The long awaited Gambling Commission guidance on the treatment of prize competitions and free draws under the Gambling Act 2005 has finally been released. Nick Johnson describes some of the issues on which we were hoping for clarification and then highlights where hopes were realised or dashed.
Topic: Promotion marketing
Who: The Gambling Commission
When: June 2007
Where:London
Law stated as at: 31 July 2007
What happened:
The Gambling Commission published its long-awaited final guidance on how to comply with the new laws governing prize draws and competitions guidance due to come into force September 1 2007.
This followed a consultation process during August-October 2006 and a further recent "mini-consultation" in April-May 2007.
With the new Act set to come into force on 1 September 2007, marketers, agencies and media organisations were understandably anxious to have clear guidance on some key issues.
Although one of the stated aims of the Gambling Act 2005 ("the Act") was to provide greater certainty for industry on the law relating to prize draws and prize competitions, as of late June 2007, with less than 12 weeks to go before the new Act was due to come into force, there were still significant areas of uncertainty. Here are our "top ten" areas we hoped the Gambling Commission would address in the guidance that was still in the offing at that time.
Top ten areas for clarification
- Transitional arrangements. Informally the Commission has indicated that promotions starting before 1 September 2007 should not face prosecution under the Act if they comply with the existing law, even if the entry period expires after the Act comes into force. But as of mid June 2007, this had not yet been confirmed formally.
- Payment to enter. The Act gives the UK's first statutory definition of a lottery. It provides that a prize draw may amount to an illegal lottery if entrants are required to pay money or "transfer money's worth" as a condition of entry. While the Act itself gives some useful guidance as to what activities will and will not be included within this, it was hoped that that the Commission's guidance would clarify that it believes that a requirement to provide personal data (eg fill in a lifestyle questionnaire) will not count as transferring "money's worth" for the purposes of the Act. It ws also expected that the Commission will issue specific guidance as to what counts as a permitted "normal rate" for telephone and text communications in order to enter a draw.
- New products and "normal price". One of the most fundamental changes under the new Act is that purchase-to-enter prize draws will for the first time become legal without any need for a "no purchase necessary" free entry route. The main condition for this is that the price of the item that has to be purchased must not be inflated to reflect the opportunity to win a prize. It was hoped that the Commission would give clear guidance as to how this will be assessed in the case of brand new products for which there is no "normal" price.
- Payment to claim prize. The Act states that "a requirement to pay in order to take possession of a prize … shall be treated as a requirement to pay to participate". It was hoped that the Commission would provide clear guidance that money-off vouchers and items like concert tickets (where travel may need to be purchased in order to attend the event) would not be barred from being prizes by virtue of this provision.
- Email/web entry. Many premium rate competitions currently rely on an alternative entry route to keep them legal. That option will potentially remain open under the Act. However, the Commission has stated its belief that free web entry into phone-in TV quizzes is "highly unlikely" to be a permissible alternative entry route. The guidance was expected to contain clarification of the circumstances in which it believed that email and web entries would be workable alternative free entry routes for other kinds of prize promotion.
- "Equal prominence"? Where alternative free entries are offered, the Act requires that they must be "publicised in such a way as to be likely to come to the attention of each individual who proposes to participate". The explanatory notes accompanying the Act unhelpfully suggest that this requires the alternative route to be promoted with "equal prominence" to the paid-for entry route. Of course, the Act does not say this, and many hoped that the Commission would in its guidance put paid to this suggestion once and for all.
- Licensed lotteries. Much has been said about the potential for Quiz TV programmes and other prize competitions to be re-positioned as licensed lotteries, with 20% of the proceeds being required to be donated to good causes. But guidance as to which entities would need to be licensed and how this would work in the absence of lottery "tickets" remains thin on the ground. Again the guidance would hopefully address this.
- Gaming. The Act provides reasonably clear guidance as to the treatment of "cross-over" activities that could potentially fall within the definitions of both lotteries and betting, both betting and gaming, both lotteries and gaming or both skill competitions and betting. But the Act is unhelpfully silent on the potential cross-over between skill competitions and "gaming". The new statutory definition of "gaming" is drafted widely. It would catch not just poker, bingo and fruit machines but also potentially an online computer game tournament, even where there is no payment to enter. In fact, many skill competitions could fall within this definition, potentially making them unlawful to operate in the absence of a gambling licence. Guidance from the Gambling Commission as to their enforcement policy in this regard was accordingly keenly anticipated.
- Level of skill. The previous test for skill competitions under s.14 of the Lotteries and Amusements Act 1976 was often criticised for its lack of clarity. But the replacement under the new Act arguably creates more problems than it solves. The new test for "complex lotteries" at s.14(5) means that a skill stage must "reasonably be expected" to prevent a "significant proportion" of persons from winning a prize or deter a "significant proportion" from entering in the first place. Many have lobbied the Commission to provide guidance as to what it would regard as a significant proportion for these purposes. As of mid June 2007 it had declined to do so, stating that "it will generally be clear where sufficient skill has been required" and that "ultimately, only the courts can authoritatively interpret the law". On the latter point, while it is of course true that the Gambling Commission can only offer its opinions as to the correct interpretation of the law, many in industry felt that the Commission needed to come off the fence on this issue and give everyone clear visibility as to what the Commission's enforcement policy was going to be.
