With the Government determined to get the Gambling Bill through Parliament before a possible spring 2005 general election, we look beyond super casinos and analyse the Bill’s latest take on prize promotion law reform.
Topic: Games of chance and skill
Who: The Department for Culture, Media and Sport
When: October 2004
The UK Government's Department for Culture, Media and Sport published a further edition of the Gambling Bill and pledged to do all it could to get it onto the statute books by summer 2005 (for which read "spring 2005" if current reports as to when the next general election will be called for are to be believed).
Amidst the furore over multiple large-scale casinos popping up across the country, the various provisions aimed at radically reforming UK law governing prize draws and competitions quietly moved a step closer to becoming law.
Current UK Law on prize competitions is principally in section 14 of the 1976 Lotteries and Amusements Act. This provides that any prize competition run for commercial purposes, regardless of whether it is pay to enter, will be illegal unless success depends to a substantial degree on the exercise of skill.
The idea of this is to avoid promoters trying to get round the problem of illegal lotteries (which occurs with pay to enter random draws) by adding a small element of skill.
The scheme of the Gambling Bill is to continue with the illegal lottery regime and with a situation where "prize competitions" involving skill are allowed.
However, there was no clear guidance as to what level of skill would be sufficient to differentiate a legal competition from an illegal lottery.
A joint Parliamentary Committee commented on this in early 2004 and urged the Government to include a proper prize competition definition. In its response of June 2004, the Government accepted that it was important to ensure that the distinction between lotteries and prize competitions should be as clear as possible and pledged to give further consideration to the possibility of a clause about prize competitions.
This has now borne fruit.
The new approach starts from the point at which the by definition illegal "lottery " is defined.
In section 14 of the bill we now have two types of lottery, both of which are illegal. One is a simple lottery and the other a complex lottery.
Section 14(2) tells us that a "simple lottery" will occur if:
1. persons are required to pay in order to participate in the arrangement;
2. in the course of the arrangement one or more prizes are allocated to one or members of the class of winners; and
3. the prizes are allocated by a process which relies wholly on chance.
Section 14(3) defines a "complex lottery" as an event in which ingredients 1 and 2 above are included and
4. the prizes are allocated by "a series of processes";
5. the first of those processes relies wholly on chance.
In other words you can have any amount of skill you like in a prize event, but if it is pay to enter and the only or first stage of it "relies wholly on chance", then it will still be an illegal lottery.
When skill still means winning depends "wholly on chance"
Section 14(6) tells us 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 still relying "wholly on chance" if the requirement:
(a) neither prevents a significant proportion of persons who participate in the arrangement of which the process forms part from receiving a prize,
(b) nor prevents a significant proportion of persons who wish to participate in that arrangement from doing so.
In other words, if the question is so easy that as many people will participate as would have done if there were no "skill" at all required, then the event will still be regarded as either a simple lottery or a complex lottery and therefore illegal unless specially exempted by statute, for instance, the National Lottery or club raffles.
A quaint example offered by the Explanatory Notes is that of a competition in a fishing magazine where entrants need to answer correctly a question to which the vast majority of readers "might reasonably be expected to know the answer." In this context, the Notes go on, "it would not matter that a majority of non readers would not have the knowledge to answer the question, because non readers would not generally be in a position to participate in the competition."
When prize competitions will be betting
So let's assume you have devised an entry mechanic that involves enough skill to (1) deter from participating a significant proportion of those who might otherwise have entered and (2) prevent a significant proportion of entrants from receiving a prize. Will all then be OK, with no need for licensing from the brand new Gambling Commission?
"Not necessarily" says the Bill, since under s. 11 there will be betting, with all the associated licensing and duty requirements, if the competition involves a requirement to pay and a need to guess or "predict using skill or judgement":-
(a) the outcome of a race, competition "or other event or process";
(b) the likelihood of anything occurring or not occurring; or
(c) whether anything is or is not true
So according to the DCMS's Explanatory Notes to the Bill, this will make it clear that "fantasy football" competitions where a payment has to be made to enter/register will classify as betting, a position the courts have already arrived at by a more circuitous route.
When prize competitions will be legal
So when will prize competitions be legal?
