The Economic Impact of People's Postcode Lottery - A roadmap to the future September 2014
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The Economic Impact of People’s Postcode Lottery A roadmap to the future September 2014
2 Disclaimer Whilst every effort has been made to ensure the accuracy of the material in this document, neither Centre for Economics and Business Research Ltd nor the report’s authors will be liable for any loss or damages incurred through the use of the report. Authorship and acknowledgements This report has been produced by Cebr, an independent economics and business research consultancy established in 1992. The views expressed herein are those of the authors only and are based upon independent research by them. The report does not necessarily reflect the views of People’s Postcode Lottery London, September 2014 © Centre for Economics and Business Research
3
Contents
Executive Summary 5
1 Introduction 6
2 Contributions to good causes 7
2.1 The performance of People’s Postcode Lottery 7
2.2 The wider society lottery sector 8
3 Examples of the Postcode Trusts’ funding impact 9
3.1 Missing People 9
3.2 British Red Cross 10
3.3 Whizz-Kidz 11
4 The charity lottery ‘multiplier’ 12
5 Constraints facing People’s Postcode Lottery 16
5.1 Regulatory restrictions 16
5.2 Case study: People’s Postcode Trust 17
5.3 Regulatory impacts 18
6 Is there another way? Evidence of the benefits of charity lotteries outside Britain 19
6.1 What is different abroad? 20
6.2 Lessons from lottery markets abroad 21
7 Scenarios for regulatory change 23
8 The impact upon the National Lottery 26
9 Social Responsibility 28
10 Conclusions 29
11 Appendix 30
11.1 Survey data 30
11.2 Estimating the impacts of regulatory change 30
11.3 PPL’s proposed statutory instrument for amending the turnover limit 32
12 Bibliography 34
© Centre for Economics and Business Research4 © Centre for Economics and Business Research
5
Executive Summary
This report presents Cebr’s analysis of People’s Postcode Lottery (PPL) and the wider society lottery
sector. The analysis explores the current and past contributions of players of PPL to good causes and
illustrates how these could be increased following regulatory change within the sector.
The key findings of the report are as follows:
Players of People’s Postcode Lottery directly contributed £10.2 million to good causes in 2013 –
this is a six fold increase since 2008 and represents approximately 8.8% of the society lotteries sector.
Funding to good causes made possible by players of People’s Postcode Lottery increase to £27.5
million once the charity multiplier is taken into account. For each £1 in Postcode Trust funding,
charities indicate that they are able to raise an additional £1.70 from other sources, providing a
multiplier of 2.7.
A key driver behind this multiplier appears to be the largely unrestricted nature of the funding
provided by players of PPL. The ability of charities to direct this funding to where it is most needed
can prove invaluable to removing resource bottlenecks and getting projects off the ground.
There is significant potential for PPL in Britain to expand the contributions made to good causes
through players - contributions in other European countries such as Sweden and the Netherlands
(where other Postcode Lotteries operate) are significantly higher, despite Britain having a much
larger population, suggesting that regulatory reform could have a substantial impact on increasing
the funds available for good causes.
The annual direct contribution made to good causes by players of the People’s Postcode Lottery
could increase to as much as £130.2 million if regulations governing revenue and prize sizes were
relaxed. This would be expected to lead to total charitable income of £351.5 million once charity
multiplier effects are taken into consideration.
Based on available evidence, The National Lottery should not be negatively affected by the
deregulation of the society lottery sector that could bring about these increased contributions. A
review of the academic literature and evidence from other countries shows that the National Lottery
stands to benefit from the complementary nature of a larger society lottery sector.
© Centre for Economics and Business Research6
1 Introduction
People’s Postcode Lottery (PPL) operates lotteries on behalf of charitable trusts, which have supported
more than 1,300 charities and projects since first launching in 2008. At present there are now 13 grant-
giving charitable trusts (six newly created in 2014) that utilise People’s Postcode Lottery as their External
Lottery Manager (ELM). However, to ensure the highest standards of accuracy and relevance, this report
is modelled on the following seven trusts that hold detailed financial data for the financial year 2013:
People's Postcode Trust
Postcode Animal Trust
Postcode Care Trust
Postcode Culture Trust
Postcode Global Trust
Postcode Green Trust
Postcode Heroes Trust
PPL is part of a family of postcode lotteries operating in the Netherlands and Sweden. The United
Postcode Lotteries combine to make the world’s second largest private donor to good causes, having
contributed in excess of £5 billion (since 1989) to help better support people and planet.
This research, commissioned by People’s Postcode Lottery, aims to further explore the contribution
made by players of society lotteries and PPL in Britain. The report uses primary research as well as
existing data from the Gambling Commission and lotteries in other European nations to examine the
operational structure of PPL and investigate how changes in the regulatory environment could influence
this contribution.
The remainder of this report is structured as follows:
Section 2: Contributions to good causes
Section 3: Examples of Postcode Trusts’ funding impacts
Section 4: The charity lottery ‘multiplier’
Section 5: Constraints facing People’s Postcode Lottery
Section 6: Is there another way? Evidence of the benefits of charity lotteries outside Britain
Section 7: Scenarios for regulatory change
Section 8: The impact upon the National Lottery
Section 9: Social Responsibility
Section 10: Conclusions
Section 11: Appendix
Section 12: Bibliography
© Centre for Economics and Business Research7
2 Contributions to good causes
2.1 The performance of People’s Postcode Lottery
Over the past six years, thanks to increasing numbers of players, People’s Postcode Lottery (PPL) has
steadily increased in size, generating higher levels of income for good causes. As illustrated in Figure 1
below, PPL’s total proceeds have increased from £7.9m in 2008 to £46.0m in 2013. Over the same period,
the contributions made by players of PPL to good causes have increased more than six fold, from £1.6m
to £10.2m.
