As the ‘in force’ September 2007 date for the Gambling Act 2005 looms, the new gambling regulator is consulting on how to make sure that the new regime is clear on the distinction between legal skill competitions and illegal lotteries. So what else is new?
Topic: Consultation on new prize draw and skill competition guidelines
Who: Gambling Commission
When: August 2006
The body responsible for regulating gambling in the UK, the Gambling Commission, has published an issue paper to consult on its approach to prize draws and skill competitions in the UK under the new framework established by the Gambling Act 2005.
The issue paper (available from the Gambling Commission's website at www.gamblingcommission.gov.uk) sets out how the Commission intends to interpret the new rules governing whether a promotion amounts to either an illegal lottery or a legal prize draw or skill competition under the Act, which is anticipated to come into force in September 2007. Responses are invited from interested parties by no later than 31 October 2006.
It is no secret that for the past few years the enforcement of the existing rules in this area has been patchy at best, and it is clear that this is the opening shot by the Gambling Commission in what may well prove to be a long and difficult exercise in persuading marketers to adhere to the new rules.
The issue paper picks up on a few of the issues surrounding the new laws, and in particular:
Under the new rules, promotions which consist of payment to enter together with prizes allocated "wholly by chance" will amount to lotteries (which are illegal unless they fall within one of the limited exceptions under the Act).
Genuine prize competitions are not prohibited, and will not amount to allocating prizes "wholly by chance" so long as they contain a requirement to exercise skill, judgement or knowledge that is reasonably likely to:
(i) prevent a significant proportion of people who wish to participate from doing so; or
(ii) prevent a significant proportion of people who participate from receiving a prize.
The Gambling Commission recognises that the key element to the distinction between skill competitions and (illegal) lotteries is therefore the meaning of "significant proportion". However it is reluctant to set any definitive figures which it would regard as a "significant proportion". Instead, the Commission states that it will generally be clear where sufficient skill has been required, and that promoters who choose to experiment with borderline cases will run the risk of being prosecuted.
Not much guidance on this issue then, which will probably have to await a court judgment for an unlucky promoter in due course.
The Commission goes on to state that promoters should be able to produce some evidence that they have taken steps to estimate the likely proportions and to know their target audience in order to satisfy the "reasonably likely" test highlighted above.
In particular it will not be acceptable to merely use for example audience viewing figures for a TV programme to compare against actual participating numbers, but instead promoters will need to undertake market research to ascertain the propensity of the overall audience to enter such promotions in order to make a more meaningful comparison.
However the Commission recognises that where a particular type of promotion is run for the first time it may be difficult to predict likely entrant behaviour, and that therefore if a promoter has made a genuine attempt at estimating the likely proportion of entrants, but due to a misjudgement it subsequently turns out that the actual numbers do not amount to a "significant proportion", then this will still satisfy the "reasonably likely" test. However it will not be justifiable for a promoter to repeat that mistake by running further similar promotions.
This has the potential to create a loophole, whereby unscrupulous promoters could look to run a different type of promotion each time and to claim a "misjudgement" when the actual numbers involved do not amount to a "significant proportion", and it will be interesting to see how the Commission intends to establish whether or not a promoter has made a genuine attempt at complying with the rules.
Free entry routes
The new rules contain a new statutory definition of a free entry route, which if included in a promotion which would otherwise amount to an (illegal) lottery, will render the promotion a legal prize draw.
This definition was aimed at simplifying the existing rules which had created much confusion. The new rules state that a free entry route is effective if:
(i) each participant has a choice whether to enter by paying or by sending a communication;
(ii) the communication may be sent by ordinary post or another method of communication that is neither more expensive nor less convenient than entering by paying;
(iii) the choice is publicised in such a way as to be likely to come to the attention of each individual who proposes to participate; and
(iv) the system for allocating prizes does not differentiate between entries via either method of entry.
Rather unfortunately the Gambling Commission has decided to add confusion into the mix by suggesting that one factor relevant to establishing whether or not a choice has been adequately publicised (point (iii) above) will be the actual proportion of participants who use the free entry route. Again the Commission does not go so far as to suggest a minimum proportion that it would seek to enforce.
With respect this seems very much like reverting back to the existing (confusing) rules, and introducing an element (proportion of participants who use the free entry route) which has been specifically excluded from the new definition of "free entry route" as set out above. The Commission states it welcomes comments on this approach, so it is to be hoped that common sense will prevail in due course.
Provision of data = payment?
A while ago we reported on the suggestion made that the provision of data (by way of survey questions) could amount to "payment" for the purposes of rendering legal prize draws into (illegal) lotteries.
The Commission has now stated it is "not inclined" to argue that the mere provision of data could amount to payment to enter, which should hopefully remove the uncertainty on this point.
Why this matters:
The Gambling Act promises the biggest shake-up in the regulation of gambling for the last forty years, and the proposed guidance on prize draws and skill competitions will form part of the new regulatory landscape that is intended to last for the next forty years and beyond.
The paper makes clear that the Gambling Commission is prepared to pursue and prosecute schemes which amount to illegal lotteries, and high-profile prosecutions can be expected once the new rules are in force in order to get this message across.
All interested parties and industry stakeholders would therefore be well advised to study the proposed new guidance carefully and submit their comments by the 31st October closing date