This guide is based on the laws in Great Britain (England, Wales and Scotland). It was last updated in January 2008. Please note that the rules for Northern Ireland are different but must be considered when running a UK-wide promotion.
Many organisations seek to attract customers by running competitions for prizes. However, there are regulatory controls on some of these competitions.
An added complication for online competitions is the question of which country's laws apply and which court will have jurisdiction in the event of a dispute. On a practical level, online promoters should take care with last-entry deadlines. To allow for time-zone differences, be specific, e.g. "closing date for entries is 12 noon, 5 December 2008 in Great Britain".
On 1st September 2007, most of the key areas in gambling law in Great Britain were replaced by a single, more comprehensive structure. On that date the Gambling Act 2005 repealed the Gaming Act 1968, the Lotteries and Amusements Act 1976 and the Betting, Gaming and Lotteries Act 1963.
The new Gambling Act defines and differentiates lotteries, betting (which can include certain prize competitions) and gaming (that is playing a game of chance for a prize). Skill competitions and free prize draws remain outside the Gambling Act – but it is important to structure such competitions and draws so that they do not inadvertently fall within the definition of a lottery, betting or gaming.
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 old law, the skill test was satisfied if winning depended "to a substantial degree on the exercise of skill" – "substantial skill" was not required. Under the Gambling Act 2005 the test is whether the person organising the competition has a reasonable expectation that the skill requirement will either deter a significant proportion of potential participants from entering or prevent a significant proportion of entrants from receiving a prize.
Competitions that genuinely depend on skill, judgment or knowledge can continue to operate outside Gambling Act regulatory controls, for example crossword puzzles where entrants have to solve a large number of clues and only fully-completed entries are submitted. Where there are several stages of a competition, the key is whether the first round satisfies the skill test. If those who complete a crossword puzzle successfully are entered into a draw to pick the winner, this will still qualify as a skill competition, not a lottery, because the first stage (completing the puzzle) satisfied the skill requirement.
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. A question such as "what is the capital of France?" is too easy. The Gambling Commission (the new regulator for the gambling industry) has not indicated what will constitute a "significant proportion", beyond saying that the phrase must be given "its ordinary, natural meaning".
Where a competition uses a multiple choice format, the Gambling Commission has said that it will not generally take action 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.
Is the competition free to enter?
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. 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.
The Gambling Act 2005 states that "payment" includes paying money (or money's worth) or paying more for something to reflect the opportunity to enter the competition. So someone who buys a packet of soap powder which directs buyers to a website competition will be treated as paying to enter that competition if the soap powder costs more than an equivalent non-promotional packet. However if promotional and non-promotional packs cost the same, there will be no payment. It will therefore no longer be necessary to specify a "no purchase necessary" alternative route where a product giving a right to enter a competition is sold at its normal price.
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".
Even if there is a paid route to enter, a competition will be treated as free to enter if there is an alternative free entry route, provided that:
- the alternative route is a letter sent by ordinary post or some other communication method which does not involve payment and is no less convenient than the paid-for route;
- the choice is publicised in a way that is likely to come to the attention of all those intending to participate; and
- the system for allocating prizes does not discriminate between the two entry routes.
The Gambling Commission thinks that web entry may not always satisfy the requirements for an alternative free entry route, particularly in relation to competitions broadcast on television. People who do not have ready access to the internet at home need sufficient time to gain web access elsewhere; the Commission thinks that three working days is a reasonable period for this. This is likely to be a particular problem where competitions are run for short periods or there is a need for immediate response to win. If you have doubts about whether web entry satisfies the requirements for an alternative free entry route, the Gambling Commission recommends that other alternative routes are also offered e.g. post which is specifically approved as an acceptable free alternative.
Is the competition betting?
A competition which involves guessing the outcome of a race or other event, or the likelihood of something occurring or not, or whether something is true or not, will be betting if payment is required to enter that competition. (It does not matter whether or not the race or other event, whose result is being forecast, has already occurred, or whether or not one party knows the outcome.) Guessing includes predicting using skill or judgment. A betting operating licence will be required to run such a competition.
As explained above, the Gambling Act 2005 now provides that paying the normal price for something does not amount to payment to participate in a competition. So where a guessing competition can be entered if you buy a promotional product at its normal price, there will be no betting.
Is the competition gaming?
If a skill competition involves "playing a game of chance", it will be gaming – and so require the appropriate licence, usually a casino operating licence – whether or not any payment is involved. A game of chance includes a game involving elements of both chance and skill (and even if the chance element can be eliminated by superlative skill) other than a sport; it no longer matters whether there are any other participants. The key questions here are probably whether the competition involves "playing" a "game"; the pre-Gambling Act 2005 case law is likely to be relevant in deciding this.
What if the competition is a lottery?
It is a criminal offence to run a lottery unless either you have a lottery operating licence or the lottery is exempt from the licensing requirement because it is a private lottery (e.g. a workplace lottery), a customer lottery, an incidental non-commercial lottery or a small society lottery and in each case the exempt lottery fulfils certain conditions set out in the Gambling Act. Small society lotteries (that is, lotteries below certain financial thresholds which are operated by non-commercial societies) still need to be registered with the local licensing authority.
