Businesses planning to hold a competition or any type of prize draw will need to comply with the new gambling laws or risk imprisonment and a fine.

The Gambling Act 2005 came into force on 1 September 2007. The Act regulates any competition that meets all of the following criteria:

1.One or more prizes are allocated to one or more people.

2.The competition requires payment to enter.

Entry to a competition is considered to be free where a participant incurs only the expense of the normal rate of using a method of communication, ie, sending a letter or making a telephone call. If a premium rate charge is used to enter the competition, even if the beneficiary of the charge is a telecommunications company rather than the competition organisers, this will be considered as payment to enter the competition.

Where there is a choice of entry routes and some of them are not free, the competition can still fall outside the new laws if: 

  • participants have a choice of entry method, one of which is free; 
  • entry can be by regular post, or any other method of communication which is easy to use and no more expensive nor less convenient than paying to participate; 
  • the choice of entry method is clearly stated; and 
  • the choice of entry method does not affect any potential prizes.

3.Chance – the prizes must be allocated by a process which relies wholly on chance. In a complex lottery, entry can include multiple stages but an entrants progression beyond the first stage must be based wholly on chance. Later stages can involve tests of skill.

Where progression beyond the first stage of a competition depends on the exercise of a skill, judgement or knowledge by the participant, the competition will not be regulated.

Lotteries will be licenced by a new regulator for gambling in the UK – The Gambling Commission. Non-commercial lotteries such as lotteries which raise money for charities or private lotteries are exempt and do not require a licence. Free prize draws and prize competitions do not require a licence, however the Commission will carefully monitor the boundaries between them and lotteries to avoid any loopholes.

Compliance is a serious issue for businesses as most competitions will be caught by the new laws. The penalty for non-compliance includes a jail sentence of up to one year.