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Gambling Commission retracts advice on controversial house competitions

Out-Law News | 18 Sep 2008 | 5:38 pm | 3 min. read

The UK's Gambling Commission has retracted advice which appeared to back claims of those behind a rash of house-sale competitions that their schemes are lawful. It has performed a u-turn on advice which said that it was "clear" that one competition was legal.

Advert: free OUT-LAW Breakfast Seminars - 1. Making your contract work: pitfalls and best practices; 2. Transferring data: the information security issuesThe Wilshaw family this week completed the sale of 46,000 tickets priced at £25 to raise £1.15 million for a house they previously could not sell.

The Gambling Commission told one enquiring member of the public that the competition was a competition and not a lottery and was therefore legal. It has now retracted that advice.

"I would like to apologise for the email which was sent to you by the Commission on 3 September," the Commission's director of licensing and compliance Hazel Canter wrote. "The email in question gave an inaccurate answer. We are sorry for any confusion that this mistake may have caused."

It is illegal to operate a private lottery for profit, but running a prize competition which involves an exercise of skill or judgment is legal. The Wilshaws claimed that a question about a fishing permit whose answer was easily found online qualified it as a prize competition.

Asmat Monaghan asked the Commission for clarification of the issue. Monaghan, an ex-director of IT at Nortel Networks, is setting up her own system of selling chances to win valuable items including houses. She claims that her reverse auctions satisfy all the Commission's requirements to qualify for a prize competition.

The Commission's James Cook wrote to Monaghan advising that single questions did qualify as tests of skill or judgment even when the answers could easily be found online.

"It does not matter that the answer can be found from basic research on the internet," Cook wrote. "If this was the case then it would rule out virtually every question and answer skill competition. It is clear that a person is not eligible to enter the draw without answering the question properly, which stops it being a lottery."

Since the Wilshaws' scheme received widespread publicity at least six other competitions have sprung up along similar lines.

OUT-LAW.COM can also reveal that the operators of legal lotteries believe that a rash of such competitions will damage their ability to raise funds for charities. Lotteries can only be run if they benefit good causes.

"Even isolated instances shouldn't be permitted frankly because they are in breach of the regulations and they are diverting money from good causes," Clive Mollett, the Chairman of the Lotteries Council, told technology law podcast OUT-LAW Radio. The Lotteries Council is a trade body representing companies that operate lotteries for good causes.

"The reality is that the Gambling Commission, despite its very generous funding, … doesn't appear to have the resources or perhaps the inclination to stamp out these kinds of abuses," said Mollett.

The Wilshaws and their lawyer Steve Kuncewicz, of law firm Ralli, claimed that the Commission's guidance on the issue made their competition legal.

That part of the guidance says: "The Commission does not think a particular question or clue fails to qualify as involving skill or knowledge just because the answer can be discovered by basic research, whether on the internet or elsewhere".

But a Gambling Commission spokesman told OUT-LAW that if there was any doubt about whether a scheme involved the exercise of skill or judgment, the two tests listed in section 14(5) of the Gambling Act should decide the matter.

Gambling law expert Antoinette Jucker of Pinsent Masons, the law firm behind OUT-LAW.COM, said that the competition's question failed both of those tests because it did not discourage entries to the competition or exclude a significant proportion of entrants from winning.

The Commission's retraction to Monaghan makes it clear that the comments about internet research in its guidance do not guarantee that all competitions using such questions will qualify as prize competitions.

"Whilst the Commission included the sentence about basic research, in paragraph 3.6 of our guidance, because we had been specifically asked about the point by a number of respondents to our consultations, it is not the Commission’s view that the statement applies irrespective of the circumstances of a particular case," the Commission's Canter wrote to Monaghan. "The Commission has simply expressed the view that we do not think a prize competition necessarily and automatically fails the test if basic research can discover the answer. It may or may not. The test remains that in section14 (5) [of the Gambling Act]."

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