UK: Prize Competitions And Free Prize Draws – New Guidance

Last Updated: 13 July 2007
Article by Susan Barty, Susie Carr and Lucy Kilshaw

Gambling law has been seen as a minefield as there are several pieces of different legislation for different types of gambling. It was hoped that the Gambling Act 2005 would finally provide promoters with some clarity as to what is and is not legal. However, when the Gambling Act 2005 comes into force on 1st September 2007, promoters will still need to take care to ensure that they are not unwittingly involved with consumer competitions which fall foul of the new law. The borderline between legal prize competitions and free prize draws on the one hand and illegal lotteries on the other remains unclear in a number of respects. Essentially, to avoid a lottery, either there must be no payment by participants to enter or there must be a sufficient degree of skill required. However, the Act will change the interpretation of both of these concepts considerably.

As a result of industry concern regarding the ambiguity as to what these two concepts require, the Gambling Commission ("GC") conducted a consultation exercise and has now published revised guidance in advance of the coming into force of the Gambling Act 2005. This guidance provides some useful information as to how promoters can design schemes so as to avoid falling within the definition of an illegal lottery.

The guidance can be found at the following link.

In addition, the GC has just announced the findings from its consultation into gambling advertisements. One of the main points considered was whether advertisements should include mandatory social responsibility messages. The GC has decided that advertisements should include a reference to the website www.gambleaware.co.uk. An industry advertising code of practice will also be developed and that should be put in place prior to 1 September 2007 to include all of its recommendations as to social responsibility. It is intended that this will be a voluntary code of practice.

For the full consultation document click here

To view the article in full, please see below:


Full Article

Gambling law has been seen as a minefield as there are several pieces of different legislation for different types of gambling. It was hoped that the Gambling Act 2005 would finally provide promoters with some clarity as to what is and is not legal. However, when the Gambling Act 2005 comes into force on 1st September 2007, promoters will still need to take care to ensure that they are not unwittingly involved with consumer competitions which fall foul of the new law. The borderline between legal prize competitions and free prize draws on the one hand and illegal lotteries on the other remains unclear in a number of respects. Essentially, to avoid a lottery, either there must be no payment by participants to enter or there must be a sufficient degree of skill required. However, the Act will change the interpretation of both of these concepts considerably.

As a result of industry concern regarding the ambiguity as to what these two concepts require, the Gambling Commission ("GC") conducted a consultation exercise and has now published revised guidance in advance of the coming into force of the Gambling Act 2005. This guidance provides some useful information as to how promoters can design schemes so as to avoid falling within the definition of an illegal lottery.

In addition, the GC has just announced the findings from its consultation into gambling advertisements. One of the main points considered was whether advertisements should include mandatory social responsibility messages. The GC has decided that advertisements should include a reference to the website www.gambleaware.co.uk . An industry advertising code of practice will also be developed and that should be put in place prior to 1 September 2007 to include all of its recommendations as to social responsibility. It is intended that this will be a voluntary code of practice.

In more detail.

When the Gambling Act 2005 comes into force on 1st September 2007, promoters will need to ensure that their consumer competitions are legal. Some lotteries will be legal, for example, if a licence has been granted by the Gambling Commission ("GC"). However, without a licence most lotteries (especially those conducted for commercial purposes) will remain illegal and subject to criminal law prosecution. Essentially, to avoid being a lottery, either there must be no payment by participants to enter or there must be a sufficient degree of skill required.

As a result of industry concern as to a lack of clarity concerning some aspects of the interpretation of what constitutes "payment" and what is a sufficient degree of "skill" under the new Act, the GC conducted a consultation exercise, and has now published revised guidance, including the following main points:

1. The Act requires that to avoid being a lottery, a prize competition must contain a requirement to exercise skill or judgement or display knowledge, to a level where it can reasonably be expected that the requirement will either: a) prevent a significant proportion of people who wish to participate from doing so, or b) prevent a significant proportion of people who participate from receiving a prize. If this test cannot be met, the promotion will be treated as relying wholly on chance. The GC has now acknowledged that gathering evidence to prove that these tests are satisfied will be difficult. The guidance states that in some circumstances it will be obvious whether the skill is of the required standard, e.g. crossword puzzles, where it is clear an element of skill is required, and promotions which involve a single very simple question, which will not. However, the middle ground between these two extremes remains uncertain. In circumstances where it is not obvious, the GC has indicated that the test will be satisfied where organisers can produce material which demonstrates that they have taken steps to estimate the likely proportion of potential or actual participants who are, or will be, eliminated by the skill element. There are no plans to define what a "significant proportion" means.

