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On-line website competitions & the implications of the Gambling Act 2005

The Gambling Commission (“the Commission”) has recently issued a new set of Guidance Notes entitled “Prize Competitions and Free Draws: the requirements of the Gambling Act 2005 (‘the Act’)”. On-line prize draw competitions continue to be a prolific and highly public aspect of many websites. In the light of recent scandals over television phone-in competitions, it is likely that any promotions encouraging mass public participation will come under increasing scrutiny. For that reason, it is important that organisers of such competitions understand fully their legal responsibilities in this area.

Under previous legislation and case law, it became well accepted that for a prize competiton to be distinguished from a lottery it should neither require an entrant to pay or otherwise make a financial contribution as a condition of entry, nor be a competition where success is based purely upon chance alone. In other words winning must depend “to a substantial degree on the exercise of skill” (the so-called “skills test”).

For organisers of on-line competitions, these criteria raised two key issues:

1. what would satisfy the skills test in the absence of any clear guidelines, particularly given that most on-line competitions asked questions that were either spurious or obvious and thus very easily answered; and
2. do charges levied by internet or mobile phone service providers constitute payment to enter?

The Commission has given some guidelines as to how these issues may be addressed under the Act although it remains the case that, ultimately, only case law will provide definitive answers.

The “skills test” is now essentially a question of deterrence. Skill, judgment or knowledge are still required of an entrant; again, the competition cannot rely wholly on chance. But the Act requires that, to be considered sufficiently “skillful”, the question asked should put some people off entering the competition. The competition must contain some element (e.g. a question) that the competition organiser reasonably expects will either prevent a significant proportion of people who wish to enter from doing so (section 14 (5) (b)) or, if they do enter, from receiving a prize (section 14 (5) (a)). If it does not, then whatever other element of skill, judgment or knowledge may be present may be insufficient to prevent the competition from relying wholly on chance, and thus be a lottery.

On the second point, the Act confirms that free draws always have been and will remain exempt from the statutory control. Schedule 2 of the Act, in setting out what amounts to a “payment to enter”, identifies two possible circumstances: where there is only one means of entering the competition, or where alternative routes to enter exist.

1. Single entry route: here “free” will include normal methods of communication (post, telephone or other means) at “a rate which does not reflect the opportunity to enter a lottery” (para. 5(2)(a)). This includes “ordinary first class or second class post (without special arrangements for delivery)” (para. 5(2)(b)). There can be no additional payment over these costs.
2. Alternative choices of entry (e.g. via mobile phones, text services, emails and other web based systems): here, the Commission sets out the following principles:
   • it is irrelevant to whom payment is made or who benefits from any payment. If a competition organizer makes no charge for entry but a telecommunication company does that is still payment as defined in the Act.
   • the alternative route must be one that is not only free but is also a reasonable alternative choice and no less convenient than the paid route. A person who has no usual access to the internet or mobile telephone service may be prejudiced by a competition which offers these as alternative “free” entry routes.

Under the Act it remains the case that where there is clearly no payment to enter a competition cannot be a lottery; it is therefore irrelevant if the competition requires the exercise of any skill or judgement. Notwithstanding this, and following the Commission’s Guidance, competition organisers should take note of the following:

Where a competition uses a multiple answer format, the Commission will not generally take action where:

• there are sufficiently plausible alternative answers;
• the question is relevant to the context in which the competition is offered
• the correct answer is not obviously given close to the question; and
• “joke” answers are avoided.

Equally the Commission would not take action where other types of format require skill, knowledge or judgment of an equivalent stand to that set out above. However, as the Guidance stresses, ultimately the test must be that as set out in the section 14 (5) of the Act.

If a competition organiser is in any doubt as to whether the competition requires payment to enter – and there is as yet no definitive case-law or other adjudication on this point – it should avoid posing a self-answering or overtly obvious question.

The Commission confirmed that the following will not constitute any “payment to enter”:

• usual mobile phone call charges and internet connection charges;
• the provision of personal data;
• normal delivery or other costs needed to obtain a winning prize; and
• where purchase of a product is necessary to enter the competition, the normal purchase price of that product.

Where possible always provide an alternative entry route to the primary on-line or mobile telephone method. In particular consider the following (which the Commission will consider in assessing the viability of such an alternative route to enter):

• competitors who do not have internet access at home need sufficient time to gain this access elsewhere: the Commission recommends allowing for 3 working days around the date of the particular draw as a reasonable length of time to obtain such access.
• participation by on-line access should be available at all times while the scheme is being actively promoted.
• the availability of free entry via the internet should be made widely known;
• where any doubts exist to satisfy the Acts’ requirements other routes (e.g. by post) should also be offered.

Even if there is a paid route to enter a competition, a competition will still be treated as free to enter if there is an alternative free entry route, providing that:

• the alternative route is by ordinary post or some other form of communication which does not involve payment and is no less convenient than the paid route;
• the choice of routes must be publicised so that it will be likely to be seen by all those intending to participate; and
• the system or decision making process for awarding prizes does not distinguish or discriminate between the alternative entry routes.

For a more detailed paper on this subject see the attached document.

For further information on this topic please contact Lance Phillips.

Issued January 2008.