Prize competitions and the law: navigating the labyrinth

The laws of England and Wales on prize competitions can seem labyrinthine.  But for most prize competitions, the route through is reasonably straightforward.

There are three main stages.  First, design the competition in such a way that it isn't in danger of becoming expensively ensnared in the gambling law regime.  Second, mark those areas of illegality  that are the domain of unfair trading law and consumer protection law, and steer well clear.  Third, follow the path laid down in the CAP Code.

Complying with the CAP Code will not only keep the ASA off your back, it will also help you to comply with unfair trading and consumer protection law.  How so?  Some of the legal rules are quite abstract.  If you can demonstrate that you have complied with some of the more specific rules in the CAP Code, you're well on your way to demonstrating that you have complied with the general legal rules.

The main risks under the gambling legislation are that your competition could constitute an illegal lottery, or unlicensed betting or gaming.

Don't gamble with your competition

There are two main ways of avoiding running an illegal lottery under the gambling law regime:

  • design the competition so that success depends on the exercise of skill, judgment or knowledge; or
  • make sure competition entry is completely free-of-charge.

If success in a competition requires skill etc, then it will be considered a prize competition.  If success doesn't require skill etc, but entry is free, it will be considered a free draw.  Both prize competitions and free draws fall outside the gambling law regime.

Skill, judgment and knowledge

So, what level of skill, judgment and/or knowledge is necessary?

Section 14(5) of the Gambling Act 2005 sets a minimum standard of sorts:

A process which requires persons to exercise skill or judgment or to display knowledge shall be treated for the purposes of this section as relying wholly on chance if - (a) the requirement cannot reasonably be expected to prevent a significant proportion of persons who participate in the arrangement of which the process forms part from receiving a prize, and (b) the requirement cannot reasonably be expected to prevent a significant proportion of persons who wish to participate in that arrangement from doing so.

The archetypal competition that will be caught by this rule is one split into two stages, where the first stage is easy to get through (e.g. a simple question), and winners are selected randomly at the second stage.

Here are some examples.

  • A competition for adults or older children that required entrants to answer a question such as "what's the capital of France?", "what is 2+ 2?" or "who is the president of the United States of America?" would probably not be considered as requiring skill, judgment or knowledge.
  • A competition that required entrants to draw a picture to enter would not be considered as requiring skill, judgment or knowledge, unless the pictures were then judged on merit.
  • The typical crossword puzzle would normally be considered as requiring skill, judgment or knowledge - but a very easy crossword puzzle competition run at a crossword-addicts' convention might not.

You should be in a position to justify, if necessary, your judgment that your competition falls outside the scope of Section 14(5).

Free-of-charge

If the only costs of entry to a competition are normal telephone, postal or other communications costs, then it will still be considered free for the purposes of the Gambling Act 2005.

In some cases it may be unclear whether communications costs are "normal".  The Gambling Commission has published guidance on this issue.

A competition can amount to a free draw on the basis either that:

  • it is free to enter; or
  • there is an alternative free entry route.

The alternative entry route must be by sending a communication which is free (in the sense outlined above), and must be publicised to the extent that it is likely to come to the attention of all participants, and the system of allocating prizes must not distinguish between the two entry routes.

Remember, if you're planning to get around the Gambling Act illegal lottery rules by offering a free entry route, then the relative proportions of paid and free entrants will be evidence of the extent to which you have met the publication requirement.

Betting and gaming

The illegal lottery issue is most commonly a problem for prize competitions, but some competitions are also at risk of constituting betting or gaming under the 2005 Act.

"Betting" means making or accepting bets on: (a) the outcome of a race, competition or other event or process; (b) the likelihood of anything occurring or not occurring, or (c) whether anything is or is not true.  Betting can occur even where an thing that is the subject of the bet is in the past, or where one party to the bet know the relevant outcome.  You need a betting licence in order to run a competition that constitutes betting.

"Gaming" means playing a game of chance (excluding a sport) for a prize.  "Game of chances" include games that involve an element of chance and an element of skill, and also games that involve an element of chance that can be eliminated by superlative skill. Games that are presented as involving an element of chance (but don't in fact) can also fall into this category.  Again, a licence is required in order to run a competition that constitutes gaming.

Unfair trading and consumer protection law

Having ensured that your competition isn't an illegal lottery or unlicensed betting or gaming, the next thing you should think about is the general law on unfair trading and consumer protection.

There is relatively little in the way of competition-specific rules here.

Under the Consumer Protection from Unfair Trading Regulations 2008, which apply to B2C businesses, "unfair commercial practices" are prohibited. These are defined, in the first place, as practices that both contravene the "requirements of professional diligence" and materially distort or are likely to materially distort the economic behaviour of the average consumer with regard to the product.  In addition, a "misleading action" or "misleading omission" will constitute an unfair practice.