In addition to expanding the funds raised for good causes, the proportion of total ticket sales that are
provided to good causes has also risen; from 20% in 2008, the proportion raised for good causes
increased to reach 22.2% in 2013. This proportion is expected to rise in future, particularly in light of the
Postcode Trusts’ commitment, announced in January 2014, to raising the share of proceeds going to
good causes to 25%.
Figure 1 - Breakdown of People's Postcode Lottery proceeds, £m
50 23%
45 22%
40
21%
35
30 20%
25 19%
20 18%
15
17%
10
5 16%
0 15%
2008 2009 2010 2011 2012 2013
Prizes Operating expenses Good causes % to good causes
Source: PPL annual reports
© Centre for Economics and Business Research8
2.2 The wider society lottery sector
In the British society lottery sector, contributions to good causes have also increased. In 2008/09 society
lotteries were responsible for revenues of £94.2 million to good causes, expanding to £155.0m by
2012/13, as illustrated in Figure 2.
Over this time, PPL has increased in importance to the sector in terms of funds raised for good causes. In
2008/09, players of PPL accounted for approximately 4.5% of total funds generated for good causes by
society lotteries1. This rose to 8.8% by 2012/13.
The contributions of the society lottery sector have grown in importance in recent years as overall
charitable giving from individuals has fallen back. The latest data show that UK adults donated £10.4
billion to good causes in 2012/13 compared to an inflation adjusted peak of £12.9 billion in 2007/082.
There is at least some sign that this trend is reversing, however, as giving increased by £0.8 billion
compared to 2011/12 in real terms. Even alongside a recovering personal donations picture, society
lotteries still have an important role to play in driving charitable fundraising, particularly for hard-to-
reach or less publicised causes. In addition to this, it is important to note that many charities benefit
from increased awareness and publicity relating to their work through being affiliated with PPL and the
Postcode Trusts.
The next section of this report explores the potential for society lottery funding to ‘crowd in’ other
donations through the charity lottery multiplier.
Figure 2 - Society lotteries' income provided to good causes, total £m
180
160
140
120
100
80
60
40
20
0
2008/09 2009/10 2010/11 2011/12 2012/13
Source: Gambling Commission and People’s Postcode Lottery annual reports, Cebr analysis
1
Data are approximate since the gambling commission report data in financial years while PPL data are given in calendar years.
2
UK GIVING 2012/13, Charities Aid Foundation, March 2014.
© Centre for Economics and Business Research9
3 Examples of the Postcode Trusts’ funding
impact
This section of the report draws on the views of three charities who each receive funding supported by
players of People’s Postcode Lottery. These are based on conversations with each of the charities in July
2014.
3.1 Missing People3
Background to Missing People
Established in 1993, Missing People is responsible for improving the support and services available to
missing children, adults and their families. Missing People offer help and support to the 250,000 people
who go missing in the UK each year, and their friends and families, in three ways.
i) Undertaking and supporting research to understand the experiences of missing people and
their families, and to understand what help they need.
ii) Using the findings of this research, they advocate for change through campaigns and policy
work on issues affecting missing people and their loved ones.
iii) Monitoring and evaluating Missing People’s projects and services to assess the charity’s
impact and how to develop services in the future.
Achievements helped by PPL players’ support
Funding made possible by players of People’s Postcode Lottery is used in all aspects of the charity’s work,
from salaries of helpline advisers, to developing online advice. In May this year, with the support of PPL
players, Missing People have been able to launch an enhanced Child Rescue Alert system, a UK-wide
alarm system for abducted children. The system provides an early warning alert to a bank of individuals
who receive an email or text message when a child goes missing to help raise awareness that they have
gone missing nearby. Launching this service is one of the charity’s proudest moments, since this ground-
breaking project will help save vulnerable children if the worst happens.
Key financials
In 2013, Missing People raised £2.2 million in total, of which 22% was provided through one or more of
the Postcode Trusts. This player support is granted largely on an unrestricted basis, meaning that the
charity can use the funds in the areas where they identify the greatest need. In reality this means players
are helping to support all aspects of Missing People’s work.
Importance of funding
“To find such a generous level of funding with so few ‘strings’ attached is amazingly rare, so Postcode
Trust funding has been absolutely fantastic for Missing People. Furthermore, funding can also act as a
3
The information within this section is based on information provided through an online survey and a subsequent telephone
conversation with Missing People.
© Centre for Economics and Business Research10
‘stamp of approval’, almost offering additional legitimacy to the charity, which can make it easier for the
charity to raise additional funding from other sources.”
3.2 British Red Cross4
Background to the British Red Cross
The British Red Cross is part of a global voluntary network spread across 188 countries, responding to
conflicts, natural disasters and individual emergencies. They help vulnerable people in the UK and abroad
prepare for, withstand and recover from emergencies in their own communities. BRC’s extensive work
can be broadly broken down into four areas:
1) Emergency response or disaster preparedness – both nationally and internationally, such as
following floods in the UK, and following Typhoon Haiyan in the Philippines.
2) Resilience – such as first aid training in schools and businesses
3) Support international development programmes – often funded through the Department for
International Development, BRC provide technical support to other national Red Cross and Red
Crescent societies
4) Independent living – Across the UK the BRC support thousands of volunteers offering care in the
home and transport to older and vulnerable people, providing support to 430,000 people
annually.
Achievements helped by PPL players’ support
The £100K grant received in Dec/Jan has been used to support their HIV and TB programme in KwaZulu-
Natal, South Africa. The players’ funds enabled BRC to lever an additional £50,000 match funding from a
major donor.
So far this project year, the support from players has helped to raise awareness among over 170,000
people in KwaZulu-Natal with HIV/AIDS prevention messages. Support from players has also helped to
provide home-based care and support to over 4,800 adults and 1,900 orphans and vulnerable children.
