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Healthy competition: your legal how-to guide for the sporting Summer
This piece looks at some key issues when running a competition or raffle to attract customers or raise funds for charity.
With a summer packed with sporting events, many businesses may be tempted to run promotions based on predicting results in those competitions. Summer party fun often includes a raffle, which can also be used to raise funds for charity. When you’re running a promotion or a raffle, and whether it’s open to customers or staff, there are a few points which it is important to bear in mind, to avoid falling foul of the prohibition on unlawful lotteries. The good news is that in April this year some of the rules were relaxed slightly, which should make it easier to run fund-raising raffles.
Lotteries are illegal unless licensed or exempt
It is a criminal offence to run or promote a lottery in Great Britain unless you have a lottery operating licence or an exemption applies. A lottery for these purposes is any arrangement where a prize is allocated by chance among people who have paid to participate. A raffle is clearly therefore a lottery, and a competition will also be a lottery if winning depends on chance. Under the Gambling Act 2005, a competition is determined by chance unless it is reasonable to expect that the level of skill, judgment or knowledge required is such that either a significant proportion of participants will get the answer wrong or (which is harder to prove) a significant proportion of potential participants are deterred from entering (the “skill test”). Lottery operating licences are only available to local authorities and charities (or those operating lotteries on their behalf), so a commercial organisation cannot get a licence to operate a lottery for itself.
When running a promotional competition, it is therefore important to ensure that participation is free or sufficient skill etc is required so it does not constitute an illegal lottery.
Competitions that genuinely depend on skill, judgment or knowledge will satisfy this skill test. For example a crossword or Sudoku puzzle where multiple correct answers are required and only competed puzzles are submitted would satisfy this test. If the winner is determined by a series of processes, it is the first stage which must satisfy the skill test - so it is fine for the winner to be selected at random from those who have successfully completed the skill stage.
However, competitions which ask only one simple question, or where the answer is widely known or obvious from the material accompanying the competition, will not satisfy the skill test. In deciding the level of skill required, the person running the competition must take account of the skill and knowledge of the target audience. There is no statutory definition of what proportion of entrants must get the answer wrong (or be deterred from entering), and it is not always clear where the dividing line between skill and chance lies. The more questions/clues that have to be solved, the more likely it is that the skill requirement is satisfied – and it is not likely to be satisfied if the answer(s) are easily available on the internet. In practical terms, if there is room for doubt, those running competitions may wish to carry out research amongst their target audience to assess what proportion get the answers right or to review statistics from earlier similar competitions to assess the required level of difficulty, and should retain such evidence in case of later challenge.
If a competition does not satisfy the skill test, it can still avoid being a lottery if it is free to participate. A competition will be free to enter even if an entrant must purchase a product or service, so long as the price paid for that product or service is not increased to take account of the right to participate in the competition. Payment does not include the cost of first or second class post or standard telephone charges – but does include premium rate telephone charges or the cost of confirmed or guaranteed postal services. “Payment to participate” includes payment to collect the prize and payment to discover the winner, as well as payment to enter: so you should not require winners to claim their prizes via letters sent by confirmed post or make winner’s details available via a premium rate phone line (it is irrelevant whether any payment goes to the person running the competition or to someone-else such as the telecoms company providing the premium rate line used for the competition).
Where payment to enter is required (eg use of a premium rate phone number), you can still avoid the lottery regime by offering an alternative free entry route. This alternative route must be as convenient as the paid-for route, it must be well publicised, and the allocation of prizes must not discriminate between the two routes. The Gambling Commission thinks entry by post is more likely to satisfy these requirements than online entry particularly where there is a short period for entry.
Collection of data will not generally amount to “payment”, so you can usually reward those completing a survey by entering them into a draw. However this may not be the case if large quantities of data are required, and particularly if that data will be sold on to a third party.
A final twist is that a competition which involves guessing the outcome of a (past or future) race or other event, or whether something is true or not, will be betting if payment is required to participate. “Guessing” for these purposes includes predicting using skill or judgment.
“Customer lotteries” are exempt from the requirement to hold a lottery operating licence, but a raffle will only fall within this exemption if it satisfies a series of requirements, including that tickets are sold, and the raffle promoted, only on the business premises, no profits are made, the maximum prize is £50, and there must not be more than one draw in any 7 day period.
When running a raffle to raise funds, the “no payment” and “skill” escape routes from the lottery regime will clearly not apply. It will therefore be important to bring the raffle within one of the exemptions from the requirement for a lottery operating licence.
Fortunately there is an exemption for “incidental lotteries” which enables people to run a typical charity fund-raising raffle if certain conditions are satisfied. Since April 2016, fund-raising raffles can be associated with commercial, as well as non-commercial, events, so the organisers can now benefit from entrance fees, sponsorship or other charges associated with the event. However:
- All the monies raised from the raffle must go to charity ,other than monies used to fund prizes (up to a total of £500) or other costs (up to £100).
