Gambling Update: Operating a prize competition in Great Britain
The Gambling Act 2005 creates a licence requirement for operators of raffles and lotteries and it is an offence to facilitate or promote such a product in Great Britain. Competitions and draws that do not meet the Gambling Act’s definition of a lottery may be lawfully offered and promoted without the operator holding a Gambling Commission licence.
To constitute a lottery, a competition must include three elements: a requirement to pay to participate, one or more prizes and a process for distributing the prizes which relies wholly on chance. If there are a series of processes for distributing prizes, the first of these must rely wholly on chance for the competition to be a lottery.
This means that, provided requirements set out in the Gambling Act are followed, a competition can avoid classification as a lottery by including either an option for entering without paying or an initial entry process which does not rely wholly on chance. This is typically done either by offering a free postal entry route and/or requiring entrants to pass a test of skill, judgement or knowledge before progressing to the random draw.
Minimum requirements for these elements set out in the Gambling Act include that a free entry route must be publicised so as to come to the attention of all those who wish to participate this way. A test of skill, judgement or knowledge must be sufficiently difficult as to prevent a significant proportion of those who wish to participate from doing so, for example because they are unable to answer questions correctly. These and other requirements can often catch promoters of competitions out and they may be asked by the Gambling Commission to stop operating until they can bring their competition into compliance with the law.
Some potential legal pitfalls for operators of prize competitions and free draws are considered below, along with some practical takeaways.
Being asked for a legal opinion
Operators will often be asked by business partners and platforms such as Facebook, the Apple App Store or Google Play Store to provide a legal opinion demonstrating that their competition does not require a licence to operate lawfully in Great Britain. This opinion should be submitted as part of any application process to advertise or be featured on the relevant platform, as otherwise operators risk being removed from the site or store and facing a drawn out appeals process.
In addition to complying with the Gambling Act, operators of competitions and draws need to ensure they comply with the Committee of Advertising Practice (“CAP”) Code of Practice. This includes a number of specific rules for the operation of competitions and draws, including that any draw must be conducted in accordance with chance, any judgement of winning entries must be completed by an independent judge and closing dates should be clear and not changed.
Competitions advertising a large prize must consider how they will deal with a scenario where they do not sell enough tickets to cover the value of the prize. Prize competition operators may wish to award a lesser prize in such instance, but consumer protection law and the advertising codes are relevant here and should be considered carefully before deciding on this aspect and setting in out in terms and conditions. Alternative options such as refunding all entry fees (though clearly not desirable to an operator) may also be considered.
Competition operators must ensure they comply with data protection laws, including when it comes to publishing details of winners.
In most cases, gambling duties apply in circumstances where the operator requires a gambling licence, however there some competition formats where the classification under gambling law and tax law may differ. In some circumstances competition entry fees may also be subject to VAT.
The Government’s White Paper, published in April 2023, proposes a consideration of the potential for regulating competitions and prize draws which offer significant prizes such as a luxury home or car. There is no indication of the timescale for this consideration, however it could result in a need for operators of certain competitions (likely based on annual proceeds and/or the size of prizes) to become licensed and subject to player protection controls and transparency requirements. A minimum contribution to good causes is also being considered.
Please get in touch with Melanie Ellis or Tom Edmonds for an initial discussion or advice regarding your competition.