Best of the Best (BOTB): Regulatory threat: is BOTB spot-the-ball gambling?

Would welcome any thoughts on the threat of adverse regulatory changes to BOTB.

It’s something I did not look at within my BOTB SharePad article, and social-media threads such as this suggest the topic is overlooked by others as well.

The risk is cited within BOTB’s annual report:

"Regulatory change

The Company and Group currently operate weekly skilled competitions, which are not regulated. This could be subject to change in the future and the Company and Group continue to seek appropriate legal advice to ensure they comply with all relevant legislation and licensing."

BOTB’s FAQs explain why the spot-the-ball competitions are not regulated.

What is Spot the Ball and why do you use it?

We are legally obliged to use a game of skill to determine the winner of our competitions – not simply a lottery or raffle. We use ‘Spot the Ball’ as it’s widely recognised, fun and an easy way to enter. You will be shown a photograph that does not contain a ball.

Why don’t you use the original ball position to decide the winner?

The basis of the game must categorically be the skill of an entrant versus the skill of professionals – not versus the chance that the original spot on the football picture is picked. It is a subtle but important legal definition by which we are bound to operate.

The Gambling Commission confirms spot-the-ball competitions can be exempt from the Gambling Act 2005 if they are “genuine prize competitions”:

Is your spot the ball scheme a prize competition?

Your spot the ball scheme could be a prize competition.

To be a prize competition, there must be an element of skill, knowledge or judgement that is likely to prevent a high proportion of people from taking part, or prevent a high proportion of people winning a prize.

For example:

If a panel of judges decide the position of the ball and players have to apply judgement, skill or knowledge to match their own decision of where the ball is with that of the panel, it is more likely to be a prize competition than a lottery.

Genuine prize competitions are free from statutory control under the Gambling Act 2005… and therefore do not require a licence."

The “element of skill, knowledge or judgement” definition within spot-the-ball competitions is critical for keeping BOTB’s games unregulated.

But questions could be asked:

  • Competition winners do not necessarily require any "skill, knowledge or judgement" to actually win. How many BOTB winners would genuinely say they won due to "skill, knowledge or judgement" rather than being plain lucky?

  • If BOTB’s games require an element of "skill, knowledge or judgement", then the more skilful players should have better records than less skilful players. Does BOTB have evidence to show that is actually the case? Has anyone won more than one BOTB competition?

  • Participants can buy up to 75 tickets per BOTB competition. Would anyone apply the same level of "skill, knowledge or judgement" on their first spot-the-ball attempt as they would on their 75th? Purchasers of multiple tickets could instead adopt a simple ‘scattergun’ approach, where the element of "skill, knowledge or judgement" involved would not be obvious.

Maybe those questions were asked in a court case involving Sportech and HMRC. This BOTB update during 2018 said:

“As a result of the outcome of the Sportech claim and the submission to HMRC, the Board also notifies shareholders that, under the guidance of its tax advisers and in order to adhere to the new tax rules governing “Spot the Ball” competitions, which are no longer subject to VAT, the Company has now registered for the payment of Remote Gaming Duty (“RGD”). The payment of RGD, as opposed to VAT will result in the payment of higher taxes and will negatively affect the Company’s operating margin.”

The Sportech vs HMRC case centred on whether spot-the-ball was a game of chance or skill. Sportech argued it was a game of chance, and so should be exempt from VAT:

“The central thrust of [Sportech’s] claim was that it was incorrectly charged VAT on Spot the Ball as it is a game of chance and not a game of skill. Games of chance are free from VAT.”

It also held that STB was a game of chance since, however skilful a competitor might be and even therefore if he had superlative skill, the most that skill and judgment could do was to estimate the ball’s approximate position, so accordingly the game was one of chance.

The case went to appeal and the verdict overturned, but then went to another appeal and the initial verdict was reinstated.

“The First Tier Tribunal found that Spot The Ball was a game of chance and made no error of law in making that finding.’”

So according to the courts, spot-the-ball is a game of chance.

But according to the Gambling Act 2005, spot-the-ball is a game that requires an “element of skill, knowledge or judgement.

BOTB currently pays Remote Gaming Duty to HMRC. Is such taxation commensurate with running genuine skill-based prize competitions?

