More often than not, we log on to our frequently used social media applications and are greeted with everything from who’s on holiday to who’s just got married and even what our neighbour is having for dinner. Among all that, we can get captured by the allure of adverts on social media platforms offering participation in an “easy” competition to win some expensive prizes.
These prize draws and competitions are often seen as a popular way for businesses to engage with their current customer base and attract new ones. As well as on social media, there are many examples in our everyday lives where businesses run prize draws or competitions, either through a loyalty programme or by way of some other customer activation. These are now increasingly seen online.
Prize draws and competitions are often seen as a popular way for businesses to engage with their current customer base and attract new ones
However, should you look to set up a similar promotion to raise engagement with your business or brand, target a new customer base or raise your profile, it is paramount that you do so in a way that maintains and protects your position. Prize draws can attract regulatory scrutiny if not properly run. Companies that launch prize draws and competitions can be put at risk if the schemes are not structured properly or are not governed by suitable terms and conditions and rules.
There are a variety of regulatory aspects to consider when running a prize draw or competition – in particular, whether it would be caught under gambling legislation. The Gambling Act 2005 covers the laws relating to gambling in Great Britain – Northern Ireland is governed by separate legislation. The Gambling Commission is the regulator of the gambling industry.
The Gambling Act
The Gambling Act applies to gaming, betting and lotteries. In general, free-to-enter prize draws and competitions are free from regulatory control. By contrast, lotteries for private or commercial gain are illegal and where a public lottery is being run for a good cause, a licence is generally required unless it falls within an exemption under the Gambling Act.
Where a public lottery is being run for a good cause, a licence is generally required unless it falls within an exemption under the Gambling Act
There are two types of lotteries: a simple lottery and a complex lottery. Under the Gambling Act, three elements are required to determine a simple lottery:
- The requirement to pay to participate
- The allocation of prizes
- The determination of winners by chance
A complex lottery is where:
- Persons are required to pay to participate
- One or more prizes are allocated to the participants in the scheme
- The prizes are allocated by a series of processes
Prize draws
As a general rule, prize draws and lotteries (including sweepstakes and raffles) being run online or otherwise in which UK residents can participate and where a form of payment is required to enter would be caught under the Act. Free prize draws, which do not require payment of an entry fee, are generally not caught under the Gambling Act and the Gambling Commission does not regulate them.
In recent years, some operators have operated schemes that require the entrants to redeem loyalty points in exchange for a chance to win a prize. If you are running such a scheme, a question worth considering is whether the requirement to redeem loyalty points is considered a requirement to pay to enter, which means that it would fall under the Gambling Act.
Free prize draws, which do not require payment of an entry fee, are generally not caught under the Gambling Act and the Gambling Commission does not regulate them
It is, therefore, crucial for competition operators to understand what “payment” really means. For the purposes of lotteries regulated under the Gambling Act, the Act states that a reference to paying includes:
- Paying money
- Transferring money’s worth
- Paying for goods and services at a price or rate that reflects the opportunity to take part in an arrangement under which the participant may win a prize
In respect of free prize draws, the Gambling Commission would not consider the following costs that are incurred to enter a prize draw as “payment”:
- The cost of purchasing an item in order to enter (such as buying a promotional can of baked beans) provided that the price of the promotional product is not inflated to cover the prize or the cost of running the promotion
- Providing personal data in order to enter (such as filling in a survey) provided the request for data was proportionate and not obtained for the promoter to transfer or sell to third parties
- The cost of making a normal-rate telephone call or sending an entry form via first- or second-class postage in order to enter
Other compliance issues
In addition to the Gambling Act, consideration needs to be given to other regulations for the purposes of prize draws and competitions. There may be consumer protection, data protection and tax issues to consider. These are outside the scope of this article but are certainly areas you need to be aware of if you are considering prize-based social media schemes.
