This is a sector where new tech drives innovation – we only have to look at the rise of many novel gambling products to realise how far the industry has moved on in recent times.
The 2005 Gambling Act is due to be reviewed, so now looks like the right time to go back to basics and understand the definition of gambling, in the context of how the industry might look in 2022.
For example, the Gambling Commission recently investigated fantasy football, and NFT trading operator, Sorare, specifically assessing whether its activities in Great Britain constituted gambling and if an operating licence should be required.
Sorare is a cryptocurrency-based football game in which players trade virtual football cards. It argues its NFT values are conducted through a ‘randomised mechanism’, and that its fantasy games have no pool betting or fixed odds outcome. Therefore, they have no licensing requirement.
Imogen Moss, solicitor and gambling industry and regulatory expert at Poppleston Allen, explains that seeking to define gambling is an ever-evolving issue for an industry where novel products are continually hitting the market.
Focusing first on gaming, we ask Imogen to define each of these three gambling activities.
The wording of the Gambling Act definitions is broad and captures a lot of different activities.
Simply put, Gaming is a game of chance for a prize, that isn’t a sport. It can include elements of skill but must include some element of chance. There isn’t a requirement for other participants to be involved. A prize must be involved and means money or money's worth. This encompasses casino games, such as: roulette, card games like poker and bridge, board games like backgammon, and more traditional gambling activities like bingo, to name a few. Importantly, other low-key activities may be included, such as ‘Chase the Ace’.
Betting is making or accepting a bet on the outcome of an event or competition, the likelihood of anything occurring, or whether anything is true. This is largely defined and captures the majority of scenarios where the outcome of something is unknown to the player.
So what about lotteries? That’s not so straightforward, right?
Lotteries are split into two different types: simple and complex.
A simple lottery is where participation is paid, prizes are allocated, and the allocation is by a process wholly reliant on chance. This is your basic raffle, where a ticket is bought, winning entries are drawn, there may be a selection of random numbers included, and winners who receive a prize.
A complex lottery, unsurprisingly, is a little more complex. This still requires payment to participate, and the prizes are allocated. However, they are allocated by a series of processes, with the first being wholly reliant on chance. A good example of this is where the first stage of a competition involves randomly picking people to go through to the second stage, and where the second stage would involve answering a general knowledge question.
OK, so the industry defines gambling under these three umbrella terms. But what happens when these terms overlap? Game developers are always pushing the boundaries of innovation – what happens when these new products fail to fit into a single category?
The broad wording of the definitions lends itself to novel products. It is not hard to imagine possible overlaps between the three, where operators produce novel products and ideas that could fit into more than one of the definitions. There are sections of the Gambling Act that aim to clarify how these should be treated.
So, what is the relationship between the three definitions? Which has superiority over others?
If a transaction satisfies both the gaming and betting definitions, then this will be defined as betting if the transaction is ‘pool betting’, with any other transactions treated as gaming.
If an arrangement satisfies both the gaming and lotteries definitions, if the structure involves more than three processes to win a prize, then this will be classed as gaming. If there are not more than 3 processes, it is likely that the lottery requirements would take precedence. At this stage, either a Lottery Operating Licence would be required, or the structure would need to be compliant with the ‘Exempt Lottery’ limitations; this includes private, workplace, customer, residents and small society lotteries. It can be a complex area!
If an arrangement satisfies both the betting and lotteries definitions, the default position is that the arrangement is betting, unless it is structured and promoted under a Lottery Operating Licence, or falls within the ‘exempt lottery’ categories and criteria.
Operators sometimes come to us with arrangements that may appear to be gambling, but can actually fall outside of the Act and do not require a licence. These are usually types of competitions, such as ‘Spot the Ball’, which could be structured as ‘free prize draws’ or ‘prize competitions’.
In brief, free prize draws and prize competitions fall outside of the definition of gambling by either offering a free entry route or by ensuring that the outcome of the competition is determined by the participants’ skill, judgement or knowledge, respectively Imogen Moss
Right, so you don’t need a gambling licence to run certain types of competitions, but there must still be grey areas around NFT trading and cryptos, right?
Operators must be very careful and should seek professional advice if they intend to carry out these types of arrangements / competitions without a licence. If not done properly, they may inadvertently be an illegal lottery or fall within the definition of betting or gaming. NFT trading and crypto need to also consider potential financial services and registration with FCA, where relevant.
That makes sense. But do the lines still get blurred even after the launch of a novel product?
One significant grey area when considering any activity that is not betting, is the impact of the precise structure of the gambling process.
Some entrepreneurs and software developers may have innovative game ideas, which would be classed as a lottery if the mechanics are not constructed correctly.
Importantly, the lottery requirements being focused on raising funds for good causes may not be appropriate for a potential commercial enterprise. An important consideration for any novel product, where not betting, should be whether or not the activity falls within the ‘gaming’ or ‘lottery’ definition.
