The Updated Legal Lowdown on Running Prize Draws and Competitions

Whether you’re a prize draw operator running large-scale competitions, a marketer managing social media campaigns for clients, or a business owner running a promotional prize draw to grow your audience, you are beholden to gambling legislation, advertising standards and consumer protection law. All of which put rules and restrictions on running prize draws and competitions. These can be difficult to decipher. Especially if you’re working out how a piece of legislation written with gambling institutions or large-scale competition operators in mind may be relevant to how you run your prize draw on Instagram, or how to stay compliant when considering a competition as part of a product launch. As for those of you whose main business is running prize draw competitions, you probably have a good handle on the rules, but did you know there’s new guidance in town?

This month, a new Voluntary Code of Good Practice for Prize Draw Operators comes into full effect, introduced by the Department for Culture, Media and Sport, and even if you're not a dedicated prize draw operator, it’s going to be useful to know about.

In this article, I'll walk you through the new code, as well as other official rules and regulations relating to running a prize draw or competition.

Types of Competition

When it comes to running a competition or prize draw, the type of promotion you run has significant legal implications, so it's important to understand the differences.

Prize draws are promotions where the winner is selected entirely at random. Because chance determines the outcome, prize draws must be free to enter. If you charge people to enter a random draw, you have created a lottery, and most lotteries must be licensed to be legal (more to follow).A common example would be a brand running a social media no purchase necessary, winner picked at random giveaway, where followers are asked to like a post, tag a friend and follow the account for a chance to win.

There is some flexibility on what "free to enter" means. Requiring entrants to send a standard rate letter or make a standard rate phone call, or to purchase a product at its normal retail price (not inflated to cover the cost of the promotion), can still qualify as free entry.

Competitions are different. You may charge an entry fee but, when doing so, the competition outcome must be determined by a significant element of skill, knowledge or judgement (not chance). A question with a genuinely skill-based answer, for example, would qualify. However, asking entrants to predict the outcome of a sporting event would not be allowed as that would fall under betting, and therefore the Gambling Act 2005.

Lotteries sit in their own category. A lottery exists where prizes are distributed by chance and participants have made a monetary contribution. Most lotteries require a licence, and running an unlicensed lottery is a criminal offence.

Why a Voluntary Code for Prize Draws?

Prize draws might not feel like gambling, but the two sit closer together than you might think.

According to research commissioned by the Department for Culture, Media and Sport in 2023, the UK prize draw market is worth £1.3 billion annually, with 7.4 million adult participants and over 400 operators. Furthermore, the research found that 88% of prize draw participants had also engaged in commercial gambling or lotteries in the previous 12 months and that people experiencing gambling harm tend to participate in prize draws more frequently and spend significantly more.

So the need for further guidance and a code becomes clearer, but why make it voluntary?

Prize draws don't require a licence under the Gambling Act 2005, provided they offer a free entry route. That puts them in a regulatory grey area, where existing gambling legislation doesn't fully apply, but the potential for harm is still present. Introducing a voluntary code allows the industry to raise its standards and demonstrate responsibility in lieu of official legislation (or at least whilst we await it).

The code is directly relevant for dedicated prize draw operators and, while signing up remains voluntary, a significant number of operators have already become signatories. Most likely, because it is reputationally beneficial to do so, perhaps for the whole industry. After all, signing up signals to players that your operation meets a recognised standard, helping you become a more trusted operation in a space that can often appear ambiguous, unregulated and unaccountable. 

For businesses and marketers who run prize draws occasionally, rather than as their core operation, the code is a genuinely useful reference point. Rather than trying to interpret gambling law and work out how it applies to your social media giveaway or product launch competition, the code sets out clear, practical expectations in plain terms. Following it means you're not only being responsible, but you're also aligning yourself with the direction of travel for the industry as a whole.

Complying with the Voluntary Code of Good Practice

The code is organised around three pillars - Player Protections, Transparency, and Accountability. So, let us explore the individual voluntary commitments competition operators are being asked to make (and some have already signed up to enact) - 

Players Protections

The code places significant emphasis on protecting players, particularly those who may be deemed vulnerable. This includes commitments to - 

• Only make prize draws available to players aged 18 or over, with a reasonable age verification process in place and assurance that advertising should not target anyone under 18.

• Not accept credit card payments exceeding £250 per month per player, and not accept any credit card payments at all for instant win prize draws.

• Set appropriate monthly spending limits for all players, or provide the facility for players to set their own, including the option to set a limit of £0.

• Provide players with the option to temporarily suspend their account for a minimum of six months (during which no marketing materials should be sent to them), or to close it permanently.

• Monitor player activity for signs of harm, including excessive participation, financial distress or changes in behaviour, and intervene proportionately where concerns are identified (as is enforced in the gambling sector)..

• Signpost players to support services where relevant, including Citizens Advice, National Debtline, Samaritans and Mind.

• Ensure that marketing is socially responsible and does not pitch prize draws as a solution to financial problems, an alternative to employment, or an escape from personal difficulties.

Transparency

Improving clarity, particularly that of public communications, also helps to protect players, as well as operators.

The code requests that prize draw and competition holders –

• Provide a clear summary of how each prize draw works, including odds, prize details and draw mechanics.

• Ensure prizes are awarded fairly, either by an independent person, a certified physical drawing machine, or a computer process that produces verifiably random and auditable results.

• Display clear information about the likelihood of winning where possible, including the number of tickets available or using data from previous comparable draws.

• Make any free entry route clearly and prominently available to all players before the point of purchase.

• Award prizes promptly and not reduce prize value, change draw dates, or cancel draws due to low ticket sales.

• Where charitable contributions form part of the draw, publish clear information about how much is donated and when.

Accountability

Operators are also expected to take responsibility for the broader conduct of their business and this includes - 

• Having processes in place to regularly monitor and review compliance with the code.

• Acting swiftly where any gaps are identified.

• Ensuring any third parties involved in running prize draws, such as affiliate marketers or draw management partners, also comply with the relevant requirements, and preferably enforce this via service agreements.

• Working collaboratively with other operators to share best practice.

• Publishing details of all player protection, transparency and accountability measures on their website, so this is accessible publicly.

Other Considerations for Running Competitions and Prize Draws

The Voluntary Code of Good Practice doesn't replace or change any existing laws, and there are several other areas of