And with funding from the players BRC’s peer education sessions to raise awareness in schools have
reached over 22,000 young people.
Key financials
In 2013, the British Red Cross had a total income of £228 million, of which £100,000 was provided
through one of the Postcode Trusts.
Views on the importance of PPL players’ support
“Having this funding means that we can use this money to bridge funding gaps and to put the money
where it is needed most. Therefore even though the funding makes up such a small proportion of BRC’s
total fundraising income, it still enables us to do something that we ordinarily wouldn’t have been able
4
The information within this section is based on information provided through an online survey and a subsequent telephone
conversation with the British Red Cross.
© Centre for Economics and Business Research11 to do. We don’t get many funds like this on this scale and it represents a great opportunity for us to ensure that programmes are able to achieve what they set out to do. This is particularly important for ‘hidden’ emergencies where their lower profile can make raising restricted funds more difficult.” 3.3 Whizz-Kidz5 Background to the Whizz Kidz Whizz Kidz are the largest provider of mobility equipment for children and young people in the UK, outside of the NHS. Put simply, many children aren’t able to access the right equipment which is appropriate for their needs at the right time, delaying childhood, affecting their entire life chances and sometimes resulting in further illness or injury. This affects approximately 70,000 children each year, leaving them less independent and able to socialise, with consequences for their education and general wellbeing. Whizz Kidz’ target is always to help a child with mobility impairment, giving them the chance to regain their independence, while also providing education and training for the child, social opportunities and chances to go on short breaks and work placements. Achievements helped by PPL players’ support The support Whizz-Kidz has received thanks to players of People's Postcode Lottery has allowed them to continue transforming the lives of disabled young people, their families and communities. Support helps to run a network of 40 Ambassador Clubs, with approximately 600 young disabled people benefitting from skills development, confidence building and just simply being able to make friends in a fun and supportive environment. Key financials In 2013, Whizz Kidz had a total income of £7.5 million, of which £100,000 was provided through one of the Postcode Trusts. This player support is granted on an unrestricted basis, meaning that Whizz Kidz can use the funds in the areas where they can be best targeted. Views on the importance of PPL players’ support “PPL players’ funding is really a dream grant. The unrestricted manner in which PPL players’ funding is provided helps to plug resource gaps and allows us to operate more efficiently - it allows us to direct funds where the need is greatest.” 5 The information within this section is based on information provided through an online survey and a subsequent telephone conversation with Whizz Kidz. © Centre for Economics and Business Research
12 4 The charity lottery ‘multiplier’ The purpose of charities’ fundraised income is, first and foremost, to contribute resources to the issue or cause which they exist to address or improve. Apart from this core activity, however, how effectively charities are able to maximise their resources will depend, to a greater or lesser extent, upon the ways in which both charities and potential donors respond to the funds provided. This can be summarised by looking at the charity lotteries multiplier, which illustrates, for each additional £1 in grant funding, how much additional funding (or indeed how much less funding) charities are able to raise from other sources. A multiplier greater than 1 would show that charity lotteries actually ‘crowd in’ other funding, while a value less than 1 would indicate that charity lotteries ‘crowd out’ other funding. There are reasons to suppose that both crowd in and out effects are at work. For example, if potential donors witness a cause receiving significant levels of grant funding they may conclude that the cause is sufficiently well-funded and thus decide to make a donation to another apparently less well-funded cause – the charitable trusts that players of PPL support try to mitigate the risk of this by never providing more that 33% of charity’s total income in support, helping to ensure that charities are never too reliant on any single source of income. On the other hand, a potential donor may observe a large grant being offered and be persuaded of the worthiness of the cause and opt to donate on this basis – some of the charities we spoke to in the course of this research indicated that this is an area where PPL players’ funding was indeed very helpful. Similarly, from the perspective of the charity itself, a grant may allow the charity to reduce its fundraising activities, for example, if it reaches a fundraising target allowing it to divert resources elsewhere. Alternatively, the charity may use the grant as a platform from which to accelerate its fundraising efforts, boosting its marketing capacity and thus generating more funds than it otherwise would have. These competing incentives have been explored at some length in the academic literature6, and in reality a combination of these factors is likely to be in effect. The Centre for Market and Public Organisation (CMPO) investigated these effects in the case of the National Lottery and calculated the multiplier as 1.6 for medium-sized charities based on a longitudinal study of charities applying for National Lottery grant funding. Here we attempt to evaluate the presence or otherwise of a charity multiplier associated with PPL funding based on the reported behavioural responses of charities receiving grant funding thanks to players support. This is done in light of what charities use their grants for, how it affects the resources they dedicate to fundraising and finally charities’ perceptions of the impact support from players of PPL has on their ability to raise funds from other sources. As highlighted in Figure 3, the grants provided by the trusts PPL operates lotteries on behalf of are most commonly used to fund operating costs for specific projects, with 77% of charities in receipt of grants using funds for this purpose. This would represent the money being used to fund the charities’ core activities. Payment of staff salaries was the next most common use of the grants, reported by 68% of charities. Covering the costs of general marketing expenses was the least common use for Postcode Trusts’ grants, reported by 40% of charities. 6 See, for example, ‘Do grants to charities crowd out other income? Evidence from the UK’, Andreoni, Payne and Smith, March 2013. © Centre for Economics and Business Research
13
Overall the data suggest that the grants are used to fund a relatively broad range of activities. There is a
clear focus on directing funds at specific projects and on human resources, but marketing and office
premises costs are also significant. This is reflective of the manner in which the Postcode Trusts provide
income to charities. The funding is, in most cases, unrestricted. This means that charities can direct the
funds where they see the greatest need at the time, offering them the flexibility to use their judgement
as to where the funds can be most effectively applied.
