Running competitions: More than the luck of the draw
We all have those ‘eureka’ moments where we feel that we’re onto a winner. In times of tough trading and uncertain market conditions, it is inevitable that people will find novel ways to make money. This has led some to run prize draws or competitions as profit-making activities. Some individuals have even sought to dispose of their houses by selling raffle tickets (with limited success).
There are a number of key issues that you must consider before running a prize draw or competition.
There is a difference between genuine prize competitions and lotteries. Whilst the outcome of a genuine prize competition is determined by the application of “skill, judgement or knowledge” (whether entry is free or paid), the outcome of a lottery is determined by chance. The Gambling Commission regulates lotteries and requires them to be licensed. However, genuine prize competitions are not regulated by the Gambling Commission.
A prize draw will therefore not be a lottery if it is free to enter, or if it involves the application of skill, judgement or knowledge. Clearly if a prize draw is intended to act as a profit-making activity then removing all element of payment will not be an option. The Gambling Act provides that the requirement for an element of skill, knowledge judgement will only be present in a prize draw which prevents “a significant proportion of people” from taking part, or from receiving a prize.
If you are deemed to be running a lottery without the correct licence to do so, you will be committing a criminal offence which may render you liable to imprisonment, a fine, or both.
Skill, knowledge or judgement
The Gambling Commission does not approve the skill, knowledge or judgement element of a competition and this is left to your discretion. Whilst the Gambling Commission has provided some non-binding guidance, it can be very difficult to get a definitive opinion (even from legal advisors) about whether a competition satisfies the Gambling Commission’s requirements. For example, a multiple-choice entry question must contain sufficient plausible answers. Similarly, the answer or solution to win a prize must not be blatantly obvious, widely known or given in close proximity to the question.
The Gambling Commission recommends that competition organisers consider how they will be able to demonstrate compliance with this requirement, in the event that the competition is challenged. It suggests that organisers carry out research on particular question types and/or conduct statistical analyses of previous compliant competitions.
You must also ensure that the terms and advertising of your prize draw are fair and not misleading. Recent attempts to sell houses through via raffle draws have fallen foul of this requirement. In some cases, the organisers failed to clearly state that cash prizes would be awarded in the event that ticket sales failed to exceed the value of the property. Consumer protection laws will apply if you are dealing with individuals. Breaching them can lead to enforcement action from the Competition and Markets Authority, and private action by individuals.
If your advertisement is investigated by the Advertising Standards Agency and found to breach advertising rules (the BCAP and CAP Codes), you may be forced to withdraw that advertisement. This is likely to adversely affect ticket sales for the draw.
Finally, you must consider data protection issues in relation to the personal data of entrants (for instance, does your organisation have a privacy notice?). This may also be relevant depending on the means by which your competition will be marketed to potential entrants.
A competition or prize draw can be a great way of making money or promoting a business, but you should never gamble on compliance with so much at stake.
For further information on prize draw or competition terms and conditions and associated legal issues, please contact Dan Badham on email@example.com or 01732 224 096.
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