Note: This advice is given by the CAP Executive about non-broadcast advertising. It does not constitute legal advice. It does not bind CAP, CAP advisory panels or the Advertising Standards Authority.
The distinction between lotteries and competitions is that lotteries depend on chance whereas competitions are based on skill. Previously, the main law governing lotteries and competitions was the Lotteries and Amusements Act 1976. On 1 September 2007, the Gambling Act 2005 came into effect and made it unlawful to promote or facilitate lotteries, which are more narrowly defined in the Act than they were in case law under the Lotteries and Amusements Act 1976. A lottery can be either a simple lottery (in which participants pay for the chance to win and prizes are allocated by a process that relies wholly on chance) or a complex lottery (in which participants pay for the chance to win and prizes are allocated by a series of processes, the first of which relies wholly on chance).
Under the Gambling Act, unless it is licensed by the Gambling Commission or is a small or private lottery or part of the National Lottery, a lottery is likely to be illegal. Under the old regime, promoters used to stay within the law by offering a “free entry” or "no purchase necessary" (NPN) route or a skill element (such as a tie breaker) but CAP understands that is no longer always necessary. The Gambling Act does not require promoters to offer free-entry routes for chance-based promotions (for example, instant-win promotions) as long as the main entry route does not constitute "payment" as defined by the Act. That is not to say that participants must not incur costs: CAPs understanding, which is not legal advice, is that promoters may lawfully require participants either to buy a good if the price of that good has not increased (or its quality decreased) to reflect the opportunity to participate or to incur expenses associated with, for example, the standard rate of telephone calls or ordinary post.
The other way to avoid running an illegal lottery is to ensure that prizes are awarded based on entrants’ skill, knowledge or judgement. That skill must be real but promotions that use questions that nearly all participants are likely to get right (for example, “what is the capital of England?”) are likely to be treated as based on chance.
So, marketers running promotions should check two things. Firstly, is genuine skill involved? If so, promoters are probably running a competition and whether it costs to enter is irrelevant in those circumstances. Secondly, do participants have somehow to pay to enter by, for example, buying a good? If so, does the cost of that good reflect the opportunity to participate in the promotion? If not, promoters are probably OK. In short, competitions or other promotions in which the allocation of prizes does not depend on chance can continue to require purchase or participation via routes that involve a cost over and above the standard rate of communication (telephone call, postal entry or SMS).
The situation is different for Northern Ireland: case law under the old Lotteries and Amusements Act 1976 indicates that a prize promotion in Northern Ireland will become an unlawful lottery if all participants, or a substantial number of participants, pay for a product or service to enter; the prize promotion would be an unlawful lottery even if the payment for the product, service or cost of communication is at its normal price [Reader’s Digest v Williams]. CAP’s understanding is that chance-based promotions will almost certainly require a free-entry route but promoters might want to get specialist legal advice when running promotions outside Great Britain.
CAP’s understanding is that Section 258 of the Gambling Act makes it is illegal for advertisers to promote overseas lotteries.
For more on how the Gambling Act affects lotteries, see ‘Betting and Gaming: Lotteries’, ‘Sales Promotion: No Purchase Necessary’ and the Gambling Commission’s guidance on www.gamblingcommission.gov.uk.
That advice is designed to be read in conjunction with the Sales Promotion section of the CAP Code and the other entries in this advice section, particularly ‘Free-entry routes’. Also, promoters might also want to seek legal advice.
Last modified : 10 January 2012