Figure 3 - Charities use of Postcode Trusts’ grant funding, percentage of respondents
80%
70%
60%
50%
40%
30%
20%
10%
0%
Source: survey of charities receiving support from Postcode Trusts
The benefits of the flexibility of Postcode Trust funding are evidenced further when looking at how
charities’ fundraising abilities are impacted by the support from players. Here we consider the combined
impact of not only the effect of funding on a charity’s fundraising efforts, but also the effect of trust
funding on the willingness of potential donors to give money to the charity.
The results support the existence of a ‘crowding in’ effect, suggesting the charity lottery multiplier for
trust grants is greater than one: 29% of large charities and 48% of smaller charities indicated that trust
grant funding they received ‘significantly’ increased their ability to raise funds from other sources.
Meanwhile, 43% of large charities and 39% of smaller charities suggested the grant ‘slightly’ increased
these abilities. This compares to 29% of large charities and 13% of smaller charities which suggested that
grant funding has not impacted upon their fundraising abilities. No charity suggested there was any
negative effect on their fundraising abilities stemming from the support they had received from players
of People’s Postcode Lottery.
© Centre for Economics and Business Research14
Figure 4 - Impact of Postcode Trusts’ funding on charity’s abilities to raise funds from other sources, percentage of respondents
60%
50%
40%
30%
20%
10%
0%
Significantly increases Slightly increases No impact
Income £10m+ Income less than £10m
Source: survey of charities receiving support from Postcode Trusts
Based on this evidence there is a strong case for supposing that grant funding provided by PPL players is
associated with a multiplier greater than one and that this multiplier would be comparable to the 1.6
multiplier estimated to follow from National Lottery funding to medium sized charities.7
It is possible to approximate the size of the multiplier using the survey responses from charities who
receive Postcode Trust funding. Charities were asked how much additional funding they were able to
generate as a result of each £1 they received from the Postcode Trusts. The responses are illustrated in
Figure 5, which shows that the majority of the charities (51.6%), expect that for each £1 of grant funding
they will raise between £0 and £1 over and above this initial grant. However, a significant proportion of
the charities (13.9%) expect to be able to raise £5 or more as a result of each £1 they receive from
Postcode Trusts.
Overall, taking an average of these responses suggests that the typical Postcode Trust-funded charity will
be able to raise an additional £1.70 for each £1 they receive in support from PPL players, equivalent to a
multiplier of 2.7 (the original £1, plus the additional £1.70). Applying this multiplier effect to awards
made by Postcode Trusts to good causes in 2013 would suggest that the £10.2m in funding awarded to
good causes in 2013 would have enabled charities to raise an additional £17.3m from other funding
opportunities.
One of the key drivers behind this multiplier appears to be the unrestricted nature of much of the
funding provided. Across the charities we surveyed, Postcode Trusts funding represented 12% of their
unrestricted income. As highlighted within the case studies contained in Section 3, the ability of charities
to direct this funding to where it is most needed can prove invaluable to removing resource bottlenecks
and getting projects off the ground.
7
‘Did the gamble pay off for charities?’ Centre for Market and Public Organisation, autumn 2013.
© Centre for Economics and Business Research15
Figure 5 - Additional funds raised as a result of each £1 of Postcode Trusts’ funding, percentage of respondents
25%
20%
15%
10%
5%
0%
£0.00 £0 - £0.50 £0.51 - £1.01 - £1.51 - £2.01 - £2.51 - £3.01 - £4.01 - £5.00+
£1.00 £1.50 £2.00 £2.50 £3.00 £3.50 £4.50
Source: survey of charities receiving support from Postcode Trusts
© Centre for Economics and Business Research16 5 Constraints facing People’s Postcode Lottery 5.1 Regulatory restrictions There are a number of regulations placed on the Postcode Trusts operating their lottery under the umbrella of People’s Postcode Lottery and on the wider society lottery sector. These include: 1. The “80:20 rule” A society lottery must apply a minimum of 20% of the gross proceeds of each lottery directly to the charitable purposes of the society. Up to a maximum of 80% of the gross proceeds of each lottery may be divided between prizes and the expenses of the lottery, including the reasonable fees of external lottery managers. 2. Caps on proceeds In a single large society lottery the maximum value of tickets that can be sold for one draw is £4 million. The maximum aggregate value of lottery tickets that can be sold in any calendar year is £10 million. 3. Caps on prizes The maximum prize in a single lottery is £25,000 in the case of a small society lottery and £25,000 or 10% of the proceeds (gross ticket sales), whichever is greater, in the case of a large society lottery. Therefore, a society that sells the maximum number of tickets in a single large lottery (£4 million) could award a maximum top prize of £400,000. Rollovers are permitted provided the maximum single prize limit is not breached. There are additional regulations on the sector affecting ticket pricing, advertising, marketing and the linkages between society lotteries8. Some of these regulations place limits on the ability of the society lottery sector to expand and generate ever-increasing proceeds for good causes, as shown by the research in this report and Cebr’s previous analysis of the sector9. The rationale behind some of these regulations has been to prevent society lotteries from undermining the National Lottery (by reducing National Lottery ticket sales), however evidence presented in Section 8 of this report suggests that the impact of society lotteries on the National Lottery is limited. Overall, the benefits from an increased quantity of proceeds going to good causes are likely to outweigh any negative impact upon the National Lottery and in no way affect society lotteries in their ability to meet the three licensing objectives: to keep the lotteries crime free and fair, while protecting vulnerable people and children. 8 See, for example, the rules and regulations set out here: http://www.gamblingcommission.gov.uk/pdf/Promoting%20society%20and%20local%20authority%20lotteries%20- %20November%202009.pdf 9 ‘Society lotteries - An analysis of the contribution of the sector and the potential impacts of regulatory change’, Cebr February 2014. Produced on behalf of the Lotteries Council and the Institute of Fundraising. © Centre for Economics and Business Research
17
5.2 Case study: People’s Postcode Trust
People’s Postcode Trust (PPT) was launched in 2009 and has so far provided £9.8m funding to smaller
community projects and organisations thanks to the support by players of People’s Postcode Lottery. The
Trust offers support for grass roots projects from £500 up to £20,000.
