Questions to ask yourself when running competitions or prize draws
Competitions or prize draws can be a very effective marketing tool, but there are a number of legal pitfalls which can have serious consequences. Here, we’ve set out a few key questions to ask yourself.
Is it a lottery?
The Gambling Commission regulates lotteries and (unless you can show you benefit from an exemption) all lotteries need to be licensed.
To be a lottery, your competition or promotion would need three essential elements:
- Payment is required to participate;
- One or more prizes are awarded; and
- Those prizes are awarded by chance.
So, to avoid this, you can either:
- Remove any requirement for payment (by running a free prize draw); or
- Not award prizes by chance (run a “skill based” competition instead).
Running a prize draw can still involve entrants spending some money. Entry could require participants to buy a product (so long as the price isn’t inflated to pay for the promotion) or pay normal postage or phone charges on their entry (but premium rate calls, or a charge to find out if an entrant had won, would not be allowed) but all entrants need to have the same chance of winning, and any restrictions should be clearly advertised. This isn’t the same for Northern Ireland however (which requires a “no-purchase necessary” basis of entry), and so you may need to exclude residents of Northern Ireland from a prize draw.
Running a competition must involve entrants needing a significant element of skill to win. Simply guessing at something is unlikely to avoid a competition being treated as a lottery.
Running an unlicensed lottery could mean investigation, fines and criminal prosecution, so the consequences of getting this wrong can be severe.
Does it comply with advertising standards?
Advertising standards aren’t just for posters and commercials, they also apply to competitions or prize draws. Requirements include:
- Prize draws should be random, and under the control of an independent observer;
- Not implying entrants have won if they actually haven’t, and not blurring the line between a gift and a prize; and
- Making clear and well publicised terms and conditions available, which set out who the promoter is and the structure of the competition;
Is it unfair?
Consumer protection laws make it an offence to mislead consumers it certain ways, and these apply to competitions and prize draws. You should ensure that you do not mislead consumers about:
- The nature of the prize or its value;
- The odds of winning (or whether it is available at all); or
- The payment or cost involved in claiming the prize.
Is that it?
Those are the key questions to ask around prize draws and competitions. While some of them should be obvious, others (such as advertising standards requirements around the content of terms and conditions) can be more complex.
Other legal issues, such as direct marketing to promote the competition or prize draw, or use of entrants’ personal data, may crop up, and need to be considered carefully.
If you have any questions about the points raised above, or you need help drafting a set of prize draw or competition terms and conditions, please contact Elliot Fry on Elliot.email@example.com or +44 (0)1732 224 034.