Running a competition: FAQ
This page was created in June 2008.
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 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 www.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 www.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
www.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.
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.