In Q1 of 2014 PPT received funding applications for small grants worth £11 million, but was only able to
award grants totalling £407,000, due to the annual turnover limit imposed on society lotteries.
Furthermore, based on projections for 2014 as a whole, PPT anticipates it will receive funding
applications to the small grants programme worth almost £30m. However, annual turnover limits mean
they will only able to provide support for requests up to a maximum of £2.5m (at a 25% charitable
contribution from ticket sales).
The difference between the funding PPT is able to provide and the applications they receive, is illustrated
in Figure 6 below. For 2013 as a whole PPT had sufficient funds to support just 14% of the applications
for funding they received. In 2014, this proportion is expected to fall to just 6%. Such a gap between the
funding charities need and the support that the PPT is legally able to provide clearly demonstrates the
potential for People’s Postcode Trust to generate much needed additional funds for good causes given
the opportunity to expand their operations further.
Figure 6 - PPT: Applications to the small grants programme and total income available for good causes, £ millions
35
£29.7m*
30
25
20
15 £11.3
10 £6.6 £6.1
£5.9
5 £1.9 £1.6 £1.8m*
£1.6 £1.7
0
2010 2011 2012 2013 2014
Applications received Total trust income available for good causes
Source: People’s Postcode Trust
*Forecast projections for 2014
© Centre for Economics and Business Research18
5.3 Regulatory impacts
The regulations placed on society lotteries impact their operations in a variety of ways. Constraints on
who can play lotteries and how lotteries can be marketed, along with restrictions that ensure draws are
fair and properly administered provide logical and welcome minimum standards across the sector.
However, it is the view of many lottery operators that the financial restrictions placed on lotteries are
stifling their growth and, in doing so, are artificially constraining the funds that they are able to generate
for good causes. To shed light on the regulations which the Postcode Trusts view as the most
problematic, Figure 7 below highlights the regulations which the trusts would most like to see relaxed or
removed.
The cap on annual revenues and individual draws received the highest individual ranking by society
lotteries, ranked first by a weighted average of 90% of PPL-operated lotteries. A weighted average of
82% of PPL-operated lotteries ranked the cap on prizes most highly, while 50% of lotteries indicated that
the caps on prizes and revenues were equally important. The 20% rule was given the lowest priority by
Postcode Trusts, receiving a weighted ranking of just 10%.
10
Figure 7 – PPL- operated lotteries weighted ranking of regulation they would most like to see relaxed or removed
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Annual cap on charity Cap on charity lottery Prize and revenue caps The 20% rule
lottery revenues and cap prizes equally important
on individual draws
Source: Survey of the trusts PPL operates lotteries on behalf of.
The principle aim of these restrictions is to safeguard the position of the National Lottery (though the
evidence that the National Lottery requires such protection is far from clear). In effect these regulations
are in many ways acting to constrain the quantities and the proportions of proceeds which society
lotteries are able to provide to good causes.
10
Rankings are weighted so that highest ranked responses receive a weight of 100%, second ranked receive a weight of 75%,
third 50% and fourth 25%.
© Centre for Economics and Business Research19
6 Is there another way? Evidence of the benefits
of charity lotteries outside Britain
The proportion of revenue charity lotteries must contribute to good causes varies substantially across
countries. While in Britain charity lotteries, such as those managed by People’s Postcode Lottery, must
generate at least 20% of revenues for good causes11, the minimum is 40% in the Netherlands and in
Sweden a ‘reasonable’ amount must be given to charities.12
Table 1: Revenues and contributions to good causes by various charity lotteries in 2013, millions of euros
Lottery & country Revenues Contribution to good causes
People’s Postcode Lottery (GB 55.1 12.1
Swedish Postcode Lottery 408.4 128.2
Dutch Postcode Lottery 605.3 302.6
BankGiro Lottery (Netherlands) 124.9 62.5
FriendsLottery (Netherlands) 97.5 48.7
Source: Novamedia annual report 2013
Table 1, above, demonstrates how charity lotteries in other European countries have much higher
revenues than People’s Postcode Lottery in Britain, and consequently are able to deliver a much larger
amount of money to good causes. Tighter regulations in the UK have prevented Novamedia (the
umbrella organisation for the five lotteries outlined in Table 1) from expanding the Postcode Lottery
format as they have done in the Netherlands and Sweden. The result is that the combined Postcode
Trusts’ revenues are just 13.5% of those of the Swedish Postcode Lottery, and less than a tenth of those
of the Dutch Postcode Lottery. This is despite the fact that the population of the Netherlands was 16.8
million in 2012 and that of Sweden 9.5 million - respectively 26.6% and 15.1% of the UK population.13
This suggests that there is significant scope to expand the charity lottery market in Britain.
In turn, this would increase the value of contributions made to good causes through charity lotteries in
Britain. While players of People’s Postcode Lottery in Britain were able to generate €12.1 million for
good causes in 2013, this is less than a tenth of the value of contributions made to charities by the
Swedish Postcode Lottery, which gave €128.3 million to good causes in the same year. Players of the
Dutch Postcode Lottery were able to support more than 25-times as much in income for good causes
than players of People’s Postcode Lottery in 2013. While the ratio of charitable contributions to revenue
11
UK Gambling Commission.
12
Association of Charity Lotteries in the European Union.
13
World population prospects: the 2012 revision, United Nations.
