Over the last few years, prize competitions have become increasingly popular with prizes varying from houses to holidays, technology products, cars and alcohol.
Whilst some competitions operate legally, we have found that many organisers fall foul of the law through a lack of appreciation of the law that separates prize competitions from lotteries and other gambling activities. The prevalence of sites on the internet that appear to be legitimate – but are not – presents a risk for anyone establishing a competition if they attempt to copy the terms and conditions or the way that such sites are operated.
Most ‘gambling’ activities require some form of licence or permit but prize competitions can be exempted providing that the legal requirements are met.
One way to escape the need for a licence and to operate legally is to design a competition that involves an element of chance but also first requires a sufficient level of skill, judgment or knowledge to deter a significant proportion of potential entrants from participating or eliminate a significant proportion of actual entrants from receiving a prize. The usual method is to organise a competition which is a game of skill but often there is a draw at the end of the process where there is more than one winner. Some competitions are organised as a lottery, raffle or straightforward draw and this causes a fundamental problem as lotteries are the preserve of charities and cannot therefore be used if the main purpose is for private gain.
It is also important to ensure that the Terms and Conditions of the competition provide adequate protection, covering such circumstances as what should happen if there are insufficient entries or the competition is stopped for some reason.
Planning a competition requires considerable forethought and if you are intending to do so, you need to be prepared for all eventualities. Not all competitions end in the disposal of the main prize and a cash prize is normally offered if there are insufficient entries. You need to ensure that you have a reliable method of accepting payment as not all on-line payment merchants will wish to do business with you and several competitions have been stopped mid-way because banking facilities have been withdrawn.
We advise anyone contemplating prize competition to seek expert legal assistance first. Our lawyers have expertise in his area, having been involved in many competitions, and can advise on how to undertake the competition within the law.
We are able to draft terms and conditions, review any publicity material, draft letters of compliance for payment gateway providers or social media sites, audit entries and supervise the draw.