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. 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 chance based, provided that the resulting enhanced experience is not tradeable for real world value. 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 punters 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'. Technically, 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

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, it is fair to say that gambling has never been the subject of an outright ban and, indeed, lotteries have a long history as tools of government to raise funds.19 In the past 50 years, Great Britain has experienced a significant liberalisation of its gambling market, and now it is considered one of the more progressive and liberal jurisdictions in the world. As a consequence, it has 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 the discretion of 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 began in August 2020 and is currently underway, with a result expected in October 2021.

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 is comprised of 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 proposed change). 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,23 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.24

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.25

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 justiciable under the English courts. 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 reus26 took place outside Great Britain, that conduct was not justiciable by the British courts.27 So someone offering unlicensed online gambling services from London would have triggered 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 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,28 the legislation provided that any operator established in the European Economic Area29 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).30 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,31 that Member States were legally able to restrict gambling services to those who were licensed within that particular Member State (France and Italy are good 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 licence32 (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 new regime 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, it is difficult to see in practical terms how such enforcement could be effected in relation to an operator who ignored the law, but did not have a presence or assets within Great Britain. 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 must be able to 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.33

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.34 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.35

iii Remote and land-based gambling

The GA distinguishes between remote gambling and non-remote gambling.36 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 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.37 There is no upper limit on the number of gambling premises of a particular type that can be granted.

Casinos38 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 about 8,000 such establishments in Britain.

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 gambling39 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.40 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 licences41

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). 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,42 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 licence43 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.44 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.45 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 operators. 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. Recently, the Commission has created a further sub-category 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 normal newsagents and, of course, private betting and gaming46 is permitted on domestic premises without a licence of any sort. The scope and conditions for this latter exception are complicated and nuanced.

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 difficulty. However, more complex 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 decision-making power of the Regulatory Panel and the Commissioners themselves may be utilised.

The Commission will consider the application based upon statutory criteria,47 but with a large degree of discretion as to suitability and likely compliance with the licensing objectives.48 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.49 Certain licence conditions are imposed directly by statute,50 another group are contained in the standard Licence Conditions and Codes of Practice51 and a third level may be imposed individually on licensees.

Licences are granted without time limit and can last indefinitely,52 but are always subject to annual fees.53 The Commission also has the power to review a licence54 and, if it finds that an operator has breached a licence condition, has the power to impose a range of sanctions55 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 scope56 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.57

ii Sanctions for non-compliance

The sanctions regime is set out in Sections 33–36 of the GA. It states that those who provide '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,58 which carries a sentence of up to two years' imprisonment. There are a host of other offences including, for example, inviting someone underage 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.

In addition to criminal sanctions, the Commission has a range of regulatory penalties that include a simple warning letter, a financial penalty,59 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.60 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.61 It is a criminal offence to supply false information to the Commission.62

Over the past years there has been an increasing focus on issues of money laundering and betting integrity 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,63 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. 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 to pay 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'64 (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 repealed65 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.66

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.67 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 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 most of 2020. Bookmakers with large retail estates were also hit, being 'non-essential' retail outlets, and, even when there was a brief respite from full lockdown in the months between July and October, many did not bother to return to operation, given that competitive sport available for betting had been so considerably reduced. Gross gambling yield for betting decreased by 21 per cent in the period when first tier sporting activity was effectively banned, but it quickly rose again during September 2020 as fixtures returned. The closure of many non-essential shops and newsagents also had an impact on retail sales of lottery tickets, but that fall was somewhat offset by an increase in online sales. There was a modest increase in online gaming, with Commission data indicating that this was primarily driven by people having more spare time at home. When the pandemic began, the Commission issued a stark warning that operators should not use advertising and offers to exploit those in the public likely to have been placed in a more vulnerable position by financial uncertainty and more leisure time. That warning seems to have been heeded (or the fear never materialised) since online gaming enjoyed only modest gains during 2020, and statistics relating to problem gambling remained stable or declined.

2020 saw a number of measures designed to provide further protection to players and guard against the potential for problem gambling. Credit cards were banned as a means to fund accounts in what was described as a move to stop people 'gambling money which is not theirs'. In truth, the industry did not put up a serious objection to this proposal, based at least in part on the fact that credit card funding of accounts did carry with it a higher systemic risk of problem gambling and, in any event, credit card merchant fees tend to be more expensive than for debit cards or e-wallets. Further, the Commission made it compulsory for operators to be members of the GAMSTOP self-exclusion scheme, which seeks to create a single database of those who have expressed a desire to self-exclude from gambling, to try to prevent those with problems from subverting their own will in times of vulnerability. It is hoped that this single source database will make it difficult for those players who seek to try to undermine their own self-exclusion by opening new accounts or finding other sources for their gambling. Another important change was to impose requirements on operators to collect and analyse data on whether players can afford the losses that they suffer and to impose further protections against gambling by the underage and vulnerable, including in relation to the speed of play on slot games.

