Running a competition: FAQ

Out-Law Guide | 30 Jun 2008 | 11:45 am | 10 min. read

We are frequently asked to comment on the legality of certain types of competition. Some questions that we're asked are reproduced here together with our answers. Questions have been amended to protect the anonymity of those who asked them.

This page was created in June 2008.

This FAQ complements our OUT-LAW guide to Running a competition, which provides an overview of the relevant laws.


Pay to enter, win money (December 2007)

We are in discussions to set up an online competition with a large cash prize. The competition is very simple, people just have to submit their basic contact details and pay a small fee. Once we reach a certain amount of people that have done this we announce a winner and they get a large cash prize. Any advice on this would be much appreciated, I am not sure as to which this would be classified as, gaming betting or a lottery?

Your proposed competition appears to be a lottery, in that it involves payment and a prize which is awarded by chance. It is illegal to run a lottery unless either you have a lottery operating licence (and a personal management licence, unless you fall within the exemption for a small-scale operator) from the Gambling Commission, or your lottery falls within one of a limited number of exemptions. Lottery operating licences are only available to local authorities, non-commercial organisations or people running lotteries on their behalf.
 
If winning your competition depended on skill or knowledge, and you reasonably believed that this skill/knowledge requirement was sufficient either to deter a significant proportion of potential participants or to mean that a significant proportion of participants got the answer wrong, then your competition would fall outside the lottery regime. 

You would still need to take care that your competition did not amount to guessing the outcome of a race, competition or other event/process or the likelihood of something occurring or not occurring or whether anything is true or not, as this sort of competition constitutes betting, and so requires a betting operating licence from the Gambling Commission.
 
If you don't require people to pay to enter your competition (or to find out who the winner is or to collect the prize), then your competition won't be a lottery (even if it doesn't involve skill) or betting (even if it involves guessing the outcome of a race etc). You mention that people have to submit contact details as well as making a small payment. If you dropped the payment requirement, then collecting personal data about participants should not amount to "payment" provided that the amount of data you collect is proportionate (though if you sell the data on to someone else, then the position may change).
 
I'm afraid that this can be quite a complicated area, and whether you need a licence for your competition depends on exactly how it operates. I strongly recommend that you take legal advice before establishing your competition – if you would like us to advise further, we'd be pleased to do so but would need to do so on a charging basis.  You may also find the guidance on the Gambling Commission's website at https://www.out-law.comwww.gamblingcommission.gov.uk/ useful. 


Pay to enter, win money (March 2008)

I intend to run a prize draw completion on an internet platform which could produce a sizeable amount of money for the eventual prize winners. Entrants will pay to participate. I intend to use a computer to choose winners. The terms will say that if the completion receives no entries for a given period, the draw will be made and the winners will share the payout less the expenses of the total received. 

Susan Biddle replies:

As participants in your prize draw competition must purchase a place, your proposed competition appears likely to be a lottery under the English Gambling Act 2005 as it involves payment and a prize which is awarded by chance.

It is illegal to run a lottery unless either you have a lottery operating licence (and a personal management licence, unless you fall within the exemption for a small-scale operator) from the Gambling Commission, or your lottery falls within one of a limited number of exemptions. Lottery operating licences are only available to local authorities, non-commercial organisations or people running lotteries on their behalf.

Your competition would fall outside the lotteries regime if there was a free entry route to participate (or the participants are buying something else and paying nothing more for the right to enter the draw) or if winning requires sufficient skill or judgment to satisfy the statutory skill test. Collecting personal data about participants should not amount to 'payment' provided that the amount of data which you collect is proportionate (though if you sell the data to someone else, the position may change).

Depending on how your competition is structured, it might alternatively constitute betting if it involves guessing the outcome of an event – 'spot the ball' type competitions can fall into this category. If so, you would need a betting operating licence, which might be available to you.

