effect on regulated forms of lottery, by cannibalising their sales with more attractive products. Increasingly, prize draws and competitions offer prizes of houses or other very high value amounts that are beyond the prize limits imposed by law on lotteries. They also increasingly attempt to 'steal the clothes' of regulated lotteries by advertising that they contribute to charity (the contribution rarely if ever matching the 20 per cent of proceeds threshold that is mandated for society lotteries). Finally, there is little or no protective regulation for the public to ensur that the prize draw is actually fair, or that player funds are protected in the event of insolvency. The past two years have been very difficult for the lottery sector, and it is to be hoped that the Review may provide some much-needed assistance to this sector.

Lotteries and prize competitions are not the only area in which there has been innovation in product development over the past decades. We have also seen new forms of technology in the form of crypto assets, such as bitcoin and NFTs, all of which pose particular problems for gambling regulators. Further, there are a number of clearly non-gambling games, the playing of which nonetheless can exhibit the same kind of addiction and compulsive behaviour as gambling games, but without any of the regulatory protections. Children and young people are spending large amounts of money on social gaming and 'loot boxes' without any control, and with almost no research on the popularity or potential harms. Many in the public are beginning to ask whether focussing merely on the control of gambling games is the right approach or whether more general regulation is needed.

Another area in which we may see change coming from the Review is in the approach of the regulator. The Gambling Commission has so far resisted criticisms of its approach, despite the issues of Football Index, a critical report from MPs and the latest challenge to the decision to award the National Lottery Licence. But perhaps there is an opportunity now for the principles of risk-based regulation to be redrawn, particularly now that the Commission has a new chair and chief executive.

Finally, there is a fundamental question of responsibility: who ultimately should be responsible for the behaviour of gamblers – the operators or gamblers themselves? The question finds its sharpest expression in the issue of affordability checks: should gambling operators have an obligation to perform continual assessments of their customers' spending and behaviour and actively prevent them from gambling if they choose to try to do exceed those limits? Everyone, of course, wants gambling harm to be minimised – but the issue of affordability checks brings forth some really difficult issues: how much information can operators properly demand from gamblers without making the whole experience of gambling an examination rather than entertainment? Why should operators have more responsibility for customer behaviour than the customers themselves? And, put very bluntly, how much of their earnings can a person spend on gambling, (as opposed to any other activity) before they are deemed to be gambling beyond their means? These are the type of issues that the Review will have to grapple with over the following year.

Footnotes

1 Carl Rohsler is a partner at Memery Crystal.

2 GA 2005, Chapter 19, Sections 6, 9 and 14.

3 Seay v. Eastwood [1976] 3 All ER 153, per Lord Wilberforce.

4 But see case law, for example, The Queen on the application of English Bridge Union v. Sport England [2015] EWHC 1347.

5 GA 2005 Section 6(5).

6 GA Section 9.

7 GA Section 12.

8 GA Section 10.

9 GA Section 11.

10 GA Section 13.

11 GA Section 14.

12 GA Schedule 2.

13 GA Section 14(5).

14 GA Schedule 2.

15 GA Schedules 1 and 2 paragraph 2(c).

16 GA Sections 16–18.

17 GA Section 339.

18 GA Section 10.

19 Lotteries were traditionally used, even as far back as the 16th century as a way of raising finance for military campaigns. Another notable example, in 1753, raised funds for the construction of the British Museum.

20 GA Section 335.

21 GA Sections 1 and 22.

22 The National Lottery etc Act 1993 (and subsequent modifying legislation).

23 The Betting, Gaming, Lotteries and Amusements (Amendment) Bill (36/17-22) was introduced into the Northern Ireland Assembly in September 2021, and should achieve Royal Assent in mid-2022.

24 The Betting, Gaming, Lotteries & Amusements (NI) Order 1985.

25 These definitions have endured for many years, but in recent months have been the subject of speculation given calls for some form of independence for Scotland, and perhaps a rethink of the whole of devolved government following Britain's decision to leave the EU.

26 GA Section 211.

27 'The evil act': meaning the collection of acts required to make up the offence.

28 See, for example, R v. Harden [1963] 1 QB 8.

29 Articles 26 and 28–37 of the TFEU.

30 Being the (then) 28 Member States of the EU and Norway, Lichtenstein and Iceland.

31 At its maximum, the whitelist comprised the Isle of Man, Alderney, Gibraltar, Antigua and Barbuda, and Tasmania.

32 Cases such as C-243/01 Gambelli, C-67/98 Zenatti and others led to shifts in national law in a number of EU Member States.

33 GLA Section 1.

34 There exists a power under GA Section 44 to create such a bar on gambling with a particular state, though it has never been exercised.

37 See, for example, GA Sections 4 and 67.

38 Using premises without a licence being an offence under GA Section 37.

39 GA Section 7.

40 Defined in GA Section 4.

41 GA Section 67.

42 GA Part 6.

43 GA Section 128.

44 GA Section 65(2)(f).

45 GA Section 41.

46 GA Section 65(2)(i).

47 GA Sections 295–300 and Schedule 15.

48 GA Section 70.

49 GA Section 1.

50 GA Section 74.

51 GA Sections 89–100.

53 GA Section 110.

54 GA Section 100.

55 GA Section 116.

56 GA Section 117.

57 GA Section 104.

58 GA Section 102.

59 GA Section 42.

60 GA Section 121.

61 GA Section 1.

62 GA Part 15.

63 GA Section 342.

64 Different rates apply for spread betting and for gaming duty.

65 GA Section 330.

66 Offence, previously Section 331 GA repealed by GLAA Section 3.

67 GLAA Section 4.

68 The overall position is well summarised in Commission guidance: www.gamblingcommission.gov.uk/pdf/Guide-to-gambling-advertising-codes.pdf.

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