Under the new Gambling Act 2005, UK law looks set, for the first time ever, to confer legality on purchase to enter prize draws which do not have an alternative free entry route. We report on the revolutionary changes lurking in the innards of the new statute.
The UK Government and the Department of Culture, Media & Sport
As previously reported on marketinglaw.co.uk, just before Parliament stood down for the recent general election, the long awaited Gambling Act 2005 was given the royal assent. The Department for Culture, Media & Sport says the new law will come into force at various points over the next 2 years.
Included in those reforms are various significant changes to the laws affecting promotional prize draws and competitions in the UK. Here we will focus on just one of the up-and-coming changes. This will introduce a radical change to the current position for "purchase to enter" prize draws.
Under the Lotteries & Amusements Act 1976 and most English laws in living memory before this date, the only way to run a compliant on pack prize promo has been to ensure that there is also a parallel, alternative free entry route which is "genuine, realistic and unlimited". What is more, to be absolutely on the safe said, the alternative free entry route must be sufficiently well promoted and operated so as to ensure that a substantial number of participants use that route.
Goodbye free entry route
Now, under the Gambling Act 2005, all that is set to change. Although the relevant provisions are not as prominently flagged up as the alternative free entry route needs to be to ensure a purchase to enter prize draw is legal under current laws, the relevant provisions can be found lurking, virtually incognito, in the schedules to the new statutes.
Devil in the Schedule
Schedules 1 and 2 of the Gambling Act 2005 deal with the definition of "payment to enter" in the context of prize draws and competitions.
This is a crucial issue. This is because a requirement "to pay in order to participate" will be fatal to the legality of any prize draw where prizes are awarded by a process which relies wholly on chance. A requirement "to pay in order to participate" would also be fatal to a promotional prize competition unless the degree of skill and judgement involved in winning is high enough to meet the brand new skill and judgement requirements that are going to be introduced under the new Act.
We will focus in separate reports on marketinglaw on this new skill and judgement standard, but assuming the standards are not met, then a requirement to "pay in order to participate" in any prize competition could brand the event illegal not only as a lottery but also as betting.
So how does all this relate to "purchase to enter" prize draws?
The answer is that the effect of Schedule 2 to the Gambling Act 2005, in combination with Section 11 of the Act, is that a "purchase to enter" prize draw will be completely legal provided punters are not being asked to "pay for goods or services at a price or rate which reflects the opportunity to participate" in the prize draw. Hmmm.
For practical purposes this will mean that by and large, if the product is available at exactly the same price as non-promotional products have been immediately before the launch of the promotion,then having to buy that product at the normal price will not be regarded as equivalent to a requirement to pay in order to participate.
Why this matters:
This new species of prize draw adopts a model of "purchase to enter" prize draw that has been operated in New Zealand for many years without any difficulty.
For an example, check out these terms and conditions for a KitKat "Win an iPod Mini Daily" prize promotion currently running in NZ http://www.nestle.com.au/kitkat/ipodminipromo/tc.html
Buy any specially marked pack of KitKat, enter your name and address by mobile text or landline phone, and wait to see if your name is drawn-not an alternative free entry route in sight.
But hold on, there is a further cost involved over and above the product price: there's that mobile or landline phone call/text. But the terms do make clear that this "will not exceed the normal cost of a local call."
Would this element stymie the legality of the draw under the new UK law? It shouldn't do as Schedule 2 tells us that making a telephone call at normal rate will not be regarded as "paying" to enter and the Kiwi terms suggest that NZ law is similarly drafted.
The government was put under great pressure by lobbyists before the Act was finalised to make the position clearer in this regard. However, it stood its ground and firmly expressed the view that it felt these provisions were quite clear.
One area for potential dispute is a case where the product price does increase at the same time as the introduction of a product-linked prize draw. On the face of it this will create a clear risk of the prize draw being held to be an illegal lottery. But what if there are other reasons for the increase in the price which are totally unrelated to the prize promotion? All we can say at this point is that presumably it would be a matter for the court in each case, having considered the relevant evidence as to the reasons behind the price increase.