Running a prize draw for profit is becoming an increasingly popular marketing strategy among small business owners. But depending on the type of competition you hold, different legal restrictions will apply.
Writing for Business Advice, David Walker, founder of Grid Law, helps one reader understand when a method of free entry could be required by law.
I am exploring the possibility of launching my own prize draw to take place on a regular basis as a way of raising money for charity, but also for it to be a viable business for me so that I could run it full time.
However, there’s one element that makes me nervous in order to stay on the right side of the law.
If I have read your article How to run a successful (and legal) prize draw correctly, I must enable a method of free entry.
Are you able to offer any advice on this? For obvious reasons I want to offer enticing prizes but need the raffle/prize tickets to cover the costs for this prize.
By rights could every entrant enter via the free method?
Thank you for your question.
Businesses such as this, where you run regular prize draws or competitions for profit are becoming increasingly popular. This means they’re going to come under closer scrutiny from the likes of the Advertising Standards Authority, Gambling Commission and the Information Commissioner to ensure they are run legally and the entrants’ rights are protected.
You’re therefore doing exactly the right thing by asking this question to make sure you stay on the right side of the law.
The first thing we need to do is clarify what type of prize promotion you’re intending to run. The three most popular options are:
- A lottery where people pay to enter and then the winner is chosen by chance
- A free prize draw where entry is free and the winner is chosen by chance
- A prize competition where people pay to enter and the winner is not chosen by chance but must demonstrate a sufficient level of skill, judgement or knowledge to stand a chance of winning
If you run a lottery you must obtain a licence from the Gambling Commission unless you fall within one of the exemptions. From what you have said, I would avoid trying to run a lottery.
As you are aiming to profit from this venture, free prize draws are also ruled out unless you want to use the prize draw as a way of promoting and selling products. Again, I’m going to assume this is not the case.
Read more about running a promotional prize draw:
- How to run a successful (and legal) promotional prize draw
- How to run an international prize draw or competition
- Prize draw politics: Can you disqualify a winner for a lack of excitement?
- How GDPR could affect your promotional prize draws and competitions
So, your best option is to run a prize competition where you can charge an entry fee. The winner must then exercise a sufficient level of skill, judgement or knowledge to be in with a chance of winning. If more than one person gets the answer to the competition correct, all winning entries will go into a draw and then the winner is chosen at random.
You are quite right that very often a free entry method is included within the competition rules. There are usually two reasons for this:
- Some jurisdictions (for example Northern Ireland) make it compulsory to have a free entry route; and
- What amounts to a “sufficient level of skill, judgement or knowledge” is not defined. Therefore, if the question was too easy and everyone (or almost everyone) got the answer correct the winner would, in effect, have been chosen by chance. If they paid to enter the competition, there is a high probability this competition would be classed as an illegal lottery.
So, if you don’t want to offer a free entry route my advice is to make it clear in the competition terms and conditions that the competition is only open to entrants in England, Wales and Scotland. Explain that you do not accept entries from Northern Ireland and other jurisdictions where a free route to entry is compulsory and do all you can to avoid promoting the competition in these jurisdictions.
Next, make sure the skill, judgement or knowledge element is sufficiently difficult that a good proportion of entrants either get the answer wrong or are put off entering in the first place.
To give you an example, a crossword competition is almost certainly difficult enough to fulfil the skill requirement. A multiple-choice question where most people would know the answer or could Google the answer in seconds is highly unlikely to pass the “sufficient skill, judgement or knowledge” test.
I hope this helps and if you have any other questions, please feel free to email me again.
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