The Gambling Act 2005 is under review:

“As with the rest of the economy, gambling has changed enormously in the last 15 years, with smartphones giving opportunities to gamble online almost anywhere and at any time, fast-paced innovation in product design and advertising, and new opportunities to harness technology for the protection of players. The Gambling Commission has broad powers to set and enforce licence conditions, but in recent years a number of high profile enforcement cases have raised concern that too many people are still experiencing significant harm. We want to look at whether our regulatory framework is effective and whether further protections are needed.”

While the consultation questions did not specifically mention spot-the-ball competitions, a review of the Act may well ask whether the associated "skill, knowledge or judgement" exemption still holds true.

Maybe the review will take the same ‘game of chance’ view as the courts (and now HMRC).

Arguably the present Gambling Act rules were drawn up with the old-style newspaper competitions in mind for a bit of reader fun…

…rather than for dedicated spot-the-ball businesses selling up to 75 tickets a pop online.

Regulatory changes to spot-the-ball competitions could mean greater marketing restrictions for BOTB, with a possible knock-on impact to growth rates and profits.

I note 17-year-olds will no longer be able to buy a £1 lottery ticket from October this year… but can continue to purchase up to 75 tickets at £5 a go to win a supercar at BOTB!

All views welcome.

Maynard

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hi Maynard

I think the regulatory threat is real given the current Government Gambling Review.

I have never understood how a spot the ball competition could be considered a game of skill and should the review change its view it would completely undermine the BOTB model.

The Gambling Commission have been undertaking a betting review on horseracing in recent months. One of their proposals was to require bookmakers to undertake financial checks on punters once the punter loses £100 in a month! Such checks would require the punter to provide financial evidence of affordability (bank statements, pay slips etc) in order to continue betting.

This has caused an avalanche of complaints both from bookmakers and punters alike. The Racing Post (the horseracing bible) was inundated with negative feedback which was all passed on to the Gambling Commission.

The upshot of this was that the affordability aspect of the Gambling Commission review has been taken over by the wider Government review of gambling. The Goverment seem to have now grasped the point that there is a huge difference between betting on horseracing (effectively a game of skill) and betting on FOTB’s (Fixed Odds Betting Terminals) which are simply cash cows for the industry. Disciplined punters can and do win over time betting on horses but no one can win over time betting on FOTB’s.

So where does this leave BOTB? Yes you can win a big prize on BOTB but 99.99% of the time you will lose. Compare that to betting on horses where the average bookmaker’s margin (called overround) is around 15% which means an average recreational punter will lose over time around 15% of his stakes. So which activity has the greater level of skill required to be able to win / minimise losses? (that’s a no brainer).

A major consideration for the Government is that if they enforced draconian financial checks on horseracing punters they would drive away a lot of business (and hence tax revenue) as many punters would simply prefer to give up than comply with the intrusion and hassle of regular financial checks.

BOTB are not currently restricted from selling tickets so anyone can buy well in excess of £100 worth of tickets without any financial checks should they wish. Add that to being able to freely buy tickets from competitor draws (eg Omaze) and all the various lottery organisations and this can become a far bigger gambling concern that recreational horserace betting.

For all the above reasons I have avoided BOTB even though the financials are very appealing. Personally I dislike this type of businesses almost as much as Maynard despises vaping! I find them morally unappealing.

Finally by way of disclosure I should add that I have had a lifetime interest in horseracing and for 15 years I was a (successful) professional gambler on horseracing. I am no longer as active as I was due to an inability to get my bets accepted. Now that’s a whole new story for another day.

Snazzy

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Hi Snazzy,

I think the definition of spot-the-ball being a game of skill may hark back to the old newspaper competitions, and a way of giving newspapers an exemption from onerous gambling regulations for what was a simple fun competition for readers.

Clearly things have moved on, with BOTB using this regulatory ‘exemption’ to create a significant business. But as far as I can tell, the courts in 2018 decided spot-the-ball was a game of chance to contradict the Gambling Act 2005. So there is a mismatch here, which could well even itself out if the Act is amended to follow the court decision and, as you say, completely undermine BOTB.

Thanks for this useful information. I would agree these proposed checks are over the top, but they do signal the direction of travel the Gambling Commission and government are taking.