- The raffle tickets may only be sold on the premises where the related event takes place, and only during that event. However from April 2016, the winner no longer has to be announced before the end of the event.
Work place raffles
There is another exemption permitting workplace raffles, such as the traditional office sweepstakes. Previously all funds raised had to be used to defray expenses or distributed as prizes, so these raffles could not be used to raise money for charity. However from April 2016, it’s sufficient for the funds raised by the raffle to be applied for any purpose other than private gain, so they can now be donated to charity.
A workplace raffle can only be advertised within the workplace, and the organisers and all the participants must work at the same premises (which includes multiple buildings on a single site, but not multiple sites). Each participant must get a lottery ticket, and these tickets can only be sold by the organisers. However these tickets no longer need to name the organisers and those eligible to participate, or to show the ticket price, and so organisers can now use the traditional books of “cloakroom tickets” rather than incurring the expense of personalised tickets.
Terms and conditions, and data protection
Any promotional competition or prize draw should be subject to some simple terms and conditions which comply with the requirements of the Advertising Standards Authority’s “CAP Code”. These in fact form a useful checklist for a sensible set of terms for any competition.
The CAP Code requires that consumers are given the following information before or at the time of entering the competition:
- how to participate, including any free entry route;
- the start date and, in some cases (eg most competitions targeted at children), the closing date;
- any proof of purchase requirements – or if the promotion encourages but does not require a purchase, a clear statement that no purchase is necessary and an explanation of the alternative entry route;
- the minimum number and nature of the prizes, and whether a cash alternative may be substituted;
- any geographical, personal or technical restrictions on eligibility eg age, location, or the need to have internet access or permission to enter from an adult or employer;
- any limit on the number of entries or promotional packs;
- the promoter’s full name and correspondence address (unless entry is only through a dedicated website containing this information in an easily-found form);
- how and when the winner(s) will be notified, and when they will receive their prizes if this is more than 6 weeks after the closing date;
- how and when the results will be announced – the names and counties of the winner(s) must be published or made available on request, but the promoter may not publish “excessive” personal information;
- the criteria by which entries will be judged; if the choice is open to a subjective interpretation, there must be an independent judge (or a panel including one independent member) whose name must be available on request;
- if relevant, who owns the intellectual property rights in any entry and how entries will be returned; and
- any intention to use the winner(s) in publicity.
Entrants must be able to retain this information, or have easy access to it for the duration of the promotion.
If a competition is run via social media, it must comply with any additional requirements imposed by the relevant social media provider. For example, Facebook requires an acknowledgment that the promotion is not endorsed or administered by Facebook, each entrant must release Facebook from liability, and friend connections must not be used to generate more entries.
Additional requirements apply if the promotion is run for the benefit of a charity or cause. In particular, there must be a formal agreement with that charity or cause, the competition terms must name the charity or cause and make clear how it will benefit, if funds raised exceed the target the excess must be given to the charity or cause on the same basis as the target amount, details of the total funds raised must be available on request, and children should not be encouraged to buy a product promoting charitable purposes.
The person running a prize draw must ensure that the prizes are awarded in accordance with the laws of chance; unless the winner is selected by a computer process with verifiable random results, the draw must be done or supervised by an independent person.
People may have religious or moral objections to lotteries, so there should always be an option not to be entered into a draw.
The type of prize may increase the commercial risks of the promotion. If the prizes are within the promoter’s control (products or services, vouchers or cash), these will be lower risk than prizes such as tickets to events – plays may be withdrawn or the cast changed etc – or holidays where multiple third parties are involved. Particular caution is needed if a prize involves personal risk for the participant eg a balloon flight.
This piece sets out the position where promotions or draws are open to consumers in Great Britain ie England, Wales and Scotland (or if certain equipment used for the promotion or draw is located in Great Britain. If the promotion or draw is available in other countries, then the law in those countries also needs to be considered. In particular, the law in this area in Northern Ireland is different from the rest of the United Kingdom – for example a competition is not “free” in Northern Ireland if an entrant is required to purchase any product or service; this is one reason why many competitions are not open to those in Northern Ireland or offer them a free entry route.
To discuss any of the matters raised in this piece, please contact Susan Biddle.
Useful guidance on the skill test, what constitutes payment to participate, and alternative free entry routes is provided in the Gambling Commission’s note “Prize competitions and free draws: The requirements of the Gambling Act 2005” (December 2009), available from the Gambling Commission’s website at <www.gamblingcommission.gov.uk>.
The ASA’s CAP Code is available from their website at <https://www.cap.org.uk/Advertising-Codes.aspx>.
Facebook’s terms for promotions are available at <https://www.facebook.com/page_guidelines.php>.