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by Mairead O’Reilly, solicitor at Bates Wells & Braithwaite
Charities and other organisations are increasingly becoming involved in running prize competitions and free draws.
Both prize competitions and free draws fall outside the scope of the Gambling Act 2005 and therefore are free of statutory control under that Act. However the distinction between prize competitions and free draws on one hand and lotteries on the other can often become blurred and it is important for any organisation operating these competitions to understand where the boundary lies.
Without understanding the key differences between them organisers can find themselves inadvertently running illegal lotteries and even committing criminal offences.
Distinction between Prize Competitions and Lotteries
In a prize competition, the winner should be the participant who has correctly answered the question or solved the relevant puzzle. This should, in theory, involve the exercise of some knowledge, skill or judgment by the winner.
This distinguishes prize competitions from lotteries where essentially entrants pay money for a chance to win a prize and the allocation of that prize depends wholly on chance.
The Gambling Act defines a genuine prize competition as one where the participants have to exercise skill and judgment or knowledge that is likely to:
(a) prevent a significant proportion of people from participating; and
(b) prevent a significant proportion of people from winning a prize.
Organisers need only prove that one of the entry barriers above can be shown in order to establish that their competition is not a lottery.
It is not clear exactly where the dividing line lies between competitions which are so easy that they will not prevent a significant proportion of people from entering and those which do satisfy the above test.
The Commission states in its guidance that the more questions or clues which have to be solved the more likely it is that a competition will fall outside the definition of a lottery.
On the other hand, competitions which only ask one question, the answer to which is blatantly obvious or widely known are less likely to meet the test in the Gambling Act.
Distinction between Free Draws and Lotteries
The key difference between a free draw and a lottery is that participants do not need to pay to take part in free draws. As explained above, free draws, like prize competitions fall outside the scope of the Gambling Act.
However organisers need to ensure that their competitions are indeed “free”.
A draw will not be free if participants have to pay a charge for entering. If for example participants need to enter by telephoning a competition line, the charge for calling should be the normal rate and should not reflect the fact that the individual is entering a competition.
Charging an inflated or premium rate tariff will mean that the call includes an element for paying to enter the competition. This will be seen as a payment to enter and the competition will be a lottery.
For more information on free draws and prize competitions please see http://www.gamblingcommission.gov.uk.
Mairead O’Reilly is a solicitor at Bates Wells & Braithwaite London LLP. www.bateswells.co.uk