- Evidence on skill stages. The Commission's consultation on its proposed guidance suggested that it would regard promoters running pay-to-enter (eg premium rate entry) mixed skill/chance competitions as being under a duty to collate and keep quantitative evidence that the skill stage satisfies the new test mentioned above (ie that it should be expected to deter or knock out a "significant proportion" of potential entrants). This would be no mean feat, and it is not easy to see how those running competitions could realistically satisfy this requirement. Given that the Act itself imposes no such evidential burden and in fact provides a defence (under ss.258-259) to an operator who reasonably believed that the arrangement in question was not a lottery, there were inevitably calls for the Commission to back-track on this.
Hopes realised or dashed?
These then are a subjective "top ten" new prize promotion law issues needing clarification as of mid June 2007. The Gambling Commission finally published its guidance on 29 June 2007. It is at http://www.gamblingcommission.gov.uk/Client/news/pressrelease_detail.asp?id=33
Were the hopes expressed above realised? Here are some initial thoughts. More commentary on the Guidance will follow in the September 2007 marketinglaw update.
- Transitional arrangements: there is still no clarity on transitional arrangements for existing promotions and those with periods that may run beyond 1 September this year. Given that the main consultation on these issues took place between August and October 2006 and that large promotional campaigns are often planned and booked months in advance, this will not win the Commission many friends in industry. Businesses now have a lot to get to grips with over the summer months to ensure compliance come September.
- Text entries for TV quizzes: "Many in the industry will be disappointed that the new guidelines will not allow premium rate charges on text message entries for draws and low-skill competitions . The argument goes that charging 25p for a text message entry is still less than the price of stamp, so should be permitted. But the Commission 's interpretation of the Act - that text messages entries can only be charged at standard rate – is a fair reflection of what the legislation says ."
- Skill test: "The industry will welcome the clearer guidance from the Commission as to how it plans to approach the skill test for competitions . But it's still not clear how some traditional formats like Spot The Ball competitions will fall to be treated under the new legislation. And the new skill test raises some tricky evidential problems for promoters generally."
- Online entry? Today's guidance clarifies that, in certain circumstances, email and the web are appropriate free entry points for prize promotions. Although these are unlikely to work as alternative entry routes for premium rate TV quiz competitions where immediate responses are required, the Commission seems to accept that they may be workable for competitions and promotions where the response period is longer. So newspapers and magazines may yet be able to rely on this route."
- What is gaming? We still have no clear guidance as to how the broad definition of 'gaming' under the new Act is going to be applied to promotional competitions and tournaments. Taken at face value, it looks like the Act would criminalise online computer game tournaments, even where free to enter. Treasure hunts and a range of other forms of promotion could also fall within the broad definition of 'games of chance' and become banned as illegal gambling. But is this really what Parliament intended?"
- Payment to claim a prize: the guidance does tell us that a prize promotion that otherwise avoids gambling will not become gambling simply because prize winners are required to pay normal delivery "or other normal costs needed to obtain to obtain or use a prize." This would therefore allow, the guidance goes on, the promoter to charge, in respect of a camera prize, normal delivery costs that would be payable if the camera were bought from a retailer in the normal way [presumably they mean by mail order or online] . Nor would a car prize promotion become gambling simply because the winner was required to pay road tax.
- Payment to enter: on the issue of whether having to provide personal data as part of the entry process might classify as "a requirement to pay to participate" the guidance states as a general rule the Commission does not think that this will amount to a payment. However the guidance does go on to say that the position might be different where large quantities of data are requested before entry, "particularly where the data obtained is intended to be sold to third parties."
- Level of skill: here the guidance states that the more questions or clues which have to be solved, the more likely it is that application of the statutory test will lead to the conclusion that the competition is not a lottery. This position is unlikely to change, the Commission goes on, just because the answer can be discovered by basic research, whether on the internet or elsewhere. Also in the context of crosswords and other types of word and number puzzles, such as those which feature in competition magazines, here the guidance states that "law makes it clear that these qualify as [legal] prize competitions even if those who successfully complete the puzzle are subsequently entered into a prize draw to pick the winner."
- Further clarification on our top ten? Not a great deal more than we have already covered above.
Why this matters:
Clearly it is disappointing that the Gambling Commission has chosen not to offer further clarification at this time on more than a small proportion of our "top ten" issues. However what guidance they do offer on the remaining issues is helpful and reasonably clear and we can probably take it that this is all we can expect by way of a helping hand in the foreseeable future.
In next month's marketinglaw we will cover the other points the guidance does offer assistance on and also highlight the more noteworthy changes between the version of the guidance sent out for consultation in August 2006 and the final version now published.
Nick Johnson and Stephen Groom
Osborne Clarke
Nick.johnson@osborneclarke.com
Stephen.groom@osborneclarke.com
