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Privacy statement - Terms and conditions

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 Readers 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 Commissions 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:

  1. Prevent a significant proportion of people who wish to participate from doing so
  2. 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.

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The content on this page 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.

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