Competition-related materials need not actually be untruthful to constitute a "misleading action": materials that are liable to deceive will do.  See Regulation 5 and Regulation 6 for details.

Schedule 1 to the Regulations sets out a list of practices that will in all circumstances be considered unfair, and therefore unlawful.  Three of these are particularly relevant to prize competitions:

  • Claiming in a commercial practice to offer a competition or prize promotion without awarding the prizes described or a reasonable equivalent.
  • Describing a product as ‘gratis’, ‘free’, ‘without charge’ or similar if the consumer has to pay anything other than the unavoidable cost of responding to the commercial practice and collecting or paying for delivery of the item.
  • Creating the false impression that the consumer has already won, will win, or will on doing a particular act win, a prize or other equivalent benefit, when in fact either - (a) there is no prize or other equivalent benefit, or (b) taking any action in relation to claiming the prize or other equivalent benefit is subject to the consumer paying money or incurring a cost.

These are particularly egregious practices, and in most cases are not the sort of things that a business running a competition will do "accidentally".

In the rarer case of competitions directed at businesses rather than consumers, there is even less specific regulation.  The Business Protection from Misleading Marketing Regulations 2008 prohibit the use of "misleading" marketing materials in relation to a competition.

For more detail, we need to look at the CAP Code.

The CAP Code

The general rules on promotions in Section 8.1 to 8.18 of the CAP Code apply to prize competitions.  In addition, there rules specific to prize competitions in Sections 8.19 to 8.28.  I have summarised some of the more important rules below, but if you are running a competition you should refer directly to both the code and the CAP's special help note on prize competitions.  The rules apply to both B2C and B2B promotions.

The CAP Code suggests (or requires?) that promoters take legal advice before embarking on competitions with prizes.  I suspect that this is suggestion is rarely followed, except by the largest companies.  See my further comments at the end of this article.

  • Compliance with the Code requires, first, compliance with the law.
  • Compliance in the responsibility of the promoter.
  • Promotions must be conducted "equitably,  promptly and efficiently and must be seen to deal fairly and honourably with participants".  I'm not entirely sure what "promptly" means in this context.
  • Promoters must avoid causing "unnecessary disappointment".  Necessary disappointment is, by implication, acceptable!
  • Promotions must not be "socially undesirable" in the sense of causing "excessive consumption or irresponsible use".  So no vodka drinking competitions then, and perhaps no pie eating competitions.
  • Promotions must not cause "serious or widespread offence" to consumers.  This rule could be an issue where a competition is designed to be offensive for the purpose of generating publicity.
  • "Promoters must be able to demonstrate that they have made a reasonable estimate of the likely response and that they were capable of meeting that response."  Using a "subject to availability" disclaimer won't help you to escape from this responsibility.
  • Promoters "must not encourage the consumer to make a purchase ... as a precondition to applying for promotional items if the number of such items is limited".  It is not entirely clear how this might apply to prize competitions, but presumably in the case of a competition the "application" is for entry into the competition, rather than for the prizes themselves.
  • Promotions must be properly supervised and adequately resourced.
  • Promoters must provide competition T&Cs to participants, who must be able to retain those T&Cs or easily access them during the period of the promotion.
  • All "significant conditions" must be communicated to participants, including: how to participate; free entry route information; start and closing dates; proof of purchase requirements; details of prizes; restrictions on entry; availability of promotional packs and promoter's details; any restriction on the number of entries; whether the promoter may substitute a cash alternative for any prize; if more than 30 days after the closing date, the date by which prize winners will receive their prizes; how and when winners will be notified of results; how and when information about winners and results will be made available; how and when information about winners and results will be made available; the criteria and mechanism for judging entries (for example, the most apt and original tiebreaker); who owns the copyright of the entries; how the promoter will return entries; any intention to use winners in post-event publicity.  Not all of these requirements will be applicable to every competition.
  • Where marketing communications relating to a promotion are made via a space-limited medium (e.g. Twitter), consumers should be instructed how to access the full conditions (e.g. on a website).
  • Gifts should not be described as prizes (as per the 2008 Regulations, above).
  • Prizes and gifts must be carefully distinguished.
  • The chances of a participant winning must not be exaggerated, or claim or imply that consumers are luckier than they are.
  • Complex rules should be avoided where possible.
  • If you are running a prize draw, you must ensure that prizes are awarded in accordance with "the laws of chance" and by a computer program that produces "verifiably random results" or by or under the supervision of an independent person.  (Incidentally, I was under the impression that ordinary modern computers are unable to be truly random, although they can of course simulate randomness.)
  • Promoters must publish or make available on request the names and counties of major prizewinners and winning entries. They should how ever take care not to compromise the privacy of prize winners.
  • In those competitions where a subjective element comes into play in judging winners, the judge - or where there is a panel, one of the judges - should be demonstrably independent.  All judges should be competent and identified on request.