© Centre for Economics and Business Research20 obviously plays a role in determining the size of available funding, Table 1 demonstrates that the overall size of charity lotteries is also a critical factor in determining the size of contributions charity lotteries can make to good causes. As highlighted earlier in Section 5, the fear for regulators in the UK is that the expansion of charity lotteries would undermine the success of the National Lottery. Section 8, which examines the interaction between charity and state lotteries in several other countries, suggests that this fear is unlikely to be realised and that, in fact, expansion of charity lotteries could benefit the National Lottery in Britain, and raise millions more pounds for good causes. 6.1 What is different abroad? In many European countries, including the UK, charity lotteries are only able to operate at a small-scale. In some countries, including the UK, legislation is in place which aims to limit the scale of the charity lottery sector in order to protect the revenues of a state lottery against competition. Three countries within Europe have charity lottery sectors which are more developed than the UK’s, and offer insight into how the market could develop in the UK, to the benefit of good causes. Sweden and the Netherlands both have relatively long traditions of charity lotteries, with several operators working alongside each other. Spain In addition to the national lottery Entidad Pública Empresarial Loterías y Apuestas del Estado (LAE), Spain has a single national charity lottery, Organizacíon nacional de ciegos Españoles (ONCE). Additional lotteries may be organised, but only at a local level. ONCE was initially a charity for the blind, but through the Fundación ONCE has broadened its remit to all disabilities. The lottery is its principle source of funding. Salespeople are blind or disabled, with one of the lottery’s objectives to provide steady employment and decent wages for these groups. When the cost of these salaries is considered as well as direct funding to charitable organisations, 40% of proceeds from the ONCE Lottery go to good causes in Spain and abroad. The country’s lottery market was worth approximately €4,875 million in 2012. The state lottery had approximately 78.6% of the market, with the remaining 21.4% taken by ONCE14. The existence of ONCE alongside the LAE thus does not appear to prevent the state lottery from dominating the market. Meanwhile, ONCE’s operations provided significant revenues for good causes: approximately €416 million of ONCE’s revenue went to help the blind and disabled.15 Sweden Sweden has a more liberal market, with around 30 lotteries licensed. Since starting in September 2005, the Swedish Postcode Lottery has grown its market share, achieving 34% of the Swedish lottery market in 2012. The state lottery continues to dominate, however, with a 50% share of revenues. The Swedish Postcode Lottery began by delivering 20% of proceeds to charity, but has since been able to grow the share of revenues generated for good causes to 34% as revenues increased. 14 Spanish General Directorate of Gaming Affairs, 2013, via DLA Piper All-In, http://blog.dlapiper.com/gambling/entry/spain_the_regulator_publishes_its 15 Cebr calculated based on 40% contribution rate. © Centre for Economics and Business Research
21 Netherlands The Netherland’s lottery market has been recognised as competitive in several forums – most notably by Dutch competition authorities who vetoed a merger between three lotteries in 1999 on the basis that this would lead to substantial market concentration.16 While there is a state lottery, this does not dominate the market, which also supports a commercial lottery company and several charity lotteries. In 2010, the Staatsloterij accounted for around 44.7% of market revenues, compared to 39.9% for the charity lotteries run by Novamedia, and 15.4% for games run by the Lotto (SNS).17 6.2 Lessons from lottery markets abroad Evidence pertaining to charity lotteries in Europe, collected by economic consultancy SEO (2007)18 , suggests that where charity lotteries do operate they do not do so at the expense of state lotteries. A comparison of the growth in revenues for state lotteries in countries with and without charity lotteries between 1996 and 2006 that state lottery revenues grew more quickly in countries where state lotteries faced competition from charity.19 Rather than acting as substitutes for state lotteries, charity lotteries are complements. Regression analysis suggests that charity lotteries have a positive effect on the income of state lotteries: when charity lottery revenues increase by 1.0%, state lottery revenues also rises by 0.4%. Survey evidence suggests that many of those who play charity lotteries also take part in state lotteries: while 24% of people play state lottery games, this rises to 40% among those who play charity lotteries. Changes to legislation which improve access to charity lotteries thus expand the size of the lottery sector rather than cannibalising the share of the state lottery. This increases the total revenue of the sector. And, with higher total revenue, the value of the portion of profits generated for good causes also grows. While in the UK, there is a conception that a more successful charity lotteries sector could diminish the National Lottery’s revenues, the evidence from Spain, the Netherlands and Sweden suggests that charity and state lotteries are complements rather than substitutes. A 1% increase in charity lottery revenues in the Netherlands is found to be associated with a 0.4% increase in state lottery revenues. The analysis fails to find any significant relationship between charity lottery revenues and state lottery revenues in Spain or Sweden. This suggests that, rather than one reducing the revenue of the other, the two types of lottery can grow together.20 The implication is that measures to support the growth of charity lotteries in the UK is unlikely to hinder, and could even benefit, the National Lottery. The evidence from the SEO Research report also suggests that differentiation between charity lotteries in the Netherlands allows them to act as compliments, maximising the total funds available for charities. For example, different charity lottery brands, including the BankGiro Lottery which contributes to cultural causes and the FriendsLottery, which works with charities which promote health and wellbeing, 16 For example, see Kingma and van Liter (2006), Netherlands Competition Authority (NMa) http://www.nma.nl/en/documents_and_publications/press_releases/news/archive/2002/02_29.aspx, NERA Economic Consulting (2012), Assessment of Lottery Market Issues, Draft report for the National Lottery Commission, the Department for Culture, Media and Sport and the Gambling Commission. 17 Cebr analysis using data collected by NERA (2012) 18 Baarsma, Gerritsen and Leenheer (2007), Better chances for charity lotteries: study on the regulation of European lottery markets, SEO Economic Research 19 Spain, Sweden and the Netherlands are compared to the UK, Norway and Denmark. 20 Baarsma, Gerritsen and Leenheer (2007) © Centre for Economics and Business Research
22 operate successfully within the same market. This suggests that, in the right circumstances, further deregulation of the UK’s charity lottery sector could unlock further benefits for charities. © Centre for Economics and Business Research
23
7 Scenarios for regulatory change
This section of the report examines the potential impact of regulatory change on the support provided to
good causes by players of PPL. This is evaluated in light of the differences between the regulatory
frameworks facing society lotteries operating within Britain compared to those in other European
countries and with reference to the preferences of the Postcode Trusts to see UK regulations amended.
