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Prize draws – find me free
9 November 2007
The Gambling Act 2005 (the "Act") came into force on 1 September
2007. The Act is policed by the Gambling Commission (the
“Commission”).
Whilst prize competitions and free draws were previously free of
Statutory Regulatory control and remain so under the Gambling Act
2005, they are for the first time given a statutory definition.
Under the old legislation, there was no legal definition of
lottery. The leading case of Imperial Tobacco Ltd -v- The
Attorney General [1981] AC 718, following the earlier judgment
of Lord Widgery CJ in Reader's Digest -v- Williams [1976] 3 All
ER 737, established that in order for a lottery to exist,
three essential elements were required:
- A distribution of prizes
- Distribution by means of chance; and
- Payment by the participants in return for obtaining the chance
to win a prize
The Act now defines a lottery as either a simple lottery or a
complex lottery. A simple lottery is where:
- Persons are required to pay to participate
- One or more prizes are allocated to the participants in the
scheme; and
- Prizes are allocated wholly by chance
A complex lottery includes the first two elements above and also
requires that the prizes are allocated by a series of processes and
the first of these processes relies wholly on chance.
For a prize competition or free draw to avoid being deemed an
unlawful lottery:
- Either there must be no payment by participants to enter
- Or there must be a sufficient degree of skill required
No payment
Much needed guidance as to what constitutes "free" has been
given by the Commission. 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". Included in
this is "ordinary first class or second class post (without
special arrangements for delivery)". The key is that there can
be no premium over what it would normally cost to use the
particular method of communication.
Where a participant has the choice to enter either by making
payment or sending a free communication, the free communication can
either be by a letter sent by ordinary post or another method which
does not involve payment and is no less convenient than the paid
route. The non payment route 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
discriminate between the two routes.
Due to the ever-growing popularity of telephone entry, including
mobile phones, the Commission indicated circumstances in which it
believes the use of the telephone does and does not involve payment
to enter. Key factors to consider are:
- It is irrelevant to whom the payment is made and who benefits
from the payment
- If the cost of entry by phone involves paying more than the
customer normally would pay for such calling in other
circumstances, this involves payment and becomes a lottery,
regardless of who gets the payment
- If the cost of the call is entirely at the standard or normal
rate for that telephone provider this is free, again, regardless of
who gets the payment
- If the telephone company offers a class of call (perhaps all
starting with a specific number) where all the calls cost the same
regardless of the person to whom they are made but where the cost
includes an element of paying for a service, this involves a
payment, regardless of who benefits and becomes a lottery
These principles are transferable to any other
telecommunications service.
www dot
The Commission is concerned that web entry may not always
satisfy the requirements for an alternative free entry route,
particularly in relation to competitions broadcast on TV especially
those that are run for short periods or where there is a need for
immediate response to win. The concern is that many people may not
have access to the Internet at home and so web or e-mail entry will
not be an ‘equally as convenient’ route as the paid route (as is
required by the Act). This seems at odds with some of the
underlying reasons behind the overhaul of the gaming legislation
which was to take account of the new media and the ways it is used
in gaming.
In addition to this the latest figures from the Office for
National Statistics (“ONS”) show that 61% of households in Great
Britain have Internet access, a 7% increase since 2006 and a 36%
increase since 2002. Out of those households with access 84% of the
Internet connections are broadband (National Statistics Omnibus
Survey 2007). These figures ought to go someway to alleviating the
Commission’s concerns particularly in light of the fact that the
Commission itself has said that it may look at the number of
participants who use the alternative free route to assist it in
deciding whether the scheme is caught as an illegal lottery.
Product promotions
Product promotions see the greatest relaxation with the
elimination of the requirement to include "no purchase necessary"
alongside the details of the prize draw. The Commission has
confirmed that where there is an increase in price just before or
coincidental with the instruction of a promotion this need not
necessarily give rise to difficulty if it can be shown that the
price rise is a long term increase in relation to the product
itself. Where it appears inflation in price has taken place
simultaneously with the promotion, it is likely that it will be
challenged as an illegal lottery because the element of payment has
been introduced, thus bringing it within the statutory definition.
It remains to be seen whether an explosion in these types of
promotion will now take place.
Skill
The second way to avoid being caught within the definition of
the lottery when running a prize competition is to make it
dependent on the exercise of skill, judgment or knowledge by the
participants.
In order to fulfil the requirement of skill, judgment or
knowledge the question set or the criteria used must be those so
that it is reasonably likely to:
- Prevent a significant proportion of people who wish to
participate from doing so
- Prevent a significant proportion of people who participate from
receiving a prize
"Significant proportion" is the key element to the distinction
between a skill competition and a lottery. The Commission have
declined to offer an interpretation of this element and have left
it to the Courts to interpret the law.
The Commission have, however, offered some guidance as to a
definition. The general view is that it will be clear where
sufficient skill has been required and prize competition promoters
who choose to experiment with borderline cases will run the risk of
being prosecuted. Ambiguity still exists in borderline cases as an
organiser can still argue that they were justified in believing
that the skill element could "reasonably be expected" to have
eliminated a significant proportion.
The organisers' self-regulation skills are not stopped there.
The test is that a significant proportion of people who wish to
participate are deterred from doing so. It is not necessarily easy
to determine the numbers who wish to participate, against which the
number who do not. These would need to be compared to establish
that it is a significant proportion deterred from competing.
Remember, the test is whether the skill element could "reasonably
be expected" to eliminate a significant proportion of such people,
not whether it actually did.
Best practice would be for organisers to retain evidence that
they have taken steps to estimate the likely proportions and to
know their target audience. On this basis even if the line has been
crossed, it is likely the Commission, if it believes such steps
have genuinely been taken and the misjudgement has been made on a
first occasion, may take the view that a particular type of
competition was organised such that it transpires that only an
insignificant proportion of participants, actual or prospective,
are eliminated by the skill element.
Lose your freedom
It is important to ensure compliance with both the payment and
skill elements. Failure to do so can result in a criminal
prosecution. A conviction attracts fines of up to £5,000 and/or
imprisonment for up to 51 weeks in England and Wales.
To avoid your free draw or prize competition being deemed a
lottery, remember to be diligent in your assessment of payment and
skill and at all times maintain an audit trail to corroborate the
steps you have taken.
For more information or advice, please contact Nina or Fiona
The content of this bulletin is provided for
the purposes of general interest and information. It contains only
brief summaries of aspects of the subject matter and does not
provide comprehensive statements of the law. It does not constitute
legal advice and does not provide a substitute for it.