The terms of your competition can stipulate that the draw will be made amongst entries that have been made if there are no further entries for a certain period, but I think you would also need to specify an alternative end date, otherwise very occasional entries could mean that the draw continued indefinitely.

The best place to establish the company operating your competition is likely to depend on where you are running the competition. The English Gambling Act will apply if your competition is a lottery and anything is done in relation to that competition in Great Britain or using equipment in Great Britain (unless no-one in Great Britain participates in, or sells tickets for, the competition). If your competition falls within the definition of 'betting', it would be an offence to advertise it in Great Britain unless the competition takes place within the EEA, Gibraltar or certain 'white-listed' countries (currently the Isle of Man, Alderney and Tasmania). If your data processing company is within the EEA, it will be easier for you to transfer personal data to that company without breaching the Data Protection Act.

I'm afraid that this can be quite a complicated area, and whether you need a licence for your competition depends on exactly how it operates. I strongly recommend that you take legal advice before establishing your competition – if you would like us to advise further, we'd be pleased to do so but would need to do so on a charging basis. You may also find the guidance on the Gambling Commission's website at https://www.out-law.comwww.gamblingcommission.gov.uk/ useful.


Raffle to win a house (November 2007)

My husband and I were thinking of holding a 'one off' competition where people pay to enter, with the prospect of winning our house at the end of the competition. Having just read the law regarding gaming, lotteries, competitions etc. - I'm completely confused by the skill factor issue. If we ask a difficult question, the people who want to enter will look up the answer and then enter the competition. If they can't find the answer then they just won't enter surely. How can there be an adequate level of unsucessful entries in that case? – it's nonsense. Is there any way of Mr. and Mrs. Joe Bloggs running a competition such as this legally? We hope to generate enough money to give us market value for the house, pay off the set up and advertising costs, and make a donation to charity.

Susan Biddle replies:

You are right that this is a complex area – you may be aware that earlier in the year a woman who tried to raffle her home was prosecuted for breaking the lottery laws, had to pay compensation and was made the subject of a 12-month conditional discharge, even though the judge accepted that there was no element of dishonesty.

If your competition is not to fall foul of the lottery laws, you will need to ensure that the competition question or questions are sufficiently difficult that your competition satisfies the new skill requirement so that it is not a lottery.

This is a two limb test: your competition must be require participants to exercise skill or judgment or display knowledge which you reasonably expect will either prevent a significant proportion of those who enter from winning, or prevent a significant proportion of people who wish to participate from doing so.

There is no fixed percentage for what amounts to a "significant proportion".  It is probably going to be difficult to show that a significant proportion of potential entrants are deterred from entering, so you need to ask a question that is sufficiently difficult that a significant proportion of entrants get the answer wrong. It is likely to be easier to satisfy this test if you ask a number of questions rather than just one. 

If you haven't already done so, I suggest you look at the guidance available on the Gambling Commission's website at https://www.out-law.comwww.gamblingcommission.gov.uk/.  I also strongly recommend that you take detailed legal advice on this, including getting the eventual format of your proposed competition reviewed and approved by a lawyer, if you wish to go ahead.

See also: House raffle is probably illegal, says gambling law expert, OUT-LAW News, 27/08/2008


Buy a ticket, win a luxury car (August 2008)

If it's illegal to raffle a car, what about those competitions you see in airports and shopping centres where you buy a ticket and, if you're lucky, win a Porsche?

Antoinette Jucker replies:

These tend to be structured as 'spot the ball' competitions. The competition is structured such that there is likely to be only one correct answer.


TV quiz shows (August 2008)

Are brainless TV phone-in quizzes legal?

Antoinette Jucker replies:

Since the Gambling Act came into force on 1st September 2007, you may have noticed that there are fewer premium-rate phone-in TV quizzes. When phone-in TV quizzes do operate, they tend to be either free to enter or else a free entry route is offered.

Since there is no requirement to pay to participate, the quizzes don't fall within the statutory definition of a lottery.


