Running a Small Lottery or Competition Prize

November 10, 2008

The area of lotteries, prize draws, prize competitions and instant win promotions was reformed by the Gambling Act 2005 (the Act) which came into force on 1st September 2007.

 The general consensus is that the changes have given greater freedoms in advertising gambling for organisations in the industry, although there are important points for organisations to take into account before embarking on competitions and prize draws. A number of organisations fail to take heed of the provisions which could have disastrous consequences.

The Act defines and differentiates three core activities which are considered as gambling – lotteries, betting (which can include certain prize competitions) and gaming (that is playing a game of chance for a prize).

Organisations offering skill competitions and free prize draws are usually able to avoid the scope of the Act but any organisation offering competitions and draws should ensure they do not in practice find themselves falling within the definition of a “lottery”, “betting” or “gaming”.  Otherwise they will be required to meet the obligations of the Act.

Therefore, careful preparation of a competition is essential to benefit from s339 of the Act which describes which activities fall outside the scope of the Act.  It is also worth taking steps to ensure that the relevant code of practice or industry specific rules are also fully complied with.

If the organisation falls within one of the defined terms, it will be necessary to apply to the Gambling Commission for a licence in respect of the activities. However, not all activities can be easily and readily licensed and if, for example, an organisation is operating a “lottery”, only certain organisations may apply for a licence.

Therefore, avoid falling within the scope of the Act if possible, or take steps to acquire licensing of the organisation’s activities. Licensing will of course incur expense and will in some instances require careful consideration because of the responsibility and risk of personal liability involved.

Competitions or draws outside the scope of the Act

If you run a competition or prize draw the best way to avoid falling within the scope of the Act, is to know the rules.  To avoid the need for a licence:

1.   the organiser must satisfy the skill test, OR

2.   there must be no requirement of payment to enter

1.         The skill test:

The person organising the competition should have 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.”

Therefore, 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.

Competitions with Stages:

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.

“significant proportion”

The Gambling Commission has not indicated what will constitute a “significant proportion”, beyond saying that the phrase must be given “its ordinary, natural meaning”. This open ended definition does create a level of uncertainty and insecurity for those organising competitions.

2. No requirement of payment 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 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 Act states that “payment” includes paying money (or money’s worth) or paying more for something to reflect the opportunity to enter the competition.

So if someone was to purchase a product where the product costs more than a non promotional packet that would be treated as a paying customer. If promotional and non-promotional packs cost the same, there will be no 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.