The ins and outs of running a lottery

Konrad Monko is an attorney in the Gdynia office of Miller, Canfield, Paddock & Stone.

Have you ever been tempted to call one of those "audio-tel" phone contests advertised on billboards or late night television in hope of striking it rich? The questions are usually simple enough, designed to even entice cheapskates like me to part with a few złoty in exchange for a sure win, particularly when the advertised prize is zł. 20,000 and the cost of the call is only zł. 1 per minute. Is James Bond (a) Russian, (b) English or (c) Polish? Seems like a no-brainer to me. I think I will call and claim my prize. The cost of the call may be slightly more than normal, but with such a prize waiting for the lucky caller with the right answer, who cares!

But what happens if only 1,000 people call, and the average fee generated per call is only zł. 5? If the organizer only collects zł. 5,000 in proceeds, surely he won't make a profit if the prize is zł. 20,000. Perhaps the organizer should reduce the amount of the prize to

zł. 4,000 just to be safe. There's one small problem with this logic though. It's illegal.

The operation of an audio-tel contest is subject to the Randomized Gaming Act. In fact, our James Bond contest is classified as an audio-text lottery, meaning that the winner is selected at random by a computer or person, as obviously everyone knows that James Bond is English. This contest is treated as a lottery because the caller is charged to participate (cost of the call), which represents evidence of his or her participation, similar to the purchase of a lottery ticket. In order to operate an audio-text lottery, the organizer will first need to obtain a permit from the finance ministry.

But why is it illegal for the organizer of the James Bond contest to offer a zł. 4,000 prize compared to a zł. 20,000 prize? If it were a sure thing, I'd be happy to pay a few złoty to win the smaller prize, especially if I could call from work and charge the call to my employer. (Just kidding, boss.) The answer is that the prize to be paid cannot be less than the amount paid by any one contestant. A compulsive gambler, or someone like me who knows that James Bond is English, could very well spend zł. 4,000 or more to increase his chances of winning. The organizer of the contest would be violating the provisions of the Randomized Gaming Act if it took in more from a particular contestant than it paid out. Therefore, the zł. 20,000 prize figure represents a level of security to protect against any one caller from paying in more than is paid out. This amount is simply an arbitrary number that the organizer of the audio-tel contest will have to award in order to avoid running afoul of the law.

What other contests are subject to the Randomized Gaming Act? Many, including some that do not resemble a lottery in any shape or form. The next time you go shopping and one of those beautiful young ladies offers you a free glass in exchange for buying a six pack of beer, you may want to ask why the prize is so cheap. The answer is simple. In order to award a more expensive prize, such as a trip for two to Italy, the organizer must first obtain a permit from the finance ministry. Is it difficult to obtain a permit? Not really. The procedure takes about a month. The difficulty is in preparing a detailed set of bylaws for the contest, including the creation of an independent panel to attest to the honesty of the contest, and to provide for an appeal process for any disgruntled contestant.

The same applies to restaurant promotions. Many restaurants collect business cards from their diners, including me, and draw one or two lucky names from a fish bowl each month for a free lunch. Most likely, none of these restaurants realize that such a drawing constitutes a lottery, and as such requires a permit. Hopefully, they will not read this article, and I will continue to win free lunches. I don't have the heart (or appetite) to tell them that they are breaking the law.

Any other types of lotteries? Yes, take the example of purchasing a raffle ticket for a chance to win a new car. I can count the number of such lotteries here in recent memory on one hand. Why? Because not only is the organizer required to obtain the necessary permit, but even more importantly because the law prohibits the organizer from realizing a commercial profit on the contest. How can this be? First, the law stipulates that at least 30% of the proceeds realized from the contest must be awarded in prizes. Second, the total gross revenue realized from the sale of the tickets is subject to a 10% tax. Third, any "profits" realized from the contest must be designated for charitable purposes.

But what about the national Lotto? Does it pass its revenue to charity? Yes, to the government.

And by the way, the current James Bond is Irish, not English.