Business development · 12 September 2018

Understanding the legal rules behind free-to-enter prize draw competitions

Is a free-to-enter prize draw always free to enter?

Prize draws can be extremely effective for promoting a business and certain products. Grid Law founder David Walker helps a reader launch their own free-to-enter trade promotion whereby a customer must purchase a particular item to be eligible.

Question

Hi David,

I’ve just read your article “How to run a successful (and legal) prize draw” and while I found it very informative, I’m somewhat confused over the paragraph below.

“Although the prize draw must be free to enter, you’re well within your rights to have say, a special promotional product which people must buy to enter the draw. Then, only someone who has purchased a product will win. However, you mustn’t increase the price of your products to cover the cost of the prize or this could be considered paying to enter and then your promotion would be an illegal lottery.”

We are looking to run such a trade promotion whereby the entrant must purchase a particular product of ours at its standard RRP to be eligible to be able to enter into the draw and win a prize.

How would we say “It’s free to enter” yet in the same paragraph say it’s not really free as you must purchase a particular product to enter the draw?

Thank you David, and I look forward to hearing from you soon.

Answer

Thanks for your question and I can see why this seems to be contradictory.

There are basically three types of prize promotion:

  • Lotteries, where participants pay to enter and then the winner is chosen at random
  • Competitions, where participants may or may not pay to enter but must exercise a significant level of skill to be in with a chance of winning
  • Prize draws, where the entrant doesn’t pay to enter but the winner is chosen at random

Prize draws can be extremely effective for promoting a business and certain products. However, because the chance of winning very desirable prizes is so appealing, they are open to abuse. To help guard against this, the Gambling Act 2005 was enacted and the Gambling Commission was set up to regulate gambling.

Read more about running a promotional prize draw:

Part of the Gambling Commission’s remit is to regulate lotteries and guard against illegal lotteries – that is any lottery that is operating without being licenced.

To ensure that a business doesn’t inadvertently run an illegal lottery, the prize draw must be free to enter but as you have identified, it could seem as if someone is paying to enter if they have to make a purchase beforehand.

Thankfully, these concerns were addressed in the Gambling Act 2005.

The act defines payment and makes it clear that payment includes paying an entry fee, making some other transfer of value (for example entering by making a premium rate telephone call), or paying an inflated price for a product.

So, as you are intending to charge the normal retail price for the product you wouldn’t fall within the definition of payment and your prize draw won’t be considered to be an illegal lottery.

Most promoters require people to enter online but if you decide to accept postal entries, the only requirement should be to send them via normal first or second-class post. If you specify that postal entries must be made by, for example, recorded delivery, this could be considered to be a payment and you could then fall within the definition of a lottery.

I hope this clarifies the position for you.

If you have any other questions, please feel free to email me again at editors@businessadvice.co.uk.

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ABOUT THE EXPERT

David Walker is the founder of Grid Law, a firm which first targeted the motorsport industry – advising on sponsorship deals, new contracts and building of personal brands. He has now expanded his remit to include entrepreneurs, aiding with contract law, dispute resolution and protecting and defending intellectual property rights.

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