When there is no "requirement to pay" as this expression is now defined in the Bill or when there is a requirement to pay, but the skill required to enter (1) deters a significant number of those who might otherwise have entered (2) prevents a significant proportion of entrants from winning a prize and (3) is the sort of skill that doesn’t classify as guessing of a type to render the event betting.
An example, the Explanatory Notes tell us, would be a prize crossword or any other event "where the elements of prediction and wagering are not both present."
Requirement to pay tests
So establishing if there is a "requirement to pay" is crucial to whether a prize event of any kind is legal, since both prize competitions, regardless of the skill level, and prize draws will be legal if there is no "requirement to pay." In cases where "guessing" is required, it will also be key to determining if the event is betting.
Schedules to the Bill go into more detail as to when a person will be regarded as being "required to pay".
These say that it is immaterial to whom any payment is made and who receives benefit from a payment. It is also immaterial whether a person knows, when he makes a payment, that he is participating in an arrangement as a result of which he may win a prize. This would appear to put the mockers on the current well-known way around illegal lotteries, not telling participants that a draw is happening until after they have parted with their cash, for instance a conference entry fee.
Also, having to pay to discover whether you have won a prize will be regarded as a requirement to pay as will having to pay to take possession of a prize.
Other examples of a requirement to pay are "paying money" (surprise surprise) and "paying for goods or services at a price or rate which reflects the opportunity to participate in an arrangement under which a participant may win a prize".
Purchase to enter draws legalised?
The effect of this last section appears to be that as previously trailered in marketinglaw, a "purchase to enter" random prize draw will become legal for the first time in the UK, provided the product is sold at normal price.
Ordinary postage a requirement to pay?
On the other hand, there will not be a "requirement to pay" if entry involves incurring the expense, at normal rate, of sending a letter by ordinary post, making a telephone call or making any other method of communication.
In this context, "ordinary post" means ordinary first class or second post without special arrangements for delivery, while "normal rate" for a telephone call for instance, is a rate which does not reflect the opportunity to participate in an arrangement under which a person may win a prize.
On this last point, the Parliamentary Committee was dubious as to whether this was clear enough to cover premium rate calls. The Government however said it was quite satisfied that this was clear enough and did cover premium rate calls.
Choice of free entry
Currently providing an alternative fee entry route is a popular way of legalising what would otherwise be an illegal purchase to enter prize draw. Will this change if the new law stays as it is in the Bill?
For bets, prize competitions and lotteries, schedules to the Bill deal with situations where there are different ways of entering a prize event.
Just how relevant these provisions will be if purchase to enter prize draws are to be legalised is unclear, but they stipulate that even if having to make a payment to enter would otherwise render the event illegal, this will not be the case if there is an alternative free entry route which can be deployed by sending a letter by ordinary post or another method of communication which is neither more expensive nor less convenient than entering the lottery by paying (we believe there is a typo here because surely if the alternative method is at least as expensive as paying to enter then it will be the same as pay to enter).
Even if the alternative entry method meets these requirements, however, it will still not prevent the event from being a "required to pay" event unless the entry method is publicised in such a way as to be likely to come to the attention of each individual who proposes to participate (in other words it should not be buried deep in the small print to prize event rules) and the system for allocating prizes must not differentiate between those who participate by paying and those who participate by just sending a communication (a UK version of the US concept of "equal dignity").
Why this matters:
As the latest version of the Gambling Bill makes its way through parliament there may well be further changes to the drafting. We certainly believe such a change is appropriate for the alternative free entry provisions when it comes to methods of communication other than letters sent by ordinary post (see our comments above).
Whether the new Bill materially helps our understanding of when there will be enough skill to keep a prize competition legal is dubious. What does seem to be clear from the new drafting, however, is that unlike current UK law, a free to enter prize competition will be legal, no matter how minimal the level of skill required to win.
In summary, the current state of play is that we look like getting New Zealand style purchase to enter prize draws provided the product is at normal price, legal free to enter prize competitions no matter how small the level of skill and hopefully clearer rules around when an event will be regarded as requiring a person to pay to enter and thereby running a risk of being an illegal lottery or a non compliant "guessing" competition.