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Legal guide to running a prize competition

Many businesses, particularly those that sell directly to end users, will look to attract customers by running prize competitions or giveaways. Often these businesses will look to hire influencers in order to promote these competitions further.

In this guide we discuss the legal considerations involved both with running a competition or prize giveaway and with hiring an influencer to help you do so.

If, after reading this guide, you’d like further advice on the legal considerations of running a prize competition, or you want prize terms and conditions drafted, speak to our friendly and knowledgeable commercial law solicitors.

What are the key legal considerations in running a competition/prize giveaway?

The Gambling Act 2005 is the main legislation governing gambling in Great Britain. It applies to lotteries, betting (which can include certain prize competitions) and gaming (namely, playing a game of chance for a prize).

The Gambling Act requires you to have operating licences in place if your competition falls within the definition of a lottery, betting or gaming. Failure to have such a licence can result in fines, potential imprisonment and significant brand and reputation damage.

Importantly, skill competitions and free prize draws will fall outside the scope of the Gambling Act if they either:

  • satisfy the ‘skill’ test; or 
  • if no payment is required to enter.

How do you structure a competition to satisfy the ‘skill’ test?

For the skill test to be met, you must have a reasonable expectation that the skill, judgment or knowledge required to enter the competition will either:

  • deter a significant proportion of potential participants from entering; or 
  • prevent a significant proportion of entrants from receiving a prize.

The level of skill or knowledge required will vary, depending on the target market.

If questions are too easy and do not deter a significant proportion of potential participants, or eliminate a significant proportion of entrants, the skill test will not be satisfied. You must either increase the skill level of the test (keeping records of why you believe the skill test is met) or ensure that the competition is free to enter.

How do you make sure that your competition is free to enter?

If a competition fails the skill test, it can still fall outside the remit of the Gambling Act if either:

  • no payment is required to participate in the competition (including finding out if you have won or to collect a prize); or
  • there is an alternative free entry route.

The Gambling Act states that ‘payment’ includes paying money (or money's worth), as well as paying more for something in order to enter the competition, which captures calls to premium rate telephone numbers and paying more for a promotional product versus a non promotional product.

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

  • the alternative route is a letter sent by ordinary post or some other communication method which does not involve payment and is no less convenient than the paid-for route;
  • the choice is publicised in a way that is likely to come to the attention of all those intending to participate; and
  • the system for allocating prizes does not discriminate between the two entry routes.

If you are not sure that your competition satisfies the skills test, you can ensure that it falls outside the scope of the Gambling Act by making it free to enter or if you do require payment, by having an alternative and well-publicised free entry route.

What other legal considerations are involved with running a competition?

The UK Code of Non-broadcast Advertising and Direct & Promotional Marketing (‘CAP Code’) applies to non-broadcast advertisements, sales promotions and direct marketing communications and must be complied with when running prize promotions.

The CAP Code generally requires advertising to be legal, decent, honest and truthful. In addition, it requires certain practical information to be clearly given to consumers before or at the time of entry into prize promotions. This information includes things such as the start and closing dates of the competition, details of how to participate, how winners will be notified and results announced.

You will collect personal data through competitions and prize giveaways and you must comply with the relevant data protection regulations in doing so.  You may wish to use that personal data for direct marketing through, for example, regular newsletters and other customer incentives, which can be an additional benefit of running a competition. Legal advice should be sought into what, if any, additional consent requirements are needed when running the competition, in order to be able to use the data collected for direct marketing purposes.

Considerations when using an influencer to promote your prize giveaway

Many businesses extend the market reach of their competition or prize giveaway by hiring an influencer to promote it on social media.

The Gambling Act and CAP Code apply equally to competitions run via social media so you must take into account the considerations outlined above.

When working with an influencer, it is best to have some form of influencer marketing agreement in place to protect your brand, make clear your expectations of the influencer in terms of marketing your product and any competitions you may run, and that the influencer complies with any legal and regulatory frameworks, such as those outlined above.

What next?

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