Katie Paxton-Doggett on how the Gambling Commission differentiates between a consumer competition and an illegal lottery


It was hoped that, once the Gambling Act 2005 came into force on 1 September 2007, it would provide some clarity in a field of law which has been subject to a confusing array of different legislation for different types of gambling.



However, with a number of high-profile inquiries into call-TV quizzes, care must still be taken by promoters to ensure that their consumer competitions qualify as legal prize competitions and free prize draws, rather than being an illegal lottery. While the new Act changes the interpretation of terms used to define prize competitions and free prize draws, the line between what is acceptable and what is not remains unclear.



The Gambling Commission has published guidance, Prize competitions and free draws: the requirements of the Gambling Act 2005. Much of the guidance merely explains the relevant provisions of the Act, though the commission also includes pointers as to how it will interpret and enforce the legislation.



The guidance states: 'A prize competition is one where success depends on the exercise of skill, judgement or knowledge by the participants and does not, as it does in a lottery, rely wholly on chance.' However, section 14(5) states that the process will be regarded 'as relying wholly on chance', and thus be a lottery, if the requirement cannot be expected to prevent a significant proportion of persons who participate from receiving a prize, or who wish to participate in that arrangement from doing so.



The guidance sets out some examples of competitions which genuinely rely on skill, judgement or knowledge. In particular, it identifies a crossword puzzle where entrants have to solve a large number of clues and only fully completed entries are submitted, as well as other types of word and number puzzles.

In contrast, competitions which ask just one simple question, the answer to which is widely and commonly known or is blatantly obvious from accompanying material, will be regarded by the commission as not meeting the test in the Act and will be an offence.



Sadly, many cases will not be this clear-cut. The guidance sets out two elements to the test: did the skill etc requirement in fact eliminate a significant proportion of potential entrants and, if it did not, on what basis did the organisers conclude it was reasonable to expect that it would have done so? The Act does not define the term 'significant proportion', though the guidance states that it should be given its 'ordinary natural meaning'. While it will be fairly easy to measure the actual proportion of those who participate who are eliminated in this way, it will be much harder to show that a significant proportion was deterred from entering.



Nevertheless, the guidance states that, where a particular competition appears to fall foul of the test in section 14(5), the commission will give organisers the opportunity to explain why they think it is compliant. The matter is not likely to be taken further where figures are produced, which show that the skill element eliminated a significant proportion of potential or actual participants, or where material is produced demonstrating that steps were taken to estimate the likely number who are or will be eliminated. However, the commission will not accept a straight comparison of audience figures for the television programme or readership figures for the newspaper or magazine against the number of entrants - evidence will be required of the propensity of the audience to enter such competitions.



Some leeway may be given where, despite genuine steps being taken to establish the way the competition will operate, a misjudgement is made regarding the numbers deterred or eliminated by the skill element for the first occasion that a particular type of competition is organised. The guidance makes it clear that further promotion of competitions of the same or similar type will be much harder to defend.



Free draws are exempt from statutory control: an arrangement is a lottery only where participants are required to pay to enter.



Where there is only one entry route, 'free' will include any method of communication (post, telephone or other) charged at a 'normal rate'. 'Normal rate' is defined as 'a rate which does not reflect the opportunity to enter a lottery' (paragraph 5(2)(a) of schedule 2). This means there must not be any additional payment over what it would normally cost to use the particular method of communication.



Where there is a choice of entry route, the arrangement will not be treated as requiring payment to participate if:

l Each individual who is eligible to participate has a choice whether to do so by paying or by sending a communication;

l That communication is either a letter sent by ordinary post, again whether first or second class, or some other method which is neither more expensive nor less convenient than entering on the paid route. Again this method must be charged at the 'normal rate';

l The choice is publicised so that it is likely to come to the attention of all those intending to participate; and

l The system for allocating prizes does not distinguish between those using either route.



There are now various ways to communicate; in addition to post and landline telephones, there are mobile phones, text services, emails and other web-based systems. The guidance says that whether use of these services involves 'payment to enter' a competition will depend on the context and facts of each case. However, it is irrelevant to whom a payment is made, so that if an organiser makes no charge for entry but the telecommunications company does, then a payment will be involved.



A competition offering an alternative 'free' entry via the web will satisfy the test in the Act in many cases. However, where 'the need for immediate responses is emphasised to enable the participants to win the prizes on offer or the competitions are run only for relatively short periods', or where the target audience are unlikely to have ready access to the Internet, this option may not be sufficient. Clearly this is an area where rapid development and consumer usage is likely to continue to grow and the commission has stated that it intends further meetings with major operators to address concerns.



The requirement to pay in order to participate includes cases where there is 'a requirement to pay in order to discover whether a prize has been won under an arrangement' (paragraph 6 of schedule 2) or 'a requirement to pay in order to take possession of a prize' (paragraph 7). Nevertheless, this will not prevent the organiser of a competition from requiring the winner to pay the normal delivery costs or other normal costs to obtain or use the prize.



The guidance does not regard the 'provision of data' by individuals to amount to 'payment' as intended by the Act. Nor does it regard requests for data to amount to payment because they involve 'transferring money's worth' (paragraph 2(b)). However, requests for data must be proportionate, and where large quantities are requested, it may constitute 'payment'. No guidance is given as to what might constitute large amounts of data, although occasions where 'data is obtained in circumstances where it is intended to be sold to third parties' are likely to infringe the provisions.



The Act now permits product promotions. A free prize draw can be held where entrants must buy a product to participate without offering a 'no purchase necessary' alternative. The product must not be sold at an inflated price to reflect 'the opportunity to participate' (paragraph 2(c)).



Where competitions do not meet the requirements for prize competitions or free draws, they will be classified as 'lotteries'. These will be legal only if they fall within the defined lotteries within the Act and are properly licensed by the commission.



Katie Paxton-Doggett is a solicitor and producer at the Law Channel, Einstein Network