In July 2020, the House of Lords Select Committee on the Social and Economic impact of Gambling published an extensive report 'Gambling Harm – Time for Action'68 with recommendations about the state of the industry and the need for further measures to protect players. The Report set out in almost 200 pages a comprehensive review of evidence from operators, regulators and other interested parties. The Select Committee Report outlined various measures designed to provide stricter regulation and protection for the public, including: (1) that affiliate marketing organisations should be licensed by the Commission; (2) that operators assess affordability of gambling for customers as part of their ongoing social responsibility checks, with data shared between operators to that effect; (3) further controls and restrictions on the treatment of 'VIP' customers, who represent a large proportion of operator profits; and (4) the creation of a statutory ombudsman for disputes between consumers and operators – something stronger and more authoritative than the current alternative dispute resolution (ADR) services. In addition, the Select Committee recommended the regulation of 'loot boxes' (for which see above) in video gaming experiences and the creation of a levy scheme from operators to help to fund issues relating to problem gambling.

The Report's recommendations have not yet been implemented, but it seems likely that they will be influential on the outcome of the overall review of the Gambling Act that is currently underway and is likely to report later in 2021. In that regard, the Department for Digital Culture Media and Sport published a call for evidence in which it asked further questions once again focusing on the need to protect the public from the potential harmful effects of government. That closed at the end of March 2021, and we await its conclusions.

Also in March 2021, the Gambling Commission announced that its chief executive, Neil McArthur would stand down with immediate effect. This was a surprise to the industry, and a full-time replacement has yet to be appointed at the time of writing. Mr McArthur's tenure saw a heavy focus on consumer protection and social responsibility with a large number of significant fines on operators for alleged regulatory breaches (mostly in relation to checks on players and other errors in KYC and anti-money laundering practices) issues. 2020 saw a grim record for operators in terms of regulatory fines, with the largest ever penalty (levied against Caesars Entertainment) being £13 million.

It is difficult to say whether Mr McArthur's departure will lead to a softening of this regulatory attitude, but there are few signs that there will be any significant change in policy – particularly given the persistent attitude of the press and politicians towards the perceived excesses of the industry.

Outlook

Trying to decide the trajectory of the gambling industry for the next year is a challenge, but on almost any front the prospects look brighter than they did 12 months ago. With the return of top-flight competitive sport (including the Olympic Games still proposed in August 2021) we can predict a reasonably healthy betting market, and a return to the use of retail bookmaking premises. It is to be hoped that the summer will also see a return to the use of entertainment venues such as casinos and adult entertainment centres, and with foreign travel likely to be restricted and difficult until the autumn, there is a good chance that seaside entertainments in the UK will enjoy a strong year after several in the doldrums. Lottery ticket sales are also be likely to grow given that retail environments are opening and immediate financial pressures on the socio-economic classes that are the chief purchasers of lottery tickets will ease. The year will see a ban on the sale of lottery tickets to those under 18 – but it is unlikely that this will have any material impact on overall sales, since lottery is not a sector that is particularly favoured by young people. We will of course see the culmination of the competition process for the fourth National Lottery licence, with the new licensee taking over in 2023.

The regulatory year will undoubtedly be dominated by the Review of the Gambling Act, the date for which has not been announced but which may well report in the form of a white paper before the end of 2021. The Review itself will be led by John Whittingdale MP OBE, an appointment that some have said will be likely to lead to a more favourable outcome for the gambling industry. Judging by the call for evidence, it seems likely that the following areas will be subject to scrutiny and recommendations for reform:

  1. stake limits on certain classes of gambling machines (and also possibly on on-line slot machines);
  2. potential reforms to block illegal lotteries currently masquerading at free prize draws, skill-based contests and reform in the area of loot boxes;
  3. changes to the approach adopted by the regulator (focusing on some of the criticisms of the Commission's approach over the last few years);
  4. some form of restrictions on advertising of gambling (most likely to be focused on the restriction of advertising in connection with sport); and
  5. improvements in the ability of customers to make complaint about gambling operators (possibly in the form of an ombudsman).

From an industry perspective, many UK operators will look merely to cope with the changes in the UK market, which is already essentially saturated, and look for expansion on international markets. We can expect major UK operators to continue to take a keen interest in developing their businesses in the US, as that jurisdiction's betting market continues to flourish and expand.

Footnotes

1 Carl Rohsler is a partner at Memery Crystal LLP.

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 Schedule 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 & Amusements (NI) Order 1985.

24 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.

25 GA Section 211.

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

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

28 Articles 26 and 28–37 of the TFEU.

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

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

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

32 GLA Section 1.

33 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.

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

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

38 GA Section 7.

39 Defined in GA Section 4.

40 GA Section 67.

41 GA Part 6.

42 GA Section 128.

43 GA Section 65(2)(f).

44 GA Section 41.

45 GA Section 65(2)(i).

46 GA Sections 295–300 and Schedule 15.

47 GA Section 70.

48 GA Section 1.

49 GA Section 74.

50 GA Sections 89–100.

52 GA Section 110.

53 GA Section 100.

54 GA Section 116.

55 GA Section 117.

56 GA Section 104.

57 GA Section 102.

58 GA Section 42.

59 GA Section 121.

60 GA Section 1.

61 GA Part 15.

62 GA Section 342.

63 Different rates apply for spread betting.

64 GA Section 330.

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

66 GLAA Section 4.

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

Get unlimited access to all The Law Reviews content