When I looked at BOTB for SharePad I was a fan, and could easily understand why the punters were attracted by the winner videos on the website. But now I am not so keen after looking into the regulatory situation. The larger BOTB becomes, the greater the risk somebody looks more carefully at the spot-the-ball exemption.

Maynard

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I spent quite a lot of time researching BOTB in 2018 at around the £2.50 level, and I didn’t pull the trigger for the exact reason you’ve outlined above.

This hasn’t turned out particularly well so far!

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Regulatory threat?

What is often missed is that when a dominant incumbent within a particular market with low/non-existent barriers to entry is faced with regulatory restrictions it is often to their long term benefit.

BOTB may be consulted on the issues… dragging out potential regulatory process for some time.
BOTB may/will suggest their own ideas which will be to their advantage

New entrants into the market now have additional barriers to entry making the business case more problematical.

For sure, short term investors will lose out but long term investors should welcome regulatory changes (provided BOTB is not forced out of business!)

Carcosa (not a shareholder)

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If we assume Spot the Ball wasn’t considered a game of skill (previous Sportech overturned in the courts…): the implications would be VAT would have to be charged (and the previous VAT reclaim returned?) and what duty would have to be paid …a Lotto duty ?

Given the numbers involved I doubt Spot the Ball is front and centre of any Gambling Review, in fact when playing the BOTB competitions as the outcome is not instant it’s a lot less addictive compared to Sport Betting (bet in play!), Online Casinos and even scratch cards.

I think the most likely change to Gambling regulations is better protection on u-18s (more checks in place etc.) and the Remote Gaming Duty is increased (21% to 25% )

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An excellent article as always Maynard which goes along way in explaining the apparent contradiction between the decision of the court which treats spot the ball as a game of chance for VAT purposes but excludes it from gambling regulations under the Gambling Act.

Addressing your three questions in turn.

To be a prize competition and so fall outside the scope of the Gambling Act there must be an element of skill, knowledge or judgement but you question whether any of these attributes are necessary to win the BOTB spot the ball competition. Chance always plays a role in life whether it be in the outcome of a game of football or which share picks will do well. Pep Guardiola and Warren Buffett are highly skilled in their respective fields and will produce better results in the long run than most despite the existence of chance. In the case of spot the ball for Gambling Act purposes only an element of skill, knowledge or judgement is required.

You ask is there any evidence that more skilful players do better in the BOTB competition than the likes of me and has anybody won it twice? I imagine BOTB could produce data to support the argument that some players do better than others. I’ll ask this question next time I meet them. As it happens I have a very poor record in the BOTB competition. Thankfully, I have done better as an investor in BOTB than as a player.

I recall there was a husband and wife who each won the competition a few years ago spaced out by a few months.

You suggest that players who buy the maximum number of tickets might adopt a scattergun gun approach and spray their pixel choices around the image and win by luck. On the contrary the most skilful players appear to concentrate their pixel choices into those areas of the image where they have most confidence. Selecting the correct pixel chosen by the professionals is probably a matter of chance but choosing the approximate area where the winning pixel is located involves skill.

If BOTB were to be caught by the Gambling Act then regulatory related costs would be higher and there might be some restrictions or limits placed on weekly spend (an outright ban on advertising is unlikely).

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Thanks Gavin. Reassuring to know somebody else has looked at this, as I did wonder if I had got things mixed up!

Maynard

Hi Carcosa,

Good points. Terry Smith has talked about tobacco companies being a beneficiary of much greater regulation over time. All of course depends on the level/effect of any regulation implemented. I raised the subject as I was not sure of the situation, and invited views.

I think the ‘additional barriers to entry’ investing approach would be something to consider if it ever becomes clear BOTB has to operate under new rules, but perhaps not before.

Maynard

Hi Leamas

Thanks for the message and welcome to the forum.

The courts ruled spot-the-ball is a game of chance, so VAT is not payable. HMRC gave BOTB its VAT money back and now charges the company Remote Gaming Duty instead. The court ruling appears definitive to me, so I can’t see a situation where VAT reclaims will have to be returned.

Yes, you are probably right that the Gambling Review will not focus huge attention on spot-the-ball. So maybe all this is something about nothing. I raised the subject as there did seem to be a mismatch between the court’s view and the Gambling Act’s view of spot-the-ball, and invited views.

