Businesses may use prize competitions and free draws for commercial gain and as a fun way of offering prizes and promoting products. However, it is important to ensure any such prize competitions and free draws comply with the law. Read this guide to find out more.
Genuine prize competitions and free draws are free from control under the law (the Gambling Act 2005). This means that they are outside of the scope of the Gambling Act and generally do not require any licensing or regulation from the Gambling Commission (the body responsible for regulating gambling and supervising gaming law).
Any competitions and other activities which fall under the Gambling Act need to be licensed by the Gambling Commission, for example, the national lottery.
A prize competition is a competition where the outcome is determined through the application of skill, judgement or knowledge. A genuine prize competition is a competition which is run in such a way that the organiser believes that the required skill, knowledge or judgement will prevent:
a significant number of those who would wish to enter from doing so, or
a significant number of those who enter from winning a prize
Prize competitions which genuinely rely on skills, judgement or knowledge may operate free of regulatory controls by the Gambling Commission.
An example of such a permitted prize competition are crossword puzzles, where entrants solve multiple clues using their knowledge and where only fully completed entries are considered. Such crossword puzzles competitions are permitted (free from regulation by the Gambling Commission) even though the winner is chosen at random from the pool of successful entrants. This is due to the fact that there is a degree of skill and knowledge involved in completing the crossword puzzle and that this level of necessary skill deters a significant number of people from entering the competition.
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 is blatantly obvious from the material, then this is unlikely to be exempt from the Gambling Act. While there is no definitive answer to what an ‘obvious question’ 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).
There are two types of free draws, either free draws where:
all entries are free, or
there both a paid for and a free route
Under the Gambling Act, ‘free’ is defined as any method of communication that is charged at the normal rate, specifying charges for first and second class post. ‘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, while the Gambling Act classes first and second class post as free, special delivery is not classed as free.
Where all entries are free, the free draw does not generally need to be regulated by the Gambling Commission.
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, you must ensure that there is also a ‘free entry’ or a ‘no purchase necessary’ route. When running a free draw with a paid entry route, you must make sure that:
participants can genuinely choose to partake 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 not charged at a premium
the method for allocating prizes does not differentiate between the free and paid route
the free entry route is displayed as prominently as the paid for route
both the free and paid for route are equally publicised, so that both are brought to the full attention of anyone interested in participating
A free entry route must be available, as any form of barrier or payment barrier to enter the free draw could be considered an illegal lotters if it is not regulated by the Gambling Commission.
If selecting a competition’s winner is open to subjective interpretation (as opposed to choosing a winner 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 a fee to someone for them to judge a competition does not necessarily compromise the judges independence, care should be taken. Judges must be able to demonstrate their independence. Judges should not:
have a contractual 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.
If you run a prize competition or free draw which does not comply with the requirements set out above, the competition is likely to be considered an illegal lottery. Lotteries, unlike genuine prize competitions and free draws, fall under the control of the Gambling Act 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.
Where you are running a prize competition or a free draw, you should make sure that you have the appropriate terms and conditions in place. Due to the complex nature of prize competitions, Ask a lawyer to draft bespoke terms and conditions for you.