Prize Competition or Illegal Lottery – It’s a Gamble
October 2007
With the introduction of the Gambling Act 2005 we all hoped that many questions of Gaming Law would be cleared up once and for all. The Act even allows the Secretary of State to quickly implement statutory instruments in order to keep legislation relevant and at the cutting edge; yet a number of elements of Gaming law still appear to be shrouded in mystery.
A prime example would be the law relating to Prize Competitions and Free Draws. The circumstances in which a individual can operate a lottery are very restricted, the National Lottery operates by virtue of its own bespoke piece of legislation and is outside the scope of the Gambling Act and is distinct for all other gaming.
Prize Competitions
The Gambling Commission has offered guidance on this issue, imaginatively entitled: “Prize competitions and free draws: the requirements of the Gambling Act 2005”. The Commission accepts that their interpretation is not binding and is simply one of several views expressed on the subject upon which there is little consensus. However, as the Commission is the organisation which will primarily be responsible for enforcement of the Act, their views may be deemed very important.
The law relating to Prize Competitions has not radically changed with the introduction of the Gambling Act 2005 and mirrors ostensibly the provisions of its predecessor, the Gaming Act 1968.
The definition of such Competitions offered by the Commission is:
‘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 in chance.’
Skill, Judgement or Knowledge
What level of skill, judgement or knowledge will be sufficient to define the event as a Prize Competition and not a Lottery? Section 14(5) of the Gambling Act ’05 states the element of skill, judgement or knowledge must:
‘…reasonably be expected to prevent a significant proportion of persons who participate… from receiving a prize or … prevent a significant proportion of persons who wish to participate… from doing so.”
The important term here is ‘Significant Proportion’. This test is reminiscent of the test provided over 30 years ago in the Gaming Act 1968. Since 1968 a number of cases have examined this point. But, for fear of setting a concrete precedent, the term has not been absolutely defined.
Figures of 25%, 30%, 50% or higher have been debated but no definitive figure has been set. Despite this case law Parliament elected against adopting a hard and fast figure. The law has, it appears, been left unclear on purpose.
The current controversy with TV phone in competitions has been well documented yet some producers still continue to run these competitions. The Commission’s guidance gives examples of what, in their opinion, may constitute sufficient and insufficient skill. The Commission gives a crossword puzzle, where entrants have to solve a large number of clues and only fully completed entries are submitted is given as an example of a sufficiently high level of skill. This, in our opinion, cannot be a hard and fast rule. Crosswords, like many other puzzles, are often afforded a grade. At what level does the crossword puzzle become so easy that the skill level is lost? Likewise, the Commission suggests that a competition posing one simple question, the answer to which is widely and commonly known or is blatantly obvious from accompanying material, will not be sufficient. How many TV premium rate phone in competitions meet this description? Can a multiple choice question ever be sufficient, when entrants can make multiple guesses?
Free Draws
A Prize Competition differs from a Free Draw on two counts. Firstly, in order to be deemed a Free Draw there must be at least one method of entry without payment. As long as there is at least one acceptable method of free entry there may be several paid methods which can legitimately raise revenue. Secondly, as long as the arrangement can be defined a Free Draw there is no requirement to have any element of skill, judgement or knowledge.
Some Competitions attempt to exploit this loop hole by offering an alternative method of entry, thus exempting them from demonstrating the required level of skill, judgement or knowledge. In the case of a TV competition which charges for entry by means of a premium rate telephone call or text, the producers may offer free entry via a web site. In order to qualify for the exemption, the free entry method:
Free entry routes that may require the use of a stamp, or incur a standard rate telephone or text charge may still be considered as being ‘free’ for the purpose of this definition.
In each instance the arrangement is subject to an interpretation of the facts in hand. This article is designed to raise some of the potential issues that may arise from operating prize competitions of all types. For bespoke tailored advice please contact either Tim Shield or Christopher Grunert of the Gaming Department to discuss your individual requirements
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