How to start a lottery business

Looking for a slice of the lucrative gambling industry pie? Then starting up a lottery business could be just the ticket.

Lotteries aren’t just a good way to make a profit, they can generate money for charitable causes or a local community interest group of your choice.

Here’s how you can start capitalising on the UK’s thriving lottery industry today…

Why invest in the UK lottery industry?

According to a report from the Gambling Commission, during 2015-16: “The gambling industry demonstrated continued growth in most areas,” generating a Gross Gambling Yield (GGY) of £13.8 billion. That’s an increase of 2.9% on the previous year. Lotteries accounted for 27%, or £3.7 billion, of that total yield.

The report found that whilst National Lottery ticket sales fell slightly, the industry saw a rise in revenue generated by other UK lottery businesses: “Large society lotteries, historically the smallest market share, have seen a GGY equivalent increase to £404.2 million, a growth of 8%,” says the report.

This is no surprise when you consider the appeal of lotteries. Cheap ticket prices and the lure of large prizes make lotteries a popular gambling platform – players don’t have much to lose, but plenty to gain. In fact, it’s been reported that up to 70% of UK adults, over 32 million people, play the lottery regularly. That’s a big business opportunity.

However, it’s important to understand that UK lotteries are primarily meant to give back to the community. By law, large lotteries must donate at least 20% of their revenue to good causes. According to the Gambling Commission, in 2015-16, lotteries raised £1.9 billion in donations. That doesn’t mean that lotteries can’t also be lucrative business ventures though, as 80% of revenue can be used for prizes, running costs and taken as profit.

What type of lottery can you run?

So, what does the UK lottery market currently look like? Here are the main sectors:

• The National Lottery – the UK’s main lottery has been running since 1994 and is covered by its own legislation and regulated by the National Lottery Commission. On average, the National Lottery raises over £30 million per week for its good causes.
• Large society lotteries – are lotteries that make over £20,000 in ticket sales per lottery or £250,000 per year. They need a licence from the Gambling Commission and should give at least 20 percent of their revenue to sport, culture or charitable causes. Examples include the People’s Postcode Lottery and The Health Lottery, which gives at least 20p from every £1 ticket sale to health-related projects across the UK.
• Local authority lotteries – also need a licence from the Gambling Commission and are run by a local authority that can use the net profits of the lottery to help with its running costs.
• Small society lotteries – need to be registered with a local authority and must raise money for charity or good causes. Ticket sales must not exceed £20,000 per lottery or £250,000 each year.

The regulations for setting up a lottery business

The lottery industry in the UK is strictly regulated by the Gambling Commission and laws set out in The Gambling Act 2005. So, the first step in setting up a lottery business is to really understand the Act, starting with its definition of a lottery:

• A lottery is something everyone pays the same price to enter
• A lottery has at least one prize
• The prize is awarded purely by chance, such as in a raffle, sweepstakes or tombola

Lotteries can easily be confused with competitions, but what separates them is a skills test. If players have to rely on knowledge, judgement or skill, by answering a question to enter a draw for instance, then this is classed as a competition and operates outside of the Act. If it’s free to enter, like the People’s Postcode Lottery, then it’s also classed as a competition rather than a lottery.

There are also a number of lotteries that are exempt from licensing:

• Private society lotteries – must raise money to support their work, a good cause or charity
• Work and residents’ lotteries – are non-profit to raise money for good causes. Only residents or colleagues on the premises can play
• Customer lotteries – take place on a business premises and are for customers only, with a £50 limit per prize
• Incidental lotteries – take place at events like school fetes to raise money for charity or good causes. Tickets are sold at the event only, with a limit of £500 spent on prizes and £100 deducted for expenses

How to set up your own lottery business

The first step if you’re setting up a large society or local authority lottery is to get a licence from the Gambling Commission. If you’re setting up a small society lottery, you need to register with the local authority in the area where your main office is based. Be aware that if your lottery can be played remotely, via the internet for example, you’ll need to hold a remote operating licence if you’re running a large or local authority lottery.

When designing your society or authority lottery consider these points:

• At least 20% of your proceeds must go to fundraising
• Players for all lotteries must be aged 16 and over
• Tickets cannot be sold in the streets
• Tickets must include the name of the society, ticket price, name and address of the organiser and date of the draw
• You must submit regular financial reports
• The maximum prize limit for a small society lottery should be £25,000
• Maximum prizes for large society and local authority lotteries should be no more than £200,000
• If you hire an external lottery manager to run or oversee your business, they need to have a lottery manager’s operating licence
• You may want to give proceeds to a charity partner or community interest group that can allocate funds to relevant projects