Lottery or Prize Competition?

Lotteries and Prize Competitions are defined in the Gambling Act 2005 (“The Act”) which comes into force on 1 September 2007. If a business falls within the definition of a ‘lottery’ then it will be subject to the relevant provisions of the Act, if it can be classified as a prize competition then it will be outside of its scope.

The difference between a lottery and a prize competition is the element of skill required in a prize competition. The degree of skill required for this purpose is found in Section 14 (5) of the Act:

(5) A process which requires persons to exercise skill or judgment or to display knowledge shall be treated for the purposes of this section as relying wholly on chance if-

(a) the requirement cannot reasonably be expected to prevent a significant proportion of persons

who participate in the arrangement of which the process forms part from receiving a prize, and

(b) the requirement cannot reasonably be expected to prevent a significant proportion of persons
who wish to participate in that arrangement from doing so.

Due to the new statutory definition of a prize competition old case law which explained this idea of “skill” is no longer relevant. The Gambling Commission have provided guidance on this:Â

“Competitions which rely on skill, judgement or knowledge are to be permitted to operate free of any regulatory control……. in many case, it will be obvious that such competitions meet the test. A crossword puzzle, where entrants have to solve a large number of clues and where only fully completed entries are submitted, is an obvious example………..

At the other extreme, there are many competitions which ask just one simple question, the answer to which is widely and commonly known or is blatantly obvious from the material accompanying the competition. The Commission considered that these do not meet the test in the Act. It is not easy to say where the dividing line between the two extremes lies. But the more questions or clues which have to be solved, the more likely it is that the application of the statutory test leads to the conclusion that the competition is not a lottery…….

In cases where it is not self-evident that the competition involves sufficient skill, judgement or knowledge, the test which must be applied is that in section 14(5) of the 2005 Act … In the Commission’s view, in practical terms, there are two elements to this test. Did the skill etc.requirement in fact eliminate a significant proportion and, if it did not, on what basis did the organisers conclude it was reasonable to expect that it would have done so”.

The onus is on the organisers of the competition to satisfy themselves that their competition is compliant with the law. If any doubts arise the Commission will at first approach the organisers to enable them to explain why the competition is compliant. The organiser will have to produce evidence often figures i.e. to show a significant proportion of participants are prevented from receiving a prize to show that section 14 (5) of the Act is satisfied.

If a business is deemed a lottery then it will need a lottery operating licence, unfortunately there are restrictions as to whom they can be issued to:

98 Lottery operating licences

(1) A lottery operating licence may be issued only to—

(a) a non-commercial society,

(b) a local authority, or

(c) a person proposing to act as external lottery manager on behalf of a non-commercial society or
a local authority.

For the majority of businesses then a lottery is not feasible, but you could make your competition free to enter thus becoming a free draw or failing this add an element of skill, judgement and/or chance.

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