Updated: Mar 3
So, you are thinking of running a prize competition or a free draw?
Many businesses seek to attract customers by running prize competitions and free draws. These are a fun way of promoting your product by driving direct sales, improving brand recognition, collecting user-generated content, highlighting a particular product, or building newsletter subscriptions.
Prize competitions and free draws are not regulated by the Gambling Commission under the Gambling Act 2005 (“the Act”) and you do not need a licence to run them.
You need to get the legal niceties right! This means robust terms and conditions framed to anticipate every eventuality. You must also be careful not to organize your prize competition or free draw in a way which makes it an illegal lottery.
Lotteries are strictly regulated in the UK. A licence is required to run one and is only available to local authorities or non-commercial societies.
A Lottery is defined as any game which has all three of the following elements:
Chance – a game of chance is a game in which the promoter gives a prize to a winner chosen by a random event outside the winner’s control.
A prize - anything of value awarded to the winner of a game.
Consideration - Consideration is present when the competition entrant gives the promoter money or something of value and receives an opportunity to play the game or when the purchase of a product or service is needed to enter the game. However, consideration is not limited to the payment of money or the purchase of a product or service. The existence of consideration may also turn on the amount of effort and time required to participate in the promotion. On the other hand, consideration is generally not present when the activities required from the entrant to participate in the game are minimal (eg watching a television programme or listening to the radio) and the entrant is not required to make a purchase or pay a fee.
A prize competition is one where success depends on the exercise of skill, judgment or knowledge by the participants and does not, as it does in a lottery, rely wholly on chance. True contests (i.e., tests of skill) do not qualify as lotteries because chance is replaced by ability and effort.
Prize competitions can be illegal lotteries unless skill is required. Under the Gambling Act 2005, a competition will not be a lottery if it satisfies the "skill" test or if no payment is required to enter. Under the Act the test is whether the person organising the competition has a reasonable expectation that the skill, judgment, or knowledge requirement will either deter a significant proportion of potential participants from entering or prevent a significant proportion of participants from receiving a prize.
If you decide to run a competition, entrants must demonstrate “sufficient” skill, knowledge, or judgement to be in with a chance of winning.
It is difficult to give a definitive idea of what “sufficient” means, but generally the answer to a question must not be so obvious that everyone gets the answer correct. If questions are too easy to deter a significant proportion of potential participants, or to eliminate a significant proportion of entrants, it will not satisfy the skill requirement.
Once sufficient skill, knowledge or judgement has been demonstrated, if more than one person gets the answer correct, you can draw the winner at random from all the correct entries
Examples of easy questions would be:
I buy a drink for 60p and I pay the shop with £5 how much change should I get?
If you have £50 in your pocket and you spend £24 how much do you have left?
In what year did England win the World cup?
If you save £12 a week how much would you save in a 4-week month?
Richard catches a train at 6.30pm, his journey is 37 minutes long, what time will Richard arrive at his destination?
How many fingers do you have?
If I am 26 and left school when I was 17, how many years have I left school?
These questions are too easy and do not pass the skills test. It is essential that you phrase your questions so that there is an element of skill, judgment and knowledge involved in answering the questions.
Alternative Free Entry Route : Is there a Free Entry alternative?
If a competition does not satisfy the skill requirement, it will be a lottery unless either no payment is required to participate in the competition (whether this is to enter the competition, or to find out if you have won, or to collect a prize) or there is an alternative free entry route.
An arrangement is a lottery only if the participants are required to pay to enter. Therefore, free draws are not lotteries and are exempt from statutory control.
Schedule 2 to the Act gives details of what is to be treated as amounting to ‘payment to enter’ for the purposes of distinguishing free draws from lotteries. Generally free draws (i.e. random drawings) for a prize are not considered to be a lottery as they lack consideration (i.e. something of value that the entrant must provide to enter the free draw). Sometimes what might seem like a free draw may in fact be an illegal lottery. It is essential to be aware of the thin line between free draws, prize competitions and lotteries.
The Gambling Act 2005 also says that paying at "normal rate" for posting a letter (first or second class, without special delivery arrangements), for making a telephone call or for using any other method of communication does not amount to "payment". However, a call or a text message to a premium rate telephone number will involve "payment".
It is irrelevant whether the payment benefits the person running the competition or someone else, e.g., a telecoms company providing the premium-rate telephone number used to participate in the competition.
Where there is a free entry route you must ensure that there is no discrimination in the treatment of paid entry entrants and free entry entrants.
For instance, you could make the following additions on your website:
Homepage and on all the pages : Put in the following or similar words in bold “No purchase necessary to enter or win – Alternative “Free” entry available. (Please click here)). This would ensure that all entrants are constantly reminded of the fact that there is an alternative free method of entry available.
Insert a statement on the order and entry forms for paid and free entry entrants that “no purchase is necessary to enter the prize draw/competition”.
Insert a statement in the terms and conditions and order or entry form that “a purchase will not improve your chance of winning”.
Use of Multiple-choice questions:
Where a competition uses a multiple-choice format, the Gambling Commission has said that it will not generally act where there are sufficient plausible alternative answers, and the correct answer is not obviously given close to the question. The level of skill or knowledge required will vary, depending on the target audience.
Please note that this is a GUIDE, NOT LEGAL ADVICE.
How can Pure Business Law help?
To discuss any of the matters raised in this article, please contact our specialist media and entertainment law solicitors.
Pure Business Law are fixed fee specialist business and commercial solicitors based in Bedford and London. We operate nationally. If you would like to discuss how to run a prize competition, a promotional prize draw, a raffle, anything else raised in this article or any other legal issue, please contact us and speak with one of our specialist expert media and entertainment solicitors.
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