The analysis is based on the evolution of the seven Postcode Trusts in operation by end of 2013. Within
this section we consider three hypothetical scenarios:
1. Low deregulation: increase in the annual limit on proceeds to £50 million (from £10 million
currently) and the limit on individual draws to £20 million (from £4 million currently), combined
with the maintenance of prize limits at 10% of ticket sales.
2. Medium deregulation: increase in the annual limit on proceeds to £100 million (from £10 million
currently) and the limit on individual draws to £40 million (from £4 million currently), combined
with the maintenance of prize limits at 10% of ticket sales.
3. Base case: scenario under which all regulations remain unchanged.
Relaxing the regulations on revenue and prize sizes are expected to impact lotteries through multiple
channels. The relaxation of revenue constraints allows individual operators to grow relatively larger,
benefitting from economies of scale, increased administrative and economic efficiencies, and build-up of
knowhow and experience with Trustees and administrators as a result. To maximise the benefits of
relaxed revenue constraints this should be accompanied by the maintenance of a proportionate limit on
prizes, allowing them to grow in line with ticket sales. This stems from the fact that lottery demand has
been shown to be responsive to changes in prize sizes21, which suggests that to increase revenues
significantly lotteries would need to increase the prizes available to lottery players.
In order to evaluate the likely outcomes of a deregulatory scenario which involved the relaxation of prize
and revenue constraints, a number of assumptions have been adopted around the behaviour of the PPL,
the response of lottery players and the conditions within the market. These are summarised as follows:
A. PPL continues to operate seven lotteries on behalf of the Postcode Trusts.
B. Through expanding their operations, the seven Postcode Trusts will be able to reduce the
proportion of proceeds set aside for operating expenses from 35% to 30.3% in the case of the
low deregulation scenario and to 28.1% in the case of the medium deregulation scenario.22
C. Proceeds and prizes will increase at the same rate and will increase from their current levels in
proportion to the relaxation of prize and revenue constraints.
D. Under the base scenario, the seven Postcode Trusts expand until they reach the limits allowed by
current revenue and prize regulations, with proceeds distributed across good causes, operating
expenses and prizes in their existing proportions.
21
Research conducted by Cebr on behalf of the Lotteries Council and Institute of Fundraising demonstrated that 44% of society
lotteries believed lottery demand was either strongly or slightly impacted by prize size, with the remainder observing little or no
effect.
22
The changes in operational expenditure proportions are derived from changes in operational expenditures observed in
Sweden and the Netherlands as the postcode lotteries have expanded over time. These are explored further within the
Appendix.
© Centre for Economics and Business Research24
Based on these assumptions,
Figure 8 below illustrates the expected changes in the annual size and distribution of PPL proceeds.
Figure 8 – Potential size and distribution of annual PPL proceeds and additional revenues resulting from charity multiplier effects,
nominal £ millions
700
600
500
400
300
200
100
-
Base Low deregulation Medium deregulation
Prizes Operating expenses PPL grants to good causes Additional donations to good causes
Source: PPL annual reports, survey of society lotteries, Cebr analysis
Under the low deregulation scenario, with the increase in the annual revenue limits to £50 million, the
trusts would be expected to expand their proceeds in proportion to the increase in revenue limitations.
This implies an eventual increase in annual proceeds to £230.2 million. In order to generate sufficient
lottery demand to support this expansion, prizes increase to £100.5 million annually, while operating
expenses are projected to reach £69.7 million. However, as a result of the gains from improved
economies of scale, operating expenses are expected to fall to 30.3% of total proceeds. This leaves £60.0
million aside for funding to good causes, representing 26% of total proceeds. After the effects of the
charity lottery multiplier are considered this would be expected to result in total charitable contributions
of £162.0 million.
Under the medium deregulation scenario, annual revenue limits rise to £100 million. In response to this
PPL would again be expected to expand its proceeds in proportion to the increase in the revenue cap.
This implies an eventual increase in annual proceeds to £460.4 million. In order to generate sufficient
lottery demand to support this expansion, prizes increase to £200.9 million annually, while operating
expenses are projected to reach £129.2 million. As before, operating expenses are expected to fall as a
proportion of total proceeds due to advantageous economies of scale, reaching 28.1% of total proceeds.
This leaves £130.2 million aside for funding to good causes, representing 28.3% of total proceeds. Once
the charity lottery multiplier is taken into account, the medium deregulation scenario is expected to
result in £351.5 million in funding to good causes as a result of the operation of PPL.
