Following his series of articles covering everything a small business needs to know about the legal side of running a prize draw or competition, Grid Law founder David Walker responds to three readers with questions about holding their own promotions.
(1) Can we legally charge for entries into the competition?
I recently read one of your articles concerning the legalities surrounding prize competitions and have a quick query that I am hoping you can help with.
I understand that under the Gambling Act 2005, one cannotask people to pay to enter a competition?andchoose the winner at random because it will be classed as a lottery which is illegal without a license.
However, section 14 of the act states that if an element of skill, knowledge or judgement affects the outcome, then it can be classed as a prize competition.
My question is, if the competition satisfies this skill/knowledge/judgement requirement, can one legally charge for entries into the competition?
Thanks for your question.
Yes, you are correct. If people pay to enter a competition and the winner is chosen at random, this will be classed as a lottery and will be illegal if you don’t have a licence.
If you wish to charge people an entry fee, they must exhibit ‘sufficient? skill, knowledge or judgement. An element? of skill, knowledge and judgement won’t be enough to fulfil the test.
What is considered to be ‘sufficient? is very much open to debate and is not specifically defined anywhere. To be ‘sufficient, a significant number of people must either get the answer to the question or problem wrong or be put off from entering in the first place.
So, at one end of the scale, a crossword competition would clearly be difficult enough to fulfil the ‘sufficient? test. At the other end of the scale, a multiple choice question or a question where you can quickly and easily Google the answer is unlikely to pass the test.
When deciding on a question, family and friends are a good starting point. Try out a few different questions or problems with them. If they get them all right, you need to make the question or problem more difficult. If approximately half of the people you try the question on get it wrong, or if they take a long time to work out the correct answer you’re on the right lines.
If more than one person gets the answer correct after exhibiting sufficient skill, knowledge or judgement then the winner can be chosen at random from all the correct answers.
Read other guides around promotional prize draws:
(2) Are there any restrictions on what we can give away?
Im trying to decide on the best incentive for a prize draw to encourage people to complete our survey.
Are there any restrictions on what we can give away? The options we are considering at the moment are an Amazon voucher, a MacBook Air or a cash prize.
In the UK, you have almost a completely free choice as to what prize or incentive you give away. The guidance is that the prize should be appropriate? for the target audience.
Im assuming that the survey won’t be targeted towards children. If it is, you should avoid cash prizes or anything that can easily be converted into cash.
(3) Is it the entrant’s responsibility to ensure they comply with the law?
Im thinking of running a prize competition and want to be able to sell tickets worldwide. Ive read your article How to run a successful (and legal) international prize draw or competition? and have also been looking at the terms and conditions of other competitions.
I know you said that you must comply with the law in each country, but is it OK to say in the terms and conditions something along the lines of: It is the entrant’s responsibility to ensure they comply with the laws in the country in which they enter the competition
Ive seen this done a few times.
Thanks in advance for your advice.
Yes, Ive seen this in competition terms and conditions too. However, in my opinion, this isnt sufficient to fulfil your legal obligations and highlights the risks of copying someone else’s terms as conditions.
As the promoter of the competition, it’s your responsibility to ensure that it’s legal. You have to remember that most people won’t read your terms and conditions and even fewer will understand the legalities of a very complex subject.
Also, not only do you have to comply with specific rules regarding how to run the competition, there are many other laws to comply with too.
For example, you will be collecting personal data from entrants so you will need to comply with data protection laws. The GDPR harmonised data protection laws across the EU but there will still be differences in other parts of the world.
To sell as many tickets as possible, you will want to advertise your competition. Different countries have different laws relating to advertising and marketing which you must also comply with.
Even if you do comply with all the different laws, you may still receive complaints from disgruntled entrants. If they start legal action, consumer protection laws may give them the right to have their claim heard in their home country courts even if your terms and conditions have specifically stated that the English courts have jurisdiction over any disputes.
You may think that the risk of legal action or disputes is low, but let’s look at an example.
You want to sell tickets and make a profit from the competition so you don’t offer a free route to entry. In England, Wales and Scotland this is fine, but in other countries, such as Northern Ireland and the US, you must have a “free entry” route.
Entrants from Northern Ireland and the US may not realise that they have this right and pay for an entry. If they later find out that they could have entered for free, they may demand their money back.
This puts you in a difficult position. If you refuse, saying it was their responsibility to check the law before entering the competition you could face legal action. However, if you agreed to refund them, this could seriously dent your profits and will undermine the very reason you launched the competition in the first place.
My advice, if you really do want to run an international competition, is to carefully look at the potential markets where you are likely to sell the most tickets. Then look at the specific laws in those countries. You need to know if it’s reasonable to comply with them and then to see if running the competition in those countries still fulfils your objectives for the competition.