It is not often appreciated by many lotto syndicate members that a syndicate, whether formed with colleagues at work, acquaintances at a pub or family members and whether written or oral, is an agreement that is enforceable through the courts system. Should one member of a syndicate dispute a term of the agreement – for example a term relating to what share of the winnings that he or she is entitled – that member may be entitled to an order preventing the a lottery from paying out the prize winnings until the syndicate dispute is settled. This could result in expensive legal proceedings and could mean that members of a syndicate would not receive their share of the winnings for a long time. The costs of such proceedings could also have the effect of substantially depleting each member’s share of the winnings.
You may have read that the US lottery jackpot was recently won by an individual who scooped an incredible $590m! The chance of winning this was 1 in 175 million. Setting up a lotto syndicate however is a great way to increase one’s chances of winning lottery prizes.
It is sometimes not appreciated that there might be significant tax consequences for syndicate winners in the absence of sufficient evidence to show that a syndicate agreement did in fact exist between them. Lottery winnings are received by syndicate winners tax free, however, gifts from individuals to others are not and are subject to capital acquisitions tax which currently stands at 33% where the gift exceeds a tax free threshold particular to the relationship between the donor and the donee.
Having a written syndicate agreement in place should also be of concern to employers where syndicates are formed amongst employees. Disputes between employee syndicate members could lead to a breakdown in important business relationships and could lead to disruption of business with a consequent unnecessary loss to the employer.
There have been many publicised court disputes between syndicate members that could have been avoided if the agreement between the members had been reduced to writing.
Recently in March 2013, it emerged that members of a UK syndicate comprising 16 colleagues won GBP £1,000,000 in the Euromillions draw. A dispute arose in relation to three members who did not contribute to the purchase price of the winning ticket. History does not relate whether the remaining members of the syndicate covered the cost of the non-contributors’ share of the ticket purchase. Notwithstanding this, the three colleagues in question argued that they were entitled to a share of the prize money.
Generally, lotto syndicate agreements provide for what happens when a member fails to contribute to a draw entered into on behalf of the syndicate. A well drafted syndicate agreement should provide that failure by a member to contribute to the purchase price of a ticket for a certain number of consecutive draws would disentitle that member to a share of a syndicate’s win in any draw subsequent to the stipulated number of draws to which the member did not contribute. The question also arises as to whether or not the member’s portion was paid for and by whom. If it was paid for by the person who actually purchased the ticket, does this mean that they are also entitled to what would have been the non-contributing member’s share? There was no written lotto syndicate agreement between the members in this case however and a much publicised dispute ensued amongst the syndicate members.
The 16 individuals concerned all worked in the Driver and Vehicle Licensing Agency in Swansea where there were over 5,000 staff. Senior Officials of the DVLA were engaged to resolve the dispute and there was major disruption of business as a result. It was alleged that at one stage there was an altercation between a number of the syndicate member workers and that security had to be called to diffuse the tension.
It appears that the DVLA dispute may have been resolved but as the workers in question signed a confidentiality agreement, the exact outcome is unclear. What is clear however is that the absence of a well drafted agreement resulted in very serious disruption to the business of the DVLA with inevitable knock-on cost.
As will be seen from the foregoing example, in order to ensure the seamless and immediate payment of tax-free lotto winnings to syndicate members a formal agreement setting out all of the essential terms should be put in place and signed by all syndicate participants. Such an agreement should include the following terms:-
- The date of the agreement;
- The appointed manager’s name – the appointed manager is responsible for creating and maintaining the syndicate agreement, collecting funds from each player, keeping a record of payments, purchasing tickets, storing the tickets safely, checking the tickets to see if the syndicate has won and dividing the winnings amongst the members;
- The names of the members of the group;
- The games and numbers to be played;
- Which draws will be entered i.e. the National Lottery on Wednesday, Saturday or one or both of the twice-weekly Euromillions draws or some other games;
- How much each member will pay per draw and when and how payment is to be made;
- Clarification that there is no “ownership” by a member of any particular line of numbers;
- How winnings will be split (for example, the manager may be entitled to an extra bonus by way of reward for assuming the responsibility of this role);
- What happens if a member fails to pay their contribution at any time;
- If the group has a big win, whether the members will agree to publicity or not;
- The agreement must be signed and dated by each member of the group and should be witnessed by, I suggest, a solicitor. Copies should be given to each member and the original kept in a safe place.
For further information and advice in relation to “It could be you!”, please contact Deirdre Farrell, partner, Amorys Solicitors email@example.com, telephone 01 213 5940 or your usual contact at Amorys.