Pools tournament (March 2008)

We want to promote an online pools game. Participants pay a fee to enter and then pick a Permiership football team each week. If your team wins or draws you're through to the next round. The game ends when there is only one player left in the game.

Susan Biddle replies:

From what I have seen on your site it appears that the game you plan to run may constitute either a lottery (payment to enter, with prizes allocated by chance)  or betting (guessing the results of future games). I doubt whether the game involves the skill element necessary to take it outside the scope of the Gambling Act.

I don't know when you first started running the game, but you should be aware that the law changed, and in particular the element of skill required to take competitions outside the lottery regime was increased, when the Gambling Act 2005 came fully into force on 1st September 2007.

If the game does constitute either a lottery or betting then it is illegal to operate the game in the UK without a licence (unless the game falls within one of a limited number of exemptions, but I think this is very unlikely). Lottery licences are only available to local authorities or non-commercial societies, or people operating lotteries on their behalf; betting licences are more widely available.

If your game does constitute betting, then it will be 'pool betting' (because the jackpot depends on the fees paid by the participants) and so will be liable to pool betting duty at 15% of gross profits; further details about this can be found at HM Revenue & Customs' website at www.hmrc.gov.uk.

Your competition would fall outside the lotteries and betting regime if there was a free entry route to participate, but I imagine that this might not be compatible with your business model.

My comments are based on English law, on the basis that you are operating in England.  If any participants come from outside the UK, you should be aware that their local law may impact on the legality of the game and/or the protections available to participants.  The usual way to deal with this is to limit participants to countries where you have checked whether you can operate your game legally.


Prize draw for customers only

We want to run a promotion in England by email whereby if a recipient of the email orders double glazing from us during the following month, they'll be entered into a prize draw to win a holiday. As they are buying double glazing, they are paying, though the cost of the services won't change whether they are entering the draw or not. Is this legal?

Susan Biddle replies:

Yes. If there is no payment to participate in your prize draw, it will not fall within the scope of the Gambling Act. Under the Gambling Act, there is no 'payment' if the price paid for products or services is not increased to reflect the opportunity to enter the draw. So in your case, as customers are only paying the usual cost of the double glazing, with no additional charge for entering the draw, there should be no payment.


Extending the closing date (November 2008)

Our competition has had few entries. Can we extend the closing date?

Susan Biddle replies:

Whether the competition organiser is allowed to extend the closing date will depend on the terms and conditions. If these do not allow the closing date to be postponed, then an extension will be a breach of contract. An extension may also be a breach of the CAP Code (the British Code of Advertising, Sales Promotion and Direct Marketing) which provides that "Closing dates should not be changed unless circumstances outside the reasonable control of the promoter make it unavoidable. If they are changed, promoters should take all reasonable steps to ensure that consumers who participated within the original terms are not disadvantaged."


Raffle with a donation to charity (December 2008)

I am thinking of running a Raffle / Prize Draw based on buying a numbered ticket. There is only one winner and the winner will collect the prize on a determined date. I intend to give a percentage of the collected funds to a charity. The remainder is to be used to fund more prizes and continue holding more raffles / prize draws. Is this legal?

Susan Biddle replies:

Unless your raffle/prize draw is either free to enter (or requires payment, but there is also a free entry route) or constitutes a 'skill competition', it will be a lottery. Under the Gambling Act 2005, it is illegal to operate a lottery in the UK unless you have a lottery operating licence (and a personal management licence, unless you fall within the exemption for a small-scale operator) from the Gambling Commission or your raffle falls within one of a limited number of exemptions.

Lottery operating licences are only available to local authorities or non-commercial organisations or 'external lottery managers', i.e. those operating a lottery on behalf of a local authority or non-commercial organisation, e.g. a charity. Although giving at least 20% of the proceeds to a 'good cause' is a requirement of any lottery licence, the mere fact that you will give a percentage of the proceeds to charity does not mean you are entitled to a licence to operate a lottery.