Lotteries Commission: The Beast Awakens

The panic:

ngoLAW has received a number of queries from non-profit clients concerned about notices received from the National Lotteries Commission (NLC) letting them know that their fundraising raffles or competitions are unlawful/unauthorised.

The under-resourced non-profit sector tends to feel aggrieved at any ‘new’ requirements imposed on them, as compliance is already burdensome, and we have had to point out that the law being highlighted by these notices is not new, but has been around since 1997. It seems, though, that the National Lotteries Commission (NLC) has awoken from some sort of slumber, and is staking its territory.

The law

The Lotteries Act defines a lottery as:

“…any game, scheme, arrangement, system, plan, promotional competition or device for distributing prizes by lot or chance…”

The Lotteries Act then goes on to specify in what circumstances a ‘lottery’ as defined may be conducted.

All lotteries which do not comply with the Act are prohibited as unlawful and those who conduct them are guilty of an offence.
Non-profits who wish to maintain their reputation and credibility and to avoid risk must take note of these requirements and ensure that they comply with them.

There are two types of lotteries which non-profit organisations may run without first having to register with the NLC:

1. those which are ‘incidental to exempt entertainment’ (which we will call “Exempt Entertainment lotteries”) and
2. “Private Lotteries”.

The options:

Please have a careful look at the identifying features of each of the options, so that you may check whether the fundraiser you want to run qualifies as one of these.

Lotteries that are incidental to exempt entertainment or which are private lotteries are essentially self-regulated. Organisers do not need to register with the National Lotteries Commission or report to the commission. But they do need to observe the rules to stay within the law.

If, however, the competition/raffle you are planning does not satisfy ALL of the requirements of either an Entertainment or a Private Lottery, then you may have to look at making an application to the NLC to register a “Society Lottery”.

1. Exempt Entertainment Lottery:

To qualify as an ‘Exempt Entertainment’ lottery, your fundraiser must abide by ALL of the following:

EXEMPT ENTERTAINMENT LOTTERY:

1. The lottery must be conducted as part of some event or ‘entertainment’ ( a bazaar, sale, fête, dinner, dance, sporting event or other entertainment of a similar character);
2. All proceeds of the entertainment, including the lottery, must be used “for the benefit of any deserving section of the public”.
3. Expenses that may be deducted before using the money for a deserving cause are restricted to:
   1. The expenses of the entertainment, including those related to the lottery;
   2. The expenses of printing lottery tickets and advertising the lottery; and
   3. The cost of purchasing lottery prizes.
4. None of the prizes in the lottery may be a money prize;
5. The total value of the prizes may not exceed R5 000,00;
6. The total value of tickets sold may not exceed R10 000,00; and
7. The price of a single ticket may not exceed R10,00.

2. Private Lotteries:

This sort of lottery is not likely to be conducted by a non-profit to raise funds, as it is one in which a closed group of people participates and benefits, but the requirements for this are:

PRIVATE LOTTERY:

1. Participants and beneficiaries are all part of the same closed group: social/sporting club, co-workers, residents on same premises
2. If it’s a private lottery run at a sporting or social club, the governing body of the club must authorise the lottery in writing.
3. The price of a single ticket may not exceed R10,00
4. The total value of all tickets available in a single lottery may not exceed R10 000,00.
5. The total value of prizes may not exceed R10 000,00.
6. No written notice or advertisement of the lottery may be displayed except:
   1. on the club premises;
   2. on the property where participants work or reside;
   3. on the lottery tickets; and
   4. no ticket may be sent through the post.
7. The organiser of the lottery must be a member or the club or society and authorised in writing by the governing body to run the lottery.
8. No management fee or expense allowance may be deducted from lottery proceeds. The only deductions allowed from the amount raised are for printing, stationery and notices.
9. The income from the lottery must be used entirely for prizes or divided between prizes and the club fund.
10. The maximum number of lotteries run by any club, workplace or residential entity is 12 a year.

IF YOUR FUNDRAISER IS NOT ONE OF THESE:

OPTION 3:REGISTER AS A SOCIETY LOTTERY:

Society lotteries are competitions organised to raise funds from the public for various non-profit organisations.

A short summary and explanation of what the Act says about this:

SOCIETY LOTTERY:

1. The lottery must be conducted entirely within South Africa;
2. The organisation benefitting from the lottery must be registered under the NPO Act;
3. The organisation benefitting from the lottery must not be connected with lotteries, gambling or betting;
4. The lottery must be conducted in accordance with a “scheme” – or plan – that has been approved both by the organisation and the National Lottery Commission;
5. The maximum value of tickets to be sold in a single society lottery is R2 million;
6. The total value of prizes may not exceed R1 million per year per organisation;
7. The total proceeds, after deduction of permissible expenses (up to 15% of proceeds where proceeds are under R1 million, and up to 10% of proceeds where these exceed R1 million) and the cost of prizes, must be used solely for:
   1.  the charitable purposes for which the organisation is authorised to collect funds;
   2. support of sport or cultural activities for which the organisation is authorised to collect money; or
   3. other non-commercial or not-for-gain purposes approved by the National Lotteries Commission;
8. Tickets for the lottery can only be advertised, marketed, promoted or sold in a prescribed area;
9. The lottery may not be advertised, marketed or promoted jointly with any other society lottery, nor may funds for prizes be combined with any other lottery; and
10. The lottery must be conducted strictly in accordance with the rules set out in Section 53 of the Lotteries Act.

SUMMARY:

For fundraising by non- profits, the general rule then is that:

• If you are holding a fundraising event and, as part of that event, you have a competition/raffle/lottery and do not sell tickets for more than R10 000, and stick to all of the other rules for an “entertainment’ lottery, you do not have to register with the NLC; but
• If the competition that you wish to run to raise funds involves bigger prizes/higher ticket sales than permitted, then you will have to apply to register as a Society Lottery. The application to register must comply with the detailed requirements set out in the Lotteries Act. They are tedious, but not insurmountable, and we are able to advise on whether the application is required and assist with assembling and lodging these applications.