The realisation of this growth in PPL ticket sales is of course dependent on numerous factors, not least of
which is the ability of PPL to increase its proceeds in a market with other operators. However, the size of
© Centre for Economics and Business Research25 the lottery sectors in other European countries compared to the population, as highlighted in Section 6, remains relatively small. This suggests there is ample scope for society lotteries to expand, generating greater funds for good causes and, as highlighted throughout this report and in the next section, without notable negative consequences to the National Lottery or to the ability of society lotteries to keep the lottery draws crime free and fair, while protecting the vulnerable. © Centre for Economics and Business Research
26
8 The impact upon the National Lottery
The preceding analysis in this report suggests that potential deregulatory measures could help the
society lottery sector and PPL in particular, to expand further, and continue to generate growth in the
amount of money going to good causes. However, concern has been expressed in the past that
deregulation in the society lottery sector could undermine the National Lottery and lead to a reduction in
the amount of money going to good causes through the National Lottery. Overall, there is little evidence
to support the notion that society lotteries undermine the National Lottery. For example, a 2012 report
by NERA Economic Consulting, commissioned by the Department of Culture, Media and Sport and the
Gambling Commission, did not find evidence to support an impact of the Health Lottery on the National
Lottery:
“We have not found evidence of a significant reduction in National Lottery sales as a result of the launch
of the Health Lottery.
“A plausible range for the impact on National Lottery sales is between £40,000 and £305,000 per week.
We cannot definitely rule out a more substantial impact, which might have been hidden by the volatility
of sales for some games, the substantially large size of Lotto and Euromillions sales, or reasons that
National Lottery sales would have been expected to increase. However, even if the actual impact were
significantly larger, it is still likely that the launch of the Health Lottery has increased the total amount of
money generated by lotteries for good causes.”
“Even under Camelot’s estimate of a decrease in sales of £1 million per week, the reduction in returns to
National Lottery good causes during the last three months of 2011 would have be less than half of the £8
million that the Health Lottery raised for its charities.”
- NERA Economic Consulting, 2012, “Assessment of Lottery Market Issues”
An overview of academic literature across a range of countries, included in the NERA report, shows that
the extent to which lotteries compete with each other can depend on a range of factors such as product
differentiation. In addition, the academic literature reports some evidence of complementarities –
where demand for one lottery boosts demand for another lottery. This is due to factors such as
marketing spillovers which occur when advertising boosts demand for rival products. Meanwhile, other
effects, such as improved cost effectiveness and greater drive towards professionalisation may also arise
from the introduction of new entrants into the market.
The recent financial performance of the lotteries sector would also support the case for greater society
lottery activity having little impact upon the National Lottery. As illustrated in Figure 9, over the period
2009 – 2012 society lotteries’ proceeds to good causes increased from £100m to £152m. At the same
time, proceeds to good causes donated by the National Lottery increased from £1.6bn to £1.95bn. This
© Centre for Economics and Business Research27
has occurred since the previous deregulation of the lotteries sector in 2008, suggesting that, contrary to
former concerns, the effect of deregulation has been positive, resulting in an increase in the income
generated for good causes.
Figure 9 - Proceeds to good causes, £m and National Lottery percentage of total
2,500 95%
2,000 94%
1,500 93%
1,000 92%
500 91%
0 90%
2009 2010 2011 2012
National Lottery Charity Lottery Sector National lottery % of sector (RHS)
Source: Gambling commission and National Lottery annual reports
© Centre for Economics and Business Research28
9 Social Responsibility
As has been referenced throughout this report, none of the measures proposed will inhibit the ability of
People’s Postcode Lottery or the Postcode Trusts to meet the their statutory obligations of ensuring
gambling is crime free, fair and open, and children and vulnerable people are protected. This key point is
evidenced by a social responsibility risk assessment of People’s Postcode Lottery23, which highlights that
PPL:
is rated as a ‘low risk’ game for vulnerable players;
does not appear to have any specific appeal for under-aged players; and
can be considered a very safe game in comparison to almost any other game currently on the
market.
In addition to this, from a sector perspective, successive gambling prevalence studies24 have shown a
decrease in problem gambling across Britain. For example, in 2010, an average of 1% of Britons who
gambled could be defined as problem gamblers. In 2012 this decreased to 0.4% in England, and 0.7% in
Scotland. This is particularly interesting given society lotteries enjoyed a modest relaxation in prize and
draw limits in 2009, which has in effect corresponded with a decrease in problem gambling. As such, this
reinforces the argument that further de-regulation within the society lottery sector, as proposed within
this report, would not lead to an increase in problem gambling.
23
See: Griffiths, M. (2010) A Social Responsibility Risk Assessment of the People’s Postcode Lottery. International Gaming
Research Unit.
24
See: National Centre for Social Research. (2010) British Gambling Prevalence Survey.
National Centre for Social Research. (2012) Gambling Behaviour in England and Scotland.
© Centre for Economics and Business Research29 10 Conclusions This report demonstrates the significant contribution made to the charitable sector by players of People’s Postcode Lottery. At a time when charitable giving remains under pressure, players of PPL provide crucial funding to a plethora of large and small organisations throughout Britain, equivalent to £10.2m in 2013, and already over £11m in the first 7 months of 2014. This funding is used for a variety of purposes, from supporting operational expenses to training staff and arranging specific events. Perhaps most importantly though, the grants that charities receive from the Postcode Trusts are often leveraged as a means to attract new funding, by hiring additional marketing staff or by running advertising campaigns. In 2013 we estimate that this effect would have enabled charities to raise an additional £17.3m in revenues. In addition to illustrating the contribution made by PPL players in support of good causes, this report also concludes that this contribution could be enhanced through a relaxation of the regulations facing the society lotteries sector. Society lotteries in Britain are much less developed than countries such as Sweden and the Netherlands where significantly larger funds are generated by charity lotteries for good causes. Under a high deregulation scenario the contribution of players of People’s Postcode Lottery could increase annual contributions to good causes from current level of £10.2m to as much as £130.2m purely as a result of the growth opportunities offered by a more favourable regulatory approach. A relaxation of regulations is not likely to impact negatively upon the National Lottery, as evidence from other nations and UK-focused studies shows. Rather, a stronger society lotteries sector, more able to capitalise on economies of scale and able to continue its current growth is expected to generate increased funding for good causes and ultimately at near zero cost to public finances. © Centre for Economics and Business Research
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