The GC considers that it will not be sufficient to compare numbers of entrants with, for example, the audience figures for TV programmes or the readership figures for newspapers. Some evidence will be required as to the propensity of that audience to enter such competitions. Further the GC has acknowledged that it will be willing to accept, where steps have genuinely been taken to estimate the numbers accurately, that misjudgements may occur on the first occasion that a particular type of competition is organised. This should provide some comfort for competition organisers.

2. The GC provides much needed guidance as to what will constitute a "free" method of communication (and therefore avoid being an illegal lottery). It has indicated that "free" includes any method of communication (post, telephone or other) at a "normal rate". A normal rate is defined as "a rate which does not reflect the opportunity to enter into a lottery".

3. In the event that there is a choice of entry, whereby the participant has a choice either to pay or to send a "free" communication, the "free" communication can either be a letter sent by ordinary post or another method which is neither more expensive nor less convenient than entering via the paid route. This choice must be publicised so that it is likely to come to the attention of all those intending to participate and the system for allocating prizes must not distinguish between those using either route. The GC accepts that its previous view that a free entry route must be as well publicised as the paid route was wrong.

4. The GC has acknowledged that communications may now be via mobile phone, text service, emails or other web based systems. It confirms that the circumstances in which these do or do not involve payment to enter a competition will inevitably depend on the context and facts of each case. It did, however, provide several principles to be considered, including the following:

(i)The alternative route must be no less convenient than the paid route. Because many people do not have ready access to the internet at home, a competition which offers an alternative free route via the web, may not therefore be as convenient as the paid route. It suggests that this will be particularly true in cases where there is a need for an immediate response or competitions are run only for relatively short periods of time. The GC therefore remains concerned that competitions such as TV quiz shows will not escape regulation under the Act by offering the internet as an alternative method of "free" entry. It proposes to meet industry to discuss this problem further.

(ii)The GC has confirmed that it does not think that provision of data by individuals amounts to payment as intended by the Act. The GC will, therefore, not seek to argue that proportionate requests for data amounts to "transferring money’s worth". However, the GC does suggest that the position may be different where large quantities of data are requested before entry to the promotion has taken place, particularly where data is obtained in circumstances where it is intended to be sold to third parties (even with permission of participants).

(iii)The GC has also confirmed that where winners are required to pay to collect their prize, this would be considered as payment to enter. This does not include payment for normal delivery or other usual costs associated with the prize, for example, being required to pay road tax on winning a car.

5. Finally, the GC has confirmed that draws tied to product promotions which involve a purchase will not be treated as requiring payment to enter and, as such, will not be regarded as illegal lotteries. This is, of course, provided that entry involves no cost beyond the cost of the product itself. As a result, it is likely that an explosion in these types of competitions will begin from 1 September 2007.

The Gambling Act 2005 will introduce major changes to the way in which consumer promotions and competitions are run. In some ways the law will be liberalised, allowing for more flexibility. However, in other aspects (particularly the assessment of skill) the law is being tightened. The GC has a mandate to enforce and it can be expected to take a tougher line than previous enforcement authorities.

The full GC guidance can be found at the following link.

In addition, the GC has just announced its findings from the consultation into gambling advertisements. One of the main points considered was whether advertisements should include mandatory social responsibility messages. The GC has announced that advertisements should include a reference to the website www.gambleaware.co.uk which offers a range of information about responsible gambling and directs them to sources of help. An industry advertising code of practice will be developed and put in place prior to 1 September 2007 to include all of its recommendations as to social responsibility. It is intended that this will be a voluntary code of practice. In addition, the GC has decided not to require advertisements to display an operator’s licensed status.

Following concern as to sponsorship of events by gambling operators, whereby children’s replica strips would include advertising of those gambling operators, the GC has decided that it will not impose any requirements to ban this form of sponsorship but that operators should demonstrate social responsibility through their sponsorship deals. The GC has put the onus onto the industry to consider whether a self-denying ban on replica children’s shirts would be appropriate.

For the full consultation document click here

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 12/07/2007.

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