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Premium-rate phone operators will soon need a lottery licence

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Premium phone line operators will need lottery licences to operate from September, according to the Gambling Commission. The changes will affect many of the competitions that have attracted criticism in recent weeks.

New gambling legislation passed in 2005 but due to take effect in September of this year will clear up a longstanding ambiguity about what exactly constitutes a lottery, and experts have told weekly technology podcast OUT-LAW Radio that the new definitions will take in many television phone quizzes.

Those quizzes have been the subject of recent controversy as the multi-million pound premium phone line industry has come under scrutiny. Many television programmes, from Richard and Judy to Channel 4 Racing, from the X Factor to Blue Peter, have admitted that their competitions or phone votes have been misleading or conducted in error in recent weeks. Regulator Ofcom announced its own investigation today.

The companies behind those lines will soon face greater regulation than ever before. "If you look at a lot of the services they are generally operating in the realms of being games of chance, and any game of chance is technically classified as a lottery," said Scott Davies, founder and director of mobile phone game company Million 2-1, which does have a lottery licence.

"I think if you look at a lot of the call-TV shows at the moment which are blatant lotteries when you call in and get selected to go on air, you are going to have to get a real free route to enter, which obviously questions the commercialisation, or get a lottery licence and do them under the correct legislation," said Davies.

In its assessment of the new legislation the Gambling Commission identifies three things which have to be present in order for something to qualify as a lottery: there has to be payment to enter, there have to be prizes, and the award of those prizes has to be left to chance.

Those of the televised quizzes with questions so easy they do not involve any real skill do qualify as lotteries, the Gambling Commission said.

"Good examples are the TV quiz shows on dedicated channels which have sprung up in the last two or three years. Commonly, participants call to enter via a premium rate telephone number, all calls are connected and therefore all callers have to pay for the premium rate call, but only a limited and small number are randomly selected to be put through to the studio to attempt to answer the question asked or to complete a puzzle," said a commission paper on the new laws.

"All such channels will either have to stop operating altogether or operate under the provisions relating to lotteries, or ensure that they operate such that they fall within the provisions relating to either prize competitions or free draws," it said. "Prize competitions are those in which success depends, at least in part, on the exercise of skill, judgement or knowledge by the participants. This distinguishes them from lotteries, where success depends wholly on chance."

Being deemed a lottery could be a major headache for companies. A licence can cost £30,000, and 20 per cent of total income must be given away to charitable causes. According to Davies, there are also stringent background checks.

"In terms of getting that lottery licence the company goes under quite a lot of scrutiny, so the people behind the company, the directors, the shareholders, are monitored so if you have bankruptcy or any discrepancies that might make you a less than desirable person you won't get a lottery licence," he said.

Companies have two ways they can get out of having competitions defined as lotteries. They can either offer entry for free or attempt to turn the competition into a genuine game of skill.

"I suppose you can say if you want to take part in any of our programmes which take place on Wednesday evening at 7 o'clock then write in with your phone number and we'll call you, though I'm not quite sure how practical that would be," said Julian Harris, of Harris Hagan, a law firm specialising in gambling law.

"The other way would be to ensure that the first part of [the quiz] is dealt with on the basis of skill with skill based questions, or alternatively not to charge for the initial phone call, but of course that's rather difficult because that's where the income is generated."

Copyright © 2007, OUT-LAW.com

OUT-LAW.COM is part of international law firm Pinsent Masons.

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