Out-Law / Your Daily Need-To-Know

Gambling Commission warns that house competitions asking easy questions could be illegal

Out-Law News | 13 Oct 2008 | 12:54 pm | 2 min. read

The Gambling Commission has warned home owners that they could be breaking the law if they operate internet-based schemes to offload unsold houses. The draw for the most famous of the schemes will take place on Thursday.

Advert: free OUT-LAW Breakfast Seminars - 1. Making your contract work: pitfalls and best practices; 2. Transferring data: the information security issuesThe Wilshaw family generated nationwide publicity when they began running a scheme earlier this year to offload their house, which they had been unable to sell. They claim the scheme is a prize competition, and therefore legal. One gambling law expert, though, says that it is an unlicensed lottery and therefore breaks gambling law.

The Gambling Commission, which regulates what is and what is not an illegal lottery, has made no clear comment on whether such schemes are legal. It has, though, warned house sellers to be careful if embarking on schemes such as the Wilshaws'.

"The Commission has become aware of a number of schemes that are intended to operate as prize competitions in line with the Gambling Act 2005," said a Gambling Commission statement.

"Where the schemes are causing concern, we have taken the step of writing to the scheme operators in order to question whether the skill, judgment or knowledge element of their schemes to win a house is sufficient to meet the requirements of the Act," it said.

"Other homeowners considering such schemes are warned that promoting a lottery without an operating licence is an offence under the Gambling Act 2005. The Commission advises individuals considering or operating a scheme to consider the guidance published on our website and to take independent legal advice before proceeding."

The Wilshaws will make their draw from the 46,000 entries to their competition on Thursday and it is unclear whether any action will be taken on that competition before a winner is picked. A spokeswoman for the Commission said that it would not comment on the case.

It is illegal to run a lottery without a licence, and licences are only given to schemes which operate in aid of a good cause. They cannot be run for private profit and even lotteries for good causes are barred from offering prizes as valuable as the Wilshaws' house.

Prize competitions can be run for private profit, but to qualify, a prize competition must involve the exercise of skill or judgment to a degree that would put off many people from entering in the first place and would disqualify most of those who did enter.

“Lotteries are the preserve of good causes and cannot be operated for private gain,” said the Commission’s Deputy Chief-Executive, Tom Kavanagh. “Prize competitions are free of statutory control under the Gambling Act and can be run for profit but homeowners considering such schemes as an alternative to selling their house risk committing a criminal offence if they cross the boundary and stray into offering an illegal lottery."

“We already have questions over the legality of a small number of existing schemes and are in contact with the organisers," he said.

The Wilshaws asked a question about the price of a fishing permit that was easily answered using internet search engines. They claimed that that qualified it as a competition requiring the exercise of skill and judgment.

Antoinnette Jucker is a gambling law expert with Pinsent Masons, the law firm behind OUT-LAW.COM. She said that she believes the scheme, which only allows correct-answering entrants to buy tickets and which will choose the winner in a draw of the 46,000 entrants, is an illegal lottery.

She welcomed the Commission's statement and said she hoped it would stop a rash of new competitions emerging.

"The Gambling Commission's warning is timely. Hopefully, it will nip in the bud a proliferation of house 'raffles', run as prize competitions to avoid regulation under the Gambling Act," she said. "Quite aside from that compliance question, private individuals disposing of their properties via a genuine prize competition need to recognise they are in largely uncharted waters."

"What, for example, is the tax treatment of the ticket sales? Is lottery duty payable? If the property is tenanted, are they selling a business? How can they be certain the winner will take over any liabilities? A conventional sale may be less exciting but is also much less risky," she said.