Answer ... (a) Betting (pool / fixed odds/ spread betting)
‘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) (Section 9 of the Gambling Act 2005). Various species of bet are distinguished under English law.
Pool betting: ‘Pool betting’ (also known as ‘pari-mutuel betting’) involves the organiser (‘pool promoter’) taking in the stakes from the participants and then, from that ‘pool’ of moneys, returning a portion of those funds to those who make a successful prediction, while keeping a proportion of the pool as profit (Section 12 of the Gambling Act 2005). Pool betting also covers betting where the prize is non-monetary or not fixed by reference to the stakes of the players.
Fixed-odds betting: ‘Fixed-odds’ betting occurs where the operator (often referred to as a ‘bookmaker’) offers odds to potential customers, expressed as a multiple of the stake which the customer will win if their prediction is successful. The bookmaker realises a profit by offering odds to reflect an overround profit (ie, that the mathematical fractional odds, when combined, add up to more than certainty), and which are subsequently adjusted as volumes of bets on a particular outcome are received.
Spread betting: ‘Spread betting’ is defined (Section 10 of the Gambling Act 2005) as arising where a bookmaker offers bookmaker offers a ‘spread’ of results on a particular index (eg, a cricket score), and the customer decides whether the actual result will be above the upper limit or below the lower limit of the spread. 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, since either party can theoretically lose or win an unbounded multiple of the original stake. The advertising of spread betting is therefore subject to stricter controls.
Betting prize competitions: ‘Betting prize competitions’ are defined in Section 11 of the Gambling Act 2005. This new category of betting was primarily designed to cover the playing of ‘fantasy league’ contests, which have an entry fee rather than a stake, and involve some form of prediction of an event within the meaning of Section 9. However, the definition is open textured enough to cover other forms of prediction-based skill competition.
Betting intermediaries: A ‘betting intermediary’ (defined in Section 13 of the Gambling Act 2005) is someone who organises peer-to-peer betting, in which the bet is struck directly between two end parties, with the operator organising the marketplace of ‘bids and offers’, holding the stakes and paying out the winnings (having deducted a small commission). However, the statutory definition is sufficiently broad also to encompass betting agents and brokers. The breadth and uncertainty of the definition can cause not only difficulties for the operators of skill-based prize contests, but also 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.
(b) Gaming (house and ring games)
‘Gaming’ is the playing of a game (ie, a game of pure 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 defined in the legislation). In practical terms, ‘gaming’ includes casino games such as roulette, blackjack and poker, dice games, slot machines and games such as bingo.
As to the balance 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. That said, tiny amounts of chance in an otherwise fully skilful activity (eg, 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 consequently ignored.
Following a decision in the Court of Appeal (IFX Investment Company Limited and Os v Her Majesty’s revenue and Customs [2016] EWCA Civ 436), some have questioned whether certain games which were previously considered to be determined by skill alone (eg, ‘spot the ball’) were in fact games of chance. When viewed correctly, however, the limit of the Court of Appeal’s decision in that case was to determine that it was possible for the tribunal below to find as a matter of fact that the particular way in which a game was played or judged actually meant that it became a matter of chance and not skill. The test remains a question of fact to be judged in each case. But as a general principle, it is submitted that the proper test lies in determining not whether the ‘average player’ can exercise determine the result by skill, but rather by whether there is inherent in the game some external randomising factor which is designed to render the chances in the game more equal between the participants, because that factor simply cannot be predicted. In short, it is not for a court to say that, simply because most players will not have sufficient skill to guarantee winning (or some players will not have sufficient skill to improve their guesses beyond a certain point), the game thereby becomes a matter of chance. That position has a long pedigree in English law, reaching back as far as Hall v Cox [1899] 1 QB 198.
In the context of video games, the winning of ‘in-game’ prizes or ‘loot boxes’ by chance is outside the definition of ‘gaming’, even if the player pays for the opportunity to win them, provided that the resulting enhanced experience is not tradable for real-world value.
(c) Lotteries, raffles and scratch cards
A ‘lottery’ is a division of prizes based on a chance event, where the participants pay for the chance to win the prize. Its full definition is found in Section 14 of the Gambling Act 2005. The definition includes both pre-determined lotteries (eg, 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 has no legal meaning. However, practically speaking, it is used to describe a species of lottery in which each participant purchases a unique ticket, one half of which is retained by the player and the other half of which is entered in a random draw. The draw therefore ensures a single winner. This may be distinguished from those 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 several of the participants.
Lottery-style schemes that do not include the element of payment (see Schedule 2 of the Gambling Act 2005), or that rely to a substantial extent on skill (Section 14(5) of the Gambling Act 2005), fall outside the statutory definition and are therefore not regulated as a form of gambling. They may either be considered ‘free prize draws’ or ‘skill-based contests’. There are countless consumer contests operated as marketing incentives that avoid illegality 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 the purposes of the definition of a lottery (Schedule 2, paragraph 2(c) of the Gambling Act 2005). It might be added that, as a matter of current practice, many abuse the rules relating to the amount of skill that is required to avoid being a lottery or indeed operate schemes of doubtful legality having regard to payment to enter; but enforcement of the rules is currently very lax and so such schemes have grown in popularity.
(d) The interface with financial products (if relevant)
Some forms of speculative investment, contracts for difference or insurance are outwith the strict definition of ‘gambling’, but are nonetheless regulated under financial services legislation. Futher, spread betting and binary betting are both forms of betting, but are regulated by the Financial Conduct Authority and not the Gambling Commission.
If an activity fits within the definition of two or more of the categories above (eg, where it is both a form of betting and a form of gaming), there are rules – contained in Sections 16–18 of the Gambling Act – which seek to triage and categorise those activities as a specific form of gambling.