Playing fair with competitions and prize draws

You want your distributors, or your business customers, to buy more of your product. You spot that the Gambling Act, when it came into force on September 1, gives you the opportunity to run a prize draw for everyone who makes a purchase. The real winner is you as you no longer have to offer customers that traditional ‘no purchase necessary’ option to enter – that factor that used to undermine the whole point of your promotion. For the first time you can ensure that everyone who enters the prize draw has actually bought the product, and, even better for your company, the more they buy, the better their chance of winning.

Freed from the restrictions of offering free entry, you can offer a massive first prize – so why not bump up the cost of your product by a few pounds to take advantage of the surge in demand you’re expecting? The extra revenue you generate will cover the cost of the prizes. It’s good business. You’re driving sales, you’re entering into the deregulatory spirit of the Gambling Act, and everyone, including you, is a winner.

Wrong. If the Gambling commission catches you running this type of promotion then you’re facing a fine; even, potentially, a jail sentence.

The Gambling Act has clarified the legal environment for prize draws and competitions, but that clarification does not mean that anything goes. Although the old regime for lotteries and competitions was rooted in a 19th century attitude to gambling, the 21st century new regime still has many grey areas and restrictions which could catch you out if you don’t take proper advice. In the case above, you committed one fatal error: you raised your prices as part of the promotion, and that’s against the law.

The previous regime, somewhat toothlessly administered by the Gaming Board, created a culture where the strict interpretation of the law wasn’t taken seriously by numerous companies. As lawyers, we’d be on the phone saying, “I know you’re not going to believe me, and I know that you’re looking at competitions every day that don’t do it this way, but technically those competitions are all illegal.” We ended up having to temper our strict legal advice with some very carefully crafted practical input, to avoid our clients incurring huge expense and creating logistical problems unnecessarily, while their competitors flouted the law either through ignorance, incompetence or indifference.

That at least should now change: the Gambling Commission may have many other regulatory responsibilities, but it has given every indication that it will be actively enforcing these issues under the Act. It has signalled that it will show some flexibility in the short term – not least because many areas of the new laws still need clarification – but this softly-softly approach doesn’t mean it will encourage a free-for-all.

Here’s another potential pitfall: you’re introducing a new product; again you decide to run a prize draw to entice interested retailers to try it. When the Commission calls you’ll need to be able to show that your “introductory price” hasn’t been inflated to fund the draw. That means you need to show your trade price calculations are consistent with the way that you customarily price your product.

Until there is more guidance or some legal precedent, the Gambling Act is maddeningly imprecise in many areas. Legal compliance has an element of ‘work in progress’. If, for example, you want a test of skill in your competition, it’s no longer good enough to set a question that anyone who’s not ‘hard of thinking’ could answer. The Commission states that a test of skill now has to be a filter to “prevent a significant portion of persons” from winning, or to deter a “significant proportion” from entering in the first place. But what proportion is “significant” in practice? So far, there is no clear official guidance, so a degree of caution is necessary.

If you’re offering the competition to entries from your business partners in the whole of UK – then you’re offering it in Northern Ireland too. But here’s another catch: Northern Ireland hasn’t implemented the Gambling Act. And that means that a legal prize draw or competition in England, Wales and Scotland might be illegal in Northern Ireland. You have three choices: take a chance that you won’t be caught; exclude Northern Ireland until the law is changed (hint: don’t hold your breath); or run it according to the old, more restrictive, rules that would make any trade promotion of this type legal in the whole of the UK.

For those who favour taking a chance generally in relation to compliance, the pragmatic approach that the Gambling Commission promises to take regarding enforcement in the short term might encourage some to think that you can push the boundaries a little; to gamble on the Gambling Act. However, even if the Commission’s enforcers don’t give you a legal headache, you might run into more immediate commercial problems. If your promotion can be shown to be illegal and your prizes are being supplied by a third party, then the contract to provide those prizes is unenforceable. The provider of your prizes could simply walk away.

The Gambling Act makes trade promotions potentially far more powerful, and easier and cheaper to run: guess-the-outcome competitions, prize draws, skill competitions – all can now require that your business partners make a purchase first. On the other hand, if you take the law lightly you are involved in a game of chance with much higher stakes than you may have planned for.

 

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