LotteriesontheInternet

31 October 2002

Kristina Walles




Amendment of the Swedish Lottery Act

As from 1 August 2002 the Swedish Lottery Act (the “Act”) has been amended to comply with technical developments by implementing special regulations regarding lotteries run using “electromagnetic waves” (the terminology used in the Act). This means that what are known as “popular movement organizations”, such as sports and interest organizations of various kinds, are given an opportunity to organize lotteries by the use of communication services such as the Internet, mobile telephones or similar. Permission to organize or mediate lotteries arranged by the use of “electromagnetic waves” may be granted in principle subject to the same requirements, which apply to traditional forms of lotteries.

Further information about the Swedish Lottery Act

The main participants in the Swedish gambling and lottery market consist essentially of the government, popular movement organizations and the horse racing industry. What are “popular movement organizations”? According to the Act, lotteries and gambling activities may as a main rule be organized by legal entities and non profit organizations, which aim to further public interest activities and which are dependant on incomes from such gambling activities to be able to carry out their activities and further the public interest activities. Such legal entities and organizations are known as “popular movement organizations”. According to the Act the government may in addition also grant special permits for other participants to organize lotteries and gambling under other terms and conditions than those stated in the Act. AB Trav och Galopp (“ATG”) (a lottery and gambling organizer with regard to the horse racing industry), and the state owned company, AB Svenska Spel (the main lottery and gambling organizer in the Swedish market), have both been granted special permits by the government to organize lottery and gambling activities in accordance with certain terms and conditions.

All incomes and profits from lottery and gambling activities must be to the benefit of public interests or the horse racing industry, with some minor exceptions. Commercial interests are permitted to some extent according to the Act. Casino activities at restaurants and lotteries and gambling activities at markets and amusement parks are, for example, permitted, but the terms and conditions, such as maximum stakes and winnings, are strictly regulated in the Act.

The Act regulates in principle all forms of lotteries. All types of gambling where the opportunity to win is dependent on chance such as betting, pools systems, tote, bingo, arcade machines, card games and roulette are considered to be a lottery. As a rule, all lottery organizers are required to apply for a lottery permit. Permission is normally applied for at the Lottery Inspection, which is a governmental authority, the County Administrative Council or the Municipal Council. Permission may only be granted if it can be assumed that the lottery activities are carried out in accordance with applicable law and in compliance with any certain instructions that may be given in connection with the lottery permit and in others in an appropriate way with regard to the public. As stated above, the government may grant special permission to organize lottery and gambling activities under other terms and conditions than those stated in the Act.

Because of the model and the regulations regulating the Swedish gamble and lottery market, European Community law concerning governmental monopolies and similar obstacles to competition is of special interest. In order for a monopoly or other similar obstacles to be acceptable according to European Community law it is normally required that such monopoly or obstacle should be justified in the light of the public interest. The European Court of Justice has in various cases ruled that monopolies are acceptable and justified in the light of the public interest if they aim to limit people’s desire to participate in lotteries and gambling activities, avoid risks of crime and fraud in connection with lotteries, limit commercial interests in lotteries and gambling and, allocate profit from such activities to charity or other non commercial interests of the public. The European Court of Justice has further stated that national authorities have a certain amount of freedom to decide the level of protection required in connection with lotteries and other forms of gambling with money.

Lotteries on the Internet often have connections to several countries. A situation where the organizer of the lottery has its registered office in one country, the business of the organizer is carried out in another country and the lottery server is situated in a third country is not uncommon. The Act applies to lotteries organized in Sweden. In assessing which country a lottery is considered to be organized in, it seems to be less appropriate to take the location of the technical equipment into consideration, since it easily can be moved and it may also be hard to determine where the equipment geographically is situated. Therefore, under the Act, the assessment of the country in which a lottery shall be considered to be organized shall instead be made in the light of where the main business of the organizer is carried out.

According to the Act it is prohibited to further, due to commercial interests, participate in lotteries and gambling activities organized outside Sweden. The government has considered implementing a permit requirement for lottery organizers, organizing lotteries on the Internet aiming directly at Sweden or to prohibit net operators to supply services to lottery organizers without permits. The government has, however, concluded that it would probably be hard to enforce a prohibition and has also identified several possibilities for lottery organizers to circumvent prohibition by e.g. engaging foreign net operators. The government has therefore decided that the reasons for adopting a prohibition of this nature are not sufficient at the moment.

Competitions instead of lotteries

Due to the Swedish legislation regarding lotteries many companies and other actors on the market, which are not allowed to organize lotteries, choose to organize competitions instead of lotteries in order to avoid application of the Act. For a competition to actually be considered to be a competition and not a lottery a certain amount of skill on the part of the participants is required. The opportunity to win a competition must actually be dependent on an individual achievement, such as writing a slogan or solving a riddle, and should not be dependent on chance alone. A competition may also be a combination of different elements, of which certain depend on chance and others on individual achievements. According to Swedish case law an arrangement is, however, as a main rule considered to be a lottery if the element of achievement precedes the element of chance and an arrangement is considered to be a competition if the element of chance precedes the element of achievement.