15 Lotteries, Competitions and Free Draws     

15.1.1

Prize competitions and free draws are free of statutory regulatory control under the Gambling Act 2005 (the Act). Such competitions and draws can therefore be organised commercially for private benefit and profit. This contrasts with public lotteries, which are the preserve of good causes, and must, unless they qualify in one of the ‘exempt’ categories, operate under a licence issued by the Gambling Commission). Lottery operating licences are only issued to non-commercial societies and external lottery managers who promote lotteries on their behalf. 

15.1.2

The Act contains provisions designed to make clear the distinction between lotteries, prize competitions and free draws. Although the Commission has no regulatory responsibilities in respect of competitions and draws, they nonetheless monitor the boundary between them and lotteries. They also have powers in respect of pursuing and prosecuting illegal gambling and will act where schemes are organised and promoted that, in their view, amount to unlicensed and therefore illegal public lotteries. 

15.3.1

In prize competitions, success depends, at least in part, on the exercise of skill, judgment or knowledge by the participants. This distinguishes them from lotteries, where either success depends wholly on chance or, in a complex lottery; the first stage relies wholly on chance. Section 14(5) of the Act addresses this distinction. 

15.3.2

Section 14(5) states that ‘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.’ 

Note: Full details on Prize competitions can be found in the Gambling Commission’s ‘Prize competitions and free draws: The requirements of the Gambling Act 2005. A link is available within the Resource Centre. 

15.3.3

Any competition conducted through a newspaper or in connection with any trade or business or the sale of any article to the public is illegal if it is: 

a) a competition in which prizes are offered for forecasts of the result of either: 

• a future event, or 
• a past event, the result of which is not yet ascertained or not yet generally known. 

b) any other competition in which success does not depend to a substantial degree on the exercise of skill. For example, any form of lottery held either to reduce the number of entrants or to avoid checking entries (e.g. “first correct entry opened”) is illegal, however much skill may have been used to solve the competition. 

Any competition considered and its rules must be cleared with your Compliance Department prior to use. 

15.4.1

A free draw is similar in concept to a lottery. Like a lottery, a free draw is a distribution of prizes by lot or chance but the critical point of distinction is that the participants in a Free Draw do not make a payment either directly or indirectly for a chance of taking part. It is this important difference that makes a free draw lawful. 

Note: There are nuances to this in that for example you could operate a free draw with the purchase of a bottle of coke, however you cannot increase the cost of a bottle of coke during the promotion and no monies taken from the purchase of the bottle can subsidise the prize given for the Free Draw. 

15.4.2

As free draws are not lotteries they are exempt from statutory control. Schedule 2 to the Act gives details of what is to be treated as amounting to ‘payment to enter’ for the purposes of distinguishing free draws from lotteries. 

15.4.3

‘Payment to enter’ for example would not include the ‘normal’ cost of first or second class post; but more expensive mailing charges to participate, or charges above a ‘normal’ rate for the communication (phone, text etc.) would not be acceptable. 

15.4.4

The Gambling Commission have no statutory responsibilities for free draws. You do not need any kind of licence from the Gambling Commission to run a free draw under the Gambling Act 2005. The rules and conduct of your free draw are solely your responsibility. 

15.4.5

In bingo, ‘free draws’ are normally relatively straight forward where any customer can take part, there is no charge to participate and the winner is selected in a random manner. 

15.4.6

Free draws are subject to the law on matters of fraud, theft, deception, and so on, and where you operate a promotion outside the ‘normal’ parameters above, you are advised to seek independent legal advice beforehand from your compliance department. 

15.4.7

As stated in the introduction, the Gambling Commission monitor the boundary between lotteries, competitions and free draws to make sure that people who organise lotteries are properly licensed. Read Prize competitions and free draws – The requirements of the Gambling Act 2005 – December 2009 for more information. A link is available within the Resource Centre. 

15.4.8

The rules of any free draw must always be displayed.