Maynard

Hi Leon,

Thanks for the message and welcome to the forum. All good points. Just taking these two…

Might be worth asking about the regulation situation in general! One could argue some punters do better than others with horse racing, but such betting is not exempt from the Act.

I guess this is the crux of the matter – the “element of skill, knowledge or judgement” required to get to the approximate area. I would venture most people looking at the photo can pinpoint the approximate area by looking at the players’ eyes etc, so the element of skill required to get reasonably close is not great.

As the article I linked to in the original post wrote:

It also held that STB was a game of chance since, however skilful a competitor might be and even therefore if he had superlative skill, the most that skill and judgment could do was to estimate the ball’s approximate position, so accordingly the game was one of chance.

Anyway, we shall see what happens. I raised the subject as there did seem to be a mismatch between the court’s view and the Gambling Act’s view of spot-the-ball, and could not find any shareholder views on the matter.

Maynard

Thanks Maynard - appreciate the thread and your contribution to the investing community.

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Don’t forget BOTB have introduced the Weekly Lifestyle competition which less contentiously fits the “Prize competitions” category according to the Gambling Commission. It would be interesting to see how well this is doing in terms of its contribution (In my limited experience I’ve played it more often for reasons stated below).

I know sentiment and political will has changed over the years, and there is a Gambling Review being undertaken currently. But the “Regulatory change” statement has appeared in every annual report from 2016 onwards - so management and shareholders are aware.

I’m not a legal expert but having played the Dream Car competition a few times I’ve done rather poorly. Since I am a lucky person it does suggest to me that I’m not very skilful at this game - and I tend to avoid it as above.

I agree with Boros10 with regard to the skilful concentration of entries in high confidence areas. If you’re playing tennis or snooker - depending on how good you are you put the ball into an area - and if you’re very good you put it exactly where you want it (of course sometimes you cannon the blue or hit the umpire) - but there is a range of confidence associated with the positioning. I’m not suggesting that Spot the ball requires the same level of skill! However none of my entries have even been close enough to the area (Zone 1) where a pixels-width of good luck would make a difference to me.

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Hi dcfn,

Thanks for the message and welcome to the forum.

Good point on the risk statement being published since 2016. Just that I could not find/recall any private-investor discussion on BOTB’s regulatory situation, although maybe it was all addressed back in 2018 when the VAT court decision was made. Hope your luck/skill improves soon for future games!

Maynard

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This is an excellent topic of discussion. If I take the view of Dr Skeptic.

  1. Most BOTB punters lose money. It needs to be regulated as such a reality. With gambling I can place a bet and if I am right I can win and the odds may be bad but not this bad ! Outside of the only 1 winner per competition, everyone else loses over time because you can only in normal weeks win as much as you put in if you are reasonably accurate. I do not think you can withdraw dream car credit in normal circumstances. So nearly every single player is paying to win nothing.

  2. BOTB is not at all transparent in how many people play the game. Even raffle sites are transparent on this by definition. BOTB are not, and regulators hate when there is not transparency. We saw in CFDs that businesses were forced to tell punters what percentage of them lost money (often 75% or more).

  3. These growth areas I think will be exactly what the Gambling Act review should look at. The whole point is to look at what has changed in the market with digital gaming and correct for poor oversights and controls and lacking regulation. These online games where I can right now go and spend £500 should 100% be in the eyesight of the regulators. If I can only spend £2 on a fixed odds betting terminal, why should I be able to stake hundreds of pounds digitally in seconds with a miniscule chance of ever getting it back? Why should I be able to do that twice a week (two car competitions and lifestyle).

  4. How long until punters cotton on they are not going to win? Lots of poor folk genuinely think they are going to win BOTB and spend £50 week in week out for years and years and years. In youtube videos they genuinely think they can win it. Like anything the odds are tiny and “skill” can only get you so far. If you line up the eyes of the players than is 90% of the equation and then it is luck of where the judges pinpoint. It is not spot the ball, it is spot the judges average.

  5. The problem with any regulation is that it maybe only gets tighter over time. Regulators want to squeeze supernormal profits away and encourage responsible behaviours by operators.

  6. For an element of skill to be valid in spot the ball, I believe that there have to be a significant number of losers each week to present the evidence that it is skill and not just an easy question. So there is a principal-agent conflict in my view where if players get smart, BOTB might have to start thinking about ways to increase the number of losers (maybe smaller zones?)

