For his latest Business Advice article, Grid Law founder David Walker explains the local legal restrictions business owners should consider when launching an international prize draw or competition as part of a marketing strategy.
Running prize draws and competitions are a great way to attract new customers and promote interest in your products and services. However, there are a growing number of people taking this a step further. They’re setting up businesses with the sole purpose of selling tickets to a competition and giving away all sorts of prizes, including houses.
To make these competitions a success, the promoters need to reach as many people as possible. To achieve this, they often want to sell the tickets internationally, but this can be risky as they have to comply with the law in all the countries they may receive entries from.
If your competition doesn’t comply with these local laws, you face the possibility of legal action by local regulators and the players in each country. If they have an issue with the competition, they can usually start legal action in their local jurisdiction so you would have to defend yourself in their home courts.
So, what do you do?
Unfortunately, there isn’t just one set of rules which applies in all countries. Even throughout the EU, there are local laws that apply in each country. You therefore have two options, if you wish to be legally compliant.
You can either restrict entries to jurisdictions where you are sure about the law, or take legal advice so you know how to comply in each one.
To help you decide, here are some examples of how the three main types of promotions are viewed in different countries.
In almost all cases, you should steer clear of any form of prize draw where the players have to pay to enter and then the winner is chosen at random. These types of prize draws are considered to be lotteries and are illegal unless you have special permission to run one. (Usually permission is only given to charities and other organisations raising money for good causes.)
Unauthorised lotteries are illegal in the UK, France, Italy and the US, but even when authorised there are sometimes additional regulations to comply with. For example, in Germany, organisers must make it clear what the chances of winning are.
Read more about the legal restrictions on promotional prize draws
Paying to enter doesn’t just mean paying an entry fee. In some jurisdictions, being required to purchase a magazine or even a stamp to post the entry to the organiser could be classed as payment.
So, to be absolutely sure that you don’t fall foul of the lottery rules, it’s best to add a skill element and make this a prize competition.
The main difference between a lottery and prize competition is that with a prize competition, the winner is not chosen at random from all the entries received. Players must exercise an amount of skill to be in with a chance of winning.
If more than one person is successful in the skill element of the competition, the winner can be chosen randomly from all those who were successful.
It’s always difficult to establish the amount of skill needed. In the UK, there are no definitive rules about this, but to make it a genuine competition the level of skill required must be sufficient to prevent a significant proportion of people from taking part or receiving a prize.
Being able to quickly Google the answer to a question probably doesn’t fulfil the skill test, but being required to complete a crossword or similar sort of puzzle probably would.
Some jurisdictions, like Germany, make a distinction between competitions that require an element of skill and games, which don’t.
In some jurisdictions, for example the US and Northern Ireland, you must offer players a “free entry” route. If the success of your business depends on selling tickets, these countries are unlikely to be your target market.
International prize draw
In a prize draw, the winner is chosen at random, so your main concern is to ensure that it’s genuinely free to enter.
If players must pay to enter, either by paying an entry fee or making some other form of financial commitment, a prize draw could be classed as an illegal lottery. As I said above, even the cost of a stamp or purchasing a magazine could be enough to be seen as a payment if it stops some people from entering.
As much as there are differences between the laws of different countries, they are all based on some common principles. So, if you want to run any form of international competition, a good starting point is to ensure it:
- Is legal, decent, honest and truthful;
- Is not misleading or makes any false statements;
- Adheres to principles of fair competition; and
- Is prepared with a sense of responsibility towards consumers and society.
If you have these as your starting point, then you will have taken a good step towards legal compliance.
This is just a very brief overview of some of the rules that are involved in actually running the prize draw or competition but please remember, there are likely to be other laws to comply with too. For example, if you are collecting names and email addresses as part of the entry process, you must comply with data protection laws.
If you’re running an international prize draw or competition and have any questions on legal compliance, please feel free to email me at email@example.com and I’ll happily answer them for you.
Catch up on some of David’s recent Business Advice articles:
- How to deal with fake business reviews that seek to damage your reputation
- The biggest business mistake entrepreneurs make and how to avoid it
- How to write legally binding online terms and conditions
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