Do prize competitions and free draws need licences?
Genuine prize competitions and free draws are usually exempt from the regulation that applies to most paid-for lotteries (ie they are outside the scope of the Gambling Act 2005). They generally do not require any licensing from or registration with the Gambling Commission (the body responsible for regulating gambling and supervising gaming law).
Any competitions and other activities that do fall under the Gambling Act’s regulation usually need to be licensed by the Gambling Commission (the gambling and gaming regulator). A well-known example is the National Lottery.
What is a prize competition?
A prize competition is where the winner of a challenge is determined based on the applicant’s skill, judgement, or knowledge. A genuine prize competition is run in such a way that the organiser believes that the required skill, knowledge, or judgement will:
discourage a significant number of those who would wish to enter from doing so (because it is too difficult)
prevent a significant number of those who enter from winning a prize
Prize competitions which genuinely rely on skill, judgement, or knowledge may operate free of the Gambling Commission’s key regulatory controls.
An example of a permitted prize competition is a crossword puzzle, where entrants solve multiple clues using their knowledge and where only fully completed entries are considered for a prize. Such competitions are permitted and therefore free from regulation even though the winner is chosen at random from the pool of successful entrants.
Where a prize competition asks entrants to answer a simple question to enter the prize draw, the nature of the question is important. If the question is too easy or well-known, or the answer is blatantly obvious from the material, this is unlikely to be exempt from the Gambling Act (ie it's unlikely to be a genuine prize competition). Although there is no definitive answer to what an ‘obvious answer’ is, any prize competition that asks entrants a question should ensure that the question is sufficiently niche, complex, or specialised (eg something only certain people would know).
What is a free draw?
There are two types of free draws. These are where:
all entries are free, or
there are paid for and free entry routes
Free entry routes
Under the Gambling Act, ‘free’ entry is defined as entry by any method of communication that is charged at the normal rate. ‘Normal rate’ means that there can be no additional payment over what it would normally cost to use a particular method of communication. For example, entry will be free when someone can enter by paying only the regular charges for first- or second-class post (in this example, special delivery would not be classed as free).
Where all entries are free, the free draw does not generally need to be regulated by the Gambling Commission.
Paid for and free entry routes
Generally, any competition where entrants are required to pay to take part are considered lotteries which need to be regulated by the Gambling Commission.
Where there is a paid entry route, to avoid regulation and licensing requirements, you must ensure that there is also a ‘free entry’ or ‘no purchase necessary’ route. To achieve this, when holding a free draw with a paid entry route, you should ensure that:
participants can genuinely choose to take part without paying
the free entry route is not more expensive than the paid route
the free entry route is not less convenient than the paid route
the free entry route is available at the ‘normal rate’ (as defined above)
the method for allocating prizes does not differentiate between the free and paid routes
the free entry route is displayed as prominently as the paid route
both the free and paid routes are equally publicised, so that both are brought to the full attention of anyone interested in participating
Any form of barrier to entering the free draw could redefine it as a potentially illegal lottery, which would need to be regulated by the Gambling Commission.
Independent judges are required when judging is necessary
If selecting a competition’s winner is open to subjective interpretation (as opposed to a winner being chosen at random), there should be an independent judge. Where there is only one judge, they need to be independent. Where there is a panel of judges, at least one judge should be independent. The judges must be demonstrably independent from the competition’s organisers, promoters, and entrants.
Anyone appointed to act as a judge for a competition should be competent to judge the competition in question. All judges’ full names should be made available on request.
While paying someone to judge a competition does not necessarily compromise the judge’s independence, care should be taken. Judges must be able to demonstrate their independence, and should not:
have an employment relationship with the organisers or promoters of a competition, or
work for a company that has a contractual relationship with the organisers or promoters of a competition;
if the nature of the contract and/or relationship compromises their independence.
What if a competition isn’t considered a genuine prize competition or free draw?
If you run a prize competition or free draw which does not fall into the definitions set out above, the competition is likely to be considered an illegal lottery. Lotteries, unlike genuine prize competitions and free draws, are regulated by the Gambling Act 2005 and must either be licensed by the Gambling Commission or registered with a licensing authority. It is illegal to run a lottery without such a licence or registration.
For more information, read the Gambling Commission’s guidance on running a lottery or a fundraiser.
Do prize competitions and free draws need terms and conditions?
If you are running a prize competition or a free draw, you should make sure that you have the appropriate terms and conditions in place. These should be clear, fair, and comprehensive. Due to the complex nature of prize competitions, Ask a lawyer to draft bespoke terms and conditions for you if you need these.