  7. If you hit the exact pixel, if someone else hits it then you have to do a tie-break off your next pixel or a tiebreak picture. It’s proposterous really. There are so so many pixels and even if you strike lucky and hit the one you may lose the jackpot ! The runner up in this is pittance in comparison. I think this is why they blew up the number of pixels per zone recently but it is not good practice

  8. Like the national lottery, outside of the middle few who play for fun, I believe this sort of game is a tax on 1) the poor that think they can actually win, and 2) the rich who like to spend money on low probability events to spice up their life. Unlike the lottery, the proceeds go into shareholder pockets, not a charity.

All of this is why I cannot own a business like this. It does not sit well with my moral compass. The videos sell a dream that 99% of players will never get and instead they just lose money.

Query for others

  • Why does the UK not tax gambling winnings like the US?
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hi stonkandshares

Excellent post. I’d just add one thing.

The UK ended tax on gambling winnings in 2001. This was good for the punter and the industry as it gave the more serious and disciplined punter a more realistic chance of turning a profit. It was also a boost for the industry and although the Government then lost out on betting tax receipts this was more than compensated by increased corporation tax receipts.

More fundamentally, tax on gambling winnings was largely a tax on gambling losing punters and not winning ones since almost all recreational punters over a full tax year were (and always will be) net losers. Since there was no set off for losing bets they still had to pay tax on every winning bet. Therefore it simply taxed the wrong people and was both very unpopular and grossly unfair.

The flip side is that if you introduce a tax solely on net winning punters you open the way for tax refunds / adjustments for losses which becomes another whole can of worms. So on balance to remove the tax entirely was the simplest and right thing to do.

Snazzy

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Great points,

Re: transparency I don’t see any reason why they shouldn’t publish this for their quiz type competition - it would have to show total entries, total correct entries and odds of winning if correct. This should be easy to calculate.

I think it would be harder to quantify the odds of winning the spot-the-(judges interpretation of)ball competition. Here is an interesting post with some numbers:- (the whole site seems geared up as a referral to BOTB mind)

https://spotandwin.co.uk/botb-odds-of-winning/#:~:text=And%20as%20the%20maximum%20number,down%20to%2030*30%20pixels

The £2 FOBT stake is only per spin so it is still possible to lose a lot of money (just nothing like what was previously possible) - it’s hard to imagine a time when it was £100!

Re: the moral situation I have (so far) avoided investments in gambling sites, it doesn’t seem to me to have the same characteristics of a gambling site in terms of the addicting nature of their games -although the total possible spend is quite high. It would be good to set self imposed limits.

Disclosure: I hold shares, and have only played the games as part of research!

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Hello Maynard,
I have enjoyed your discussions and those of others on BOTB but whilst the company has flagged up the Gambling Act and its potential on the business, I really do the risk here is being overplayed. I have personal experience of dealing with HMRC.
In the 1990’s along with Deloittes, we argued that I was able to bet on horses and not be subject to tax on those winnings, at a time when all winnings were taxable…This was a first in the space and whilst we did not celebrate the success, we did not boast about it either, as at that time everyone had to pay tax on their winnings.
We had a letter from HMRC which stated the case we had was personal to me and was not a precedent transferrable to anyone else.
Deloiites, obviously, charged me a large fee for their services. However, having looked at the Spot The Ball activities in detail, I am of the view that BOTB and its competitions are not really where the sharp end of the Gambling review is concentrating, rather, we have to look at the way traditional bookies have been to be allowed to rip punters off, exploit punters and manipulate regulation to their advantages… We have all read the high profile cases where the likes of Ladbrokes and others have allowed Finance directors of companies to wager stupid sums of money on sports and horseracing, given the VIP treatment etc and then been forced to repay those losses back because they did not complete proper checks on the punter losing several hundred thousand of pounds.
Any regulation on the vultures , known as the big bookies will be welcome but in my view regulation on the guys who bet small and regularly , whether it be horse racing, spot the ball, is not where the Gambling review are focused. The threat may be there but its about stopping the vultures ripping off punters an exploiting vulnerable punters , whose habit is out of control…BOTB can easily spot any player whose ‘betting or playing’ is out of controlan therefore, your article whilst intelligent , is welcome to me as it just allows me to buy more shares in BOTB at lower prices.
Furthermore, BOTB has players in overseas jurisdictions whose regulations are non existant or less sproblematic and the margins enjoyed by BOTB are such that even if their margins are reduced their profits will still be substantial and growing for some years yet. Thank you . BA

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hi Buenosaires

Thanks for your informative input and congratulations on your personal victory over the taxman.

