Official guidance on free draws and prize competitions: The Gambling Act 2005

The law governing prize competitions and free draws has long been an unholy mess. To some extent this is inevitable: concepts such as skill and chance sound simple but are difficult to pin down in practice. The Gambling Act 2005, much of which comes into effect on 1 September 2007, will clarify the law in a number of key areas, but will also raise new questions which ultimately only the courts will be able to answer. The Gambling Commission published its views on these questions last week in a guidance note. Some of the key issues covered in the guidance note are set out below.

Prize Draws and Purchases

It has long been unlawful to link a prize draw with a purchase. Prize draws have to be free, or there has to be a genuine free entry route, to avoid an unlawful lottery. Until now, if you had to buy something to enter a prize draw it didn’t count as free. This will change in September. Product promotions will be permitted so long as entry into the draw involves no cost beyond the normal cost of the product.

The Gambling Commission says that a product linked to a promotion which is charged at a price which bears little relation either to its cost of production or to comparable products may mean the promotion will be challenged as an illegal lottery. But if you don’t inflate the price of goods to reflect participation in the promotion, you will no longer need to provide a free entry route. Simple in theory, but plenty of grey areas in practice.

Prize Draws and Surveys

What about customer or employee satisfaction surveys where participants are incentivised by a prize draw? The Gambling Commission has confirmed that draws linked to provision of data will not normally be challenged as involving payment. The Gambling Commission will not seek to argue that “proportionate requests for data” involve payment, but they say it may be different where large quantities of data are requested, particularly where the data is intended to be sold to third parties.

Competitions and Lotteries

Prize competitions will not be regulated, but the Gambling Commission will be “monitoring the boundary” between competitions and lotteries. The Commission will be keeping an eye out for so-called competitions where the answer is widely and commonly known or is blatantly obvious from the material accompanying the competition. The Act introduces detailed criteria for assessing whether the level of skill, judgement or knowledge in a competition takes it outside the realm of lotteries. The Commission’s guidance in this area is helpful, but not very: “… the more questions or clues which have to be solved, the more likely it is that application of the statutory test leads to the conclusion the competition is not a lottery. And the Commission does not think a particular question or clue fails to qualify as involving skill or knowledge just because the answer can be discovered by basic research, whether on the internet or elsewhere.

The provisions of the Gambling Act 2005 relating to promotions will not extend to Northern Ireland, where the law will remain fundamentally the same as currently exists in the rest of the UK. As a result of this, promoters and agencies will need to consider whether to:

  1. exclude Northern Ireland from UK prize promotions based on chance in order to take advantage of the new definition of ‘lottery’ which allows games of chance linked to product/service purchase at their normal price, or
  2. continue to offer a free entry facility to Northern Ireland participants, or
  3. offer a free entry route across the whole of the UK.

The law in this area may have fallen into disrepute but, in the Gambling Act 2005, the Gambling Commission will soon have a gleaming new weapon to deploy and has warned companies to expect prosecutions if they choose to push the barriers in the various grey areas which still remain. Those wishing to test the limits of the new rules should study the guidance note carefully.

Bulletins are for general guidance only. Legal advice should be sought before taking action in relation to specific matters. Where reference is made to Court decisions facts referred to are those reported as found by the Court. Please note that past bulletins included in the Archive have not been updated by any subsequent changes in statute or case law.