Competitions and free prize draws transcript

Topic: Competitions and free prize draws: a look at the new law
Speakers: Catherine Reed, senior solicitor and Laura Byrnes, solicitor, TMT, Denton Wilde Sapte LLP

 

Catherine – There has been a lot of publicity in the press recently with regards to free prize draws and competitions and there is a debate as to what is legal and illegal under the current legislation and what's going to be legal and illegal under the new Gambling Act 2005 when it comes into force in September this year and Laura and I are here to discuss how our clients and other competition organisers can ensure their competitions and free prize draws do not fall foul of the new Gambling Act.

Laura – Yes, the issue is when you don't run a competition or free prize draw properly, it becomes a lottery. At the end of June the Gambling Commission published some useful Guidance on prize competitions and free draws which aims to give some practical advice to organisers to enable them to ensure that the competitions and free draws that they organise remain within the law. The Guidance was published after nearly a year of consultation with interested parties so I think maybe we should look at the new law and what the new definition of lottery is under that.

Catherine – Well, there are two types of lottery under the new Act – a simple lottery and a complex lottery. A simple lottery is one where payment is required to enter and prizes are allocated entirely by chance and a complex lottery is one where payment is required to enter and prizes are allocated by a series of processes, the first of which relies wholly on chance.

Laura – Right. So there seems to be two ways that you can ensure that organisers aren't running either of those two illegal lotteries, one being to run a prize competition and the other being to run a free prize draw.

Catherine – Yes, that's right so I think that it will be useful to look at firstly how to run a prize competition that doesn't become an illegal lottery.

Laura –If a participant has paid to enter a competition and it falls wholly to chance as to whether they win or not, then that would be an illegal lottery. On the other hand, if they've paid to enter a competition and whether or not they win is based on some sort of skill, judgement or knowledge, then that will be a prize competition. The important thing is that the skill element must either deter a significant proportion of people who wish to enter the competition from doing so or, alternatively, prevent a significant proportion of those who have entered the competition from actually winning the prize.

Catherine – I mean that's an interesting phrase isn't it – significant proportion – is there any guidance in the Act as to what that actually means?

Laura – Well, yes, it is a key phrase and unfortunately under neither the Act nor the Guidance is there any sort of definition of what significant proportion means. The Guidance merely states that it should be taken in its ordinary natural meaning so really it is not very helpful and ultimately I think we are going to have to wait for some court decisions to get some sort of guidance or interpretation of that one.

Catherine – I think that's right. Do organisers actually have to show that a significant proportion of people are actually excluded or eliminated?

 
Laura – No, they don't have to show that they actually have been. What they do need to show is that they reasonably believed that they would be.

Catherine – And how is that reasonable belief going to be judged?

Laura – Well, it will be relatively straightforward for organisers to produce figures that would show that the number of people who had entered a competition and the number who were eliminated from winning the prize. What's going to be more onerous is for organisers to show that a significant proportion of people who wanted to participate were prevented from doing so due to the skill element.

Catherine – Yes, and will they have to produce market research figures and evidence?

Laura – No, actually the Guidance expressly says that organisers won't need to produce market research figures. They won't need to go that far but equally it is not going to be enough for organisers to simply produce audience figures and say, for example, well we've got 1,000 audience members and only 100 of them have entered and therefore the skill element must have been effective. What they need to look at is the propensity of their audience who would actually enter competitions so if you've got 1,000 audience members but only say 400 of them had the propensity to enter the competition and of that only 100 people do, then they are the figures that are more important.

Catherine – So it sounds like the Commission are going to take a tough line on this doesn't it?

Laura – Yes they certainly are. It is very clear from the tone of the Guidance that they really intend to police prize competitions quite vigilantly. If there is any doubt that a prize competition is in fact a lottery just named as a prize competition they are really going to be checking into it and they've said in the Guidance that they will be approaching organisers and they will be asking them to justify why it is that they thought there was reasonable expectation that they were falling within the law.

Catherine – Can they use this reasonable belief argument over and over again?

Laura – No, the Guidance clearly states that while the Commission may be sympathetic to a misjudgement as to what was a reasonable expectation by an organiser in their first competition, they will be very unsympathetic to any similar claims in a second or any subsequent competitions.

Catherine – So it's very much a case of one strike and you're out.

Laura – Yes, it really is and if organisers don't wish to include a skill element, then the alternative for them is to remove the payment to enter requirement and instead run a free prize draw. So maybe we should look at those and how competition organisers can ensure that their competitions are free under the Act.

Catherine – Yes, well Schedule 2 to the Gambling Act sets out what constitutes payment to enter and under this Schedule "Free" doesn't actually mean that entry mustn't cost anything at all, it just means that the method of communication must be charged at the normal rate and normal rate no longer means the price of a phone call or a postage stamp. Normal rate is defined as a rate which does not reflect the opportunity to enter.

Laura – So what about in terms of normal rate, what about mobile phones? Would they be considered free?

Catherine – The Guidance states that calls from mobiles will no longer be seen as payment to enter as long as the call is charged at the normal rate that that operator normally charges its customer for a call. So it doesn't matter if that mobile call is more expensive than somebody else's mobile call but if there's any kind of uplift that can be attributed to the right to enter the competition, then that will be regarded as a payment to enter, and I think it is also important to note that it doesn't matter who the payment is made to. It can be the operator or the competition organiser.

Laura – And what about entries via the web? I know there was some controversy about this after the Commission published a letter back in April this year asking for comments on its views that entry via the web wouldn't be regarded as a free entry route for TV quizzes.

Catherine – That's right. The Commission has expanded on this view in the Guidance to state that free web entry is likely to be regarded as free entry but only in certain circumstances and the key point for organisers to think about is that firstly, entries must be required in a relatively slow time and secondly, the target audience must be such that ready access to the web is likely. So if you are running a competition which has a web- based element to it, then that should be OK. But the Commission has restated its view that it is concerned that for TV quizzes, where there is a need for an immediate response or if the quiz is only run for a short time, then this won't meet the requirement and the Commission has also said that it recognises that this is a very important point for industry because most TV quizzes do have web entry as their free method of entry and it has said that there is going to be further meetings with major operators to discuss this further.

Laura – So there's more to come on that point.

Catherine – Yes.

Laura – One of the other things that it is important to note is that payment doesn't just mean money does it? It can also mean transferring moniey's worth. I know that we advise a lot of magazines on free draws where their entrance is in return for certain data such as names and addresses. Will this still be allowed under the new Act?

Catherine – Yes, this will be allowed and the Commission has confirmed its view in the Guidance that as a general rule they do not regard provision of personal and other data as transferring money's worth. However, they've also said that where large or excessive amounts of data are requested with the intention of selling it to third parties, then this may be regarded as payment. There is no guidance as to what large or excessive amounts of data might mean, so again, I think we are going to have to take a commonsense approach to interpret those words.

Laura – Well there is certainly lots to think about there. What would you say are the key points that organisers should take from this Guidance and the new Act?

Catherine – Well I think the key points are, if you are running a competition, make sure the questions are sufficiently hard to deter a significant proportion of entrants from entering or from winning. The organiser also needs to think about how he will justify his reasonable belief that entrants would be deterred or eliminated and there needs to be some evidential basis for that reasonable belief and if running a free prize draw, make sure there's a free method of entry and that that method is sufficiently well publicised to come to the attention of the participants.