Lottery operating licences are only available to local authorities or non-commercial societies (or external lottery managers managing lotteries on their behalf). A commercial organisation cannot get a lottery operating licence for its own promotional purposes.
Incidental non-commercial lotteries – typically raffles at one-off charity fundraising events – are, generally speaking, exempt under the 2005 Gambling Act provided certain conditions are met. These conditions, which are similar to the old law, are as follows:
- the lottery is incidental to an event which is not (and is not intended to be) profit making, and the lottery is not promoted for private gain;
- the organisers do not deduct from the proceeds of the raffle more than the prescribed sum in respect of prizes (currently £500) or other costs (currently £100);
- there is no rollover;
- tickets are supplied only at the location where the related event takes place and only during that event; and
- the results are announced at or before the end of the related event.
The 2005 Gambling Act introduced a new exemption for customer lotteries, but the conditions for exemption mean this is unlikely to be very useful in practice. These conditions include the following:
- a maximum win of £50 per ticket;
- tickets must be supplied only to people who are on the promoter's business premises as customers;
- no advertisement outside the business premises.
- no profits may be made;
- no rollover; and
- not more than one draw in any 7 day period.
What are the consequences of running an illegal lottery?
Any individual or company involved in promoting or managing an illegal lottery – including a competition which is a lottery – is guilty of a criminal offence under the 2005 Act, and on conviction is liable to a fine of up to £5,000 and/or imprisonment for up to 51 weeks (England and Wales) or six months (Scotland).
Conviction, fines and imprisonment are a worst-case scenario, but the bad publicity which could arise from running a competition which is found to be an illegal lottery could be significant. Bear in mind that the Gambling Commission has said that it expects to monitor the boundaries between lotteries, betting and gaming on the one hand, and skill competitions and prize draws on the other, and that it will act where schemes are organised which the Commission considers amount to unlicensed and therefore illegal lotteries.
What practical steps can you take to mitigate your risk?
- Think carefully whether the skill element of a competition is sufficient to deter a significant proportion of potential participants, or to eliminate a significant proportion of entrants. If it isn't, increase the skill requirement. Obtain, and keep, material which supports your view that the skill requirement is satisfied.
- If the competition does not satisfy the skill requirement, make sure that no payment is required to participate – either to enter, or to find out who the winner is, or to collect a prize – or ensure that there is an alternative free entry route.
- Make sure that any alternative free entry route is adequately publicised and equally convenient, and that there is no discrimination against those entering the competition in this way.
- If your competition involves forecasting a result, ensure that it does not require payment to participate.
- Take care that your competition does not amount to playing a game of chance.
In summary, if your competition does not satisfy the skill requirement, and involves payment (without a free entry alternative), you should stop running it.
CAP Code on prize promotions
The British Code of Advertising, Sale Promotion and Direct Marketing (known as 'the CAP Code') sets out certain additional rules which should be followed when running prize promotions.
The CAP Code applies to all marketing communications in print, cinema and video, as well as online advertising in paid-for space. It does not apply to broadcast commercials which are subject to the BCAP TV or Radio Advertising Standards Code, or to the content of premium rate telephone services which are regulated by PhonepayPlus (previously known as ICSTIS).
In addition to the general principles that advertising must be legal, decent, honest and truthful, the CAP Code requires that the following information is given to consumers before or at the time of entry into the prize promotion:
- how to participate; if there is a free entry route, this must be clearly explained;
- the start date;
- the closing date in certain circumstances (eg if targeted at children);
- any proof of purchase requirements – or, where a promotion encourages but does not require purchase, a clear statement that no purchase is necessary and explanation of the free entry alternative;
- the minimum number and nature of any prizes, and whether a cash alternative can be substituted;
- any geographical, personal or technological restrictions (eg location, age, or the need to have access to the internet);
- any limit on the availability of promotional packs (if this is not obvious);
- the promoter's full name and business address;
- any restriction on the number of entries;
- how and when winner(s) will be notified, and when they will receive their prizes if this is more than 6 weeks after the closing date;
- how and when the results will be announced; winners' names must be published or available on request, but promoters must not publish excessively detailed personal information;
- the criteria for judging entries eg the most apt and original tie breaker; if the choice is open to subjective interpretation, then an independent judge (or a panel including one independent member) must be appointed, whose name must be available on request;
- who will own the copyright in the competition entries (if relevant);
- how entries will be returned (if applicable); and
- any intention to use winners in any post promotion publicity.
Participants must be able to retain this information or have easy access to it throughout the promotion.
The Gambling Act does not extend to Northern Ireland, where the Betting, Gaming, Lotteries and Amusements (Northern Ireland) Order 1985 continues to apply. That law is similar to the law that applied in the UK until September 2007, according to the Institute of Sales Promotion. The Institute suggests that promoters will need to consider whether to:
- Exclude Northern Ireland from UK prize promotions based on chance, in order to take advantage of the Gambling Act allowing games of chance to be linked to purchases of products at their normal price;
- Continue to offer a free entry facility to Northern Ireland participants; or
- Offer a free entry route across the whole of the UK.
Pinsent Masons advises clients on how to run promotions and can provide suitable terms and conditions. If you wish to discuss this, please get in touch with one of our contacts. Before you do, check our FAQ on running a competition.