Social media advertising and prize draw pitfalls

5th June 2024

Photo of someone doing a sweepstake on their phone

Social media is everywhere we look; an unavoidable facet of our business and personal lives. Amongst all the updates from our friends and those we ‘follow’, we can get captured by the allure of adverts on social media platforms offering participation in an “easy” competition to win some expensive prizes.

Such competitions are often seen as a popular way for businesses to engage with their customer base and attract new customers.

However, if as a business you’re looking to do the same, whether that be to appeal to a new audience or raise your profile, it is paramount that you do so in a way which maintains and protects your position.

In the healthcare industry, the use of prize draws and competitions could be the case for private practices who are offering discounts on services for dental work, veterinary procedures or even care home fees. For example, a competition may be offered whereby contestants are offered the chance to receive 25% off healthcare for six months if they win, or come second or third place in a prize draw. However, before any healthcare providers looks to run these kinds of competitions, there is legislation they should be aware of.

The Gambling Act

Prize draws can attract scrutiny from regulators if not properly run. If they aren’t governed by suitable terms and conditions and rules and are not structured correctly, the company launching the schemes can be put at risk.

There are a variety of regulatory aspects to consider when running a prize draw or competition – in particular, whether it would be caught under gambling legislation.

The Gambling Act 2005 (“the Gambling Act”) covers the laws relating to gambling in Great Britain – Northern Ireland is governed by separate legislation – and the Gambling Commission is the regulator of the gambling industry.

It applies to gaming, betting and lotteries. In general, free prize draws and competitions are free from regulatory control. By contrast, lotteries for private or commercial gain are illegal and where a public lottery is being run for a good cause, a licence is generally required unless it falls within an exemption under the Gambling Act.

There are two types of lotteries, a simple lottery and a complex lottery. Under the Gambling Act, three elements are required to determine a simple lottery:

  • The requirement to pay to participate
  • The allocation of prizes
  • The determination of winners by chance.

A complex lottery is where:

  • One or more prizes are allocated to the participants in the scheme
  • People are required to pay to participate
  • The prizes are allocated by a series of processes.

Prize draws

As a general rule, prize draws or lotteries – including sweepstakes and raffles – which are being run online or otherwise, in which UK residents can participate and where a form of payment is required to enter, would be caught under the Act.

Free prize draws, which do not require payment of an entry fee, are generally not caught under the Gambling Act and the Gambling Commission does not regulate such draws. In recent years, some operators have required the entrants to redeem loyalty points in exchange for a chance to win a prize.

A question worth considering is whether the requirement to redeem loyalty points would be considered as being a requirement to pay to enter, which would mean that it would fall under the Gambling Act.

It is therefore crucial for competition operators to understand what “payment” really means. For the purposes of lotteries regulated under the Gambling Act, the Gambling Act states that a reference to paying includes a reference to:

  • Paying money
  • Transferring money’s worth
  • Paying for goods and services at a price or rate which reflects the opportunity to take part in an arrangement under which the participant may win a prize.

In respect of free prize draws, the Gambling Commission would not consider the following costs that are incurred to enter a prize draw as being payment:

  • The cost of buying an item in order to enter, such as a promotional packet of biscuits, provided that the price of the promotional product is not inflated to cover the prize or the cost of running the promotion
  • The cost of making a normal rate telephone call or sending an entry form via first – or second-class postage in order to enter
  • Providing personal data in order to enter, such as filling in a survey, provided the request for data was proportionate and not obtained for the promoter to transfer or sell it to third parties.

Other compliance issues

In addition to the Gambling Act, businesses should consider other regulations for the purposes of prize draws and competitions. There may be consumer protection issues, data protection and tax issues to consider.