The Gambling Commission, in their review proposals, were intent on implementing financial checks on anyone losing £100 in total in a calendar month. I acknowledge this has now been taken over by the Government Gambling Review and may well be either watered down or kicked into the long grass. However it confirms that the ‘small and regular’ punters were very firmly in the Gambling Commission’s focus and it remains to be seen whether the Government Gambling Review subsequently decides to implement something similar but less draconian.

I think this is still very much a live issue.

Snazzy

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Hi Buenosaires

Thanks for the message and welcome to the forum. All good points. Just taking this one…

Yes, the spot-the-ball is a small part of the gambling industry and the Review’s objectives and scope do not suggest BOTB’s competitions are top of the agenda – although the Review does say the scope will be “wide ranging”. Here are the published objectives and scope:

Objectives of the Review

  1. The government is reviewing the Gambling Act (2005) to ensure our regulatory framework can protect children and vulnerable people, prevent gambling related crime, and keep gambling fair and open in the digital age. Through this Review, the government’s objectives are to:

15.1. Examine whether changes are needed to the system of gambling regulation in Great Britain to reflect changes to the gambling landscape since 2005, particularly due to technological advances

15.2. Ensure there is an appropriate balance between consumer freedoms and choice on the one hand, and prevention of harm to vulnerable groups and wider communities on the other

15.3. Make sure customers are suitably protected whenever and wherever they are gambling, and that there is an equitable approach to the regulation of the online and the land based industries.

Scope

  1. To deliver these objectives, the Review will be wide-ranging in scope. It will have particular regard to:

16.1. The protection of online gamblers, including rules to minimise the risks associated with online products themselves, and the use of technology to support harm prevention

16.2. The positive and negative impacts of the advertising and marketing of gambling products and brands

16.3. The effectiveness of our regulatory system, including the Gambling Commission’s powers and resources to regulate and keep pace with the licensed market and tackle unlicensed operators, and funding flows from the industry to the regulator

16.4. The availability and suitability of redress arrangements for individual customers who feel they have been treated unfairly by gambling operators

16.5. Children’s access to Category D slot machines, the effectiveness of age controls, protections for young adults, and the age limit for society lotteries (currently available to 16 and 17 year olds)

16.6. The outcome of changes to the land based sector introduced in the Gambling Act 2005, particularly for casinos, and whether they are still appropriate in a digital age

Mind you, I am still not clear as to:

a) Why the Gambling Act should continue to view spot-the-ball competitions as a ‘game of skill’ – and therefore keep BOTB outside of regulation – when the courts have given a definitive verdict that spot-the-ball is a ‘game of chance’.

b) Why should this apparent mismatch persist over time?

I would be happier assuming the Review would not look at spot-the-ball if I had concrete answers to those questions!

Going back to the Gambling Commission, which says:

Genuine prize competitions are free from statutory control under the Gambling Act 2005… and therefore do not require a licence.

The Gambling Act 2005 says the following about prize competitions:

339 Prize competitions

Participating in a competition or other arrangement under which a person may win a prize is not gambling for the purposes of this Act unless it is—

(a)gaming within the meaning of section 6,

(b)participating in a lottery within the meaning of section 14, or

(c)betting within the meaning of sections 9 to 11.

Section 6 of the Act says:

6 Gaming & game of chance

(1)In this Act “gaming” means playing a game of chance for a prize.

(2)In this Act “game of chance”—

(a)includes—

(i)a game that involves both an element of chance and an element of skill,

(ii)a game that involves an element of chance that can be eliminated by superlative skill, and

(iii)a game that is presented as involving an element of chance, but

(b)does not include a sport.

Which all seems to me to define spot-the-ball as a “game of chance” and therefore “gaming”.

Anyway, I don’t know whether the Review will look at spot-the-ball or indeed whether this is all something about nothing! We shall learn more when the Review is concluded later this year.

Maynard

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