Prize competitions are not subject to the same statutory control as lotteries, meaning organisers of such competitions are not required to apply for licences or comply with regulations set out in the Gambling Act 2005 and the associated regulatory control that the Gambling Commission enforces. As prize competitions and free draws are not subject to the same gambling regulations, this presents an opportunity to businesses to either engage their customer base or profit from running a prize competition.

In this blog we look at how a business may navigate the regulatory requirements to ensure the prize competition they run falls outside of the regulatory scope of the Gambling Act 2005.

The Gambling Act 2005

The Gambling Act 2005 sets out the legal test for prize competitions, in section 14(5) of Part 1 whereby if the competition requires entrants to exercise skill, judgment or knowledge and does not rely wholly on chance, the competition will not require a gambling licence. S.14(5) reads:

s.14 –

(5) A process which requires persons to exercise skill or judgment or to display knowledge shall be treated for the purposes of this section as relying wholly on chance if

(a)  the requirement cannot reasonably be expected to prevent a significant proportion of persons who participate in the arrangement of which the process forms part from receiving a prize, and

(b)  the requirement cannot reasonably be expected to prevent a significant proportion of persons who wish to participate in that arrangement from doing so.

The onus is that any requirement of the competition to display skill, judgment or knowledge will come with the reasonable expectation that either (i) a significant proportion of entrants will be prevented from winning or (ii) a significant proportion of entrants will be barred from participating.

The Gambling Act does not define what is to be treated as a “significant proportion” and, in the absence of any specific definition, a literal interpretation of the words should be relied upon by businesses. If a prize competition does not meet the legal test set out in the Gambling Act, then the competition being operated will fall into the category of a lottery as winning or entering will rely wholly on chance as opposed to the exercise of judgment, skill or knowledge. If a business does not have the relevant licences in place, then such businesses run a risk of prosecution for operating an illegal lottery.

The Gambling Commission

The Gambling Commission can decide to commence prosecution proceedings against a business that is facilitating or promoting a competition that falls outside of the definition of a prize competition. If found guilty of such an offence, businesses run the risk of an unlimited fine or a custodial sentence of up to 6 months.

The question of how to prove to the Commission that a prize competition is not a lottery and relies purely on chance may rely on the data that is retained by the business. If retained data is able to show that a significant proportion of entrants fail to win a prize, or enter the competition when answering questions, this may evidence to the Commission that the competition does rely on skill, judgment or knowledge as opposed to relying wholly on chance.

JMW advises businesses on navigating the licencing regime imposed by the Gambling Act and our specialist regulatory solicitors represent businesses which are facing the serious threat of, or ongoing, prosecution by the Gambling Commission.

If you are affected by any gambling licensing issues, please get in touch with us …