Note that there are special CAP Code rules that may apply to a prize competition in particular circumstances: for instance the rules on marketing to children will apply to competitions directed at children.

Other compliance issues

You should also ensure that your competition complies with other applicable laws.  For example, the processing of personal data will be subject to the Data Protection Act 1998.

If after reading around, you're still not sure of the position, I would recommend that you take legal advice.  This is always sensible in relation to particularly complex or unusual or high-value competitions.

Comments

If the entry is completely free, and the 'game' is purely based on chance with no element of skill and it is run by a computer running a randomising simulation, does this avoid being a lottery and being classed as a game that requires a license? 

I won a grand draw. Prizes were one of 3 options.

I wasn't given any options. I was told I had won 2 concert tickets when I looked at ts and cs i should have won 6 tickets. 2 of the company's representive are going and unsure who the other people are. Totalling 6 tickets!

What do I do?

You could write to the company, demanding that they send you all the tickets, and threatening to bring a claim in the small claims court and/or notify trading standards about the matter if they don't comply. Whether it is actually worth bringing a claim depends upon all the circumstances, including the value of the prize.

As a promoter, we are willing to run prize draws on social media platforms. Do the rules for these have to be written, checked and/or approved by an "official" body of some sort? Who is meant to proceed with the draw?

Thanks for your help.

Alex. 

There is no need for any kind of official endorsement of this sort of document.

I'm looking to run a competition where people buy a ticket to win a prize of a supercar for a weekend. The tickets will be sold to those who are over the age of 28 and hold a current driving licence. These wil be sold at motor sport events and through social media. A web page will be set up so people can monitor the winners of each monthly competion. Once a first ticket is brought they will go onto a data base that will offer them discounts on future tickets for this competition. What laws do I have to follow for this? Do I need to put a question into the competition that requires skill to answer? Is there a governing body that has to approve the competition? 

This sounds like a lottery, at least as long as there is no real skill element. In the UK, the Gambling Commission is responsible for licensing lotteries. Their website is currently unavailable, but see:

http://www.gamblingcommission.gov.uk/

You should consider taking proper advice about the structuring of the competition to ensure it does not constitute an (illegal) lottery.

I'm thinking of setting up a multiple answer competition.

Is running a competition as such called a business? So will I have to set it up as a limited business with HMRC etc?

And will have to tax the entries or tax the profit gained.

I'm not sure how "business" is defined in respect of reporting to HMRC, but I'd be surprised if a profit-making competition didn't amount to a business. I suggest you run it by HMRC (if possible). There's no need for businesses in the UK to be run through limited liability entities (but there are a number of advantages in doing so).

Yeah il run it by HMRC, I noticed your templates for T&Cs etc iv made quite a big good list (I think) of my own T&Cs but was just wondering what is the difference in the templates on the one at £15 and the one at £40?

Many thanks!

The 'prize competition rules' template at £15 contains only competition rules, whereas the 'competition website terms and conditions' template includes general T&Cs covering website use, as well as competition rules. See:

http://www.website-contracts.co.uk/prize-competition-rules.html

http://www.website-contracts.co.uk/competition-website-terms-and-conditi...

I work at a visitor attraction that also offers short breaks options. We are looking into offering a competition to win a stay at one of our short breaks venues, but my boss wants to charge separately for the winners' day entry to the attraction. Would this be legal or could people challenge it?

Social media competitions offering prizes of cars, 'like & share' are these competitiona regulated? Do they have to by law actually have a prize at the end of it? If so how do the public find out who the winners are? 

To the extent that such competitions are subject to English law, the usual English law rules outline above should apply. A prize competition without a prize would in many circumstances amount to unfair trading.

Hi, I was wondering if I can allow entry to a prize competition only if a customer places an order totalling over a certain amount of money, or would this be classed as 'gambling'?

Is running a football tournament or league with a cash prize illegal?

I'm thinking of running a lucky draw contest for 3 prizes of Macbook Air, Apple watch and Parrot Ar Drone. The participants needs to purchase a subscription contract products from Sky broadband or Sky TV first but there will be no fees to enter the contest. The winner will be picked by lucky draw, and the 3 top lucky winners get the top prizes. Does it sounds like a lottery, or does it satisfy the requirements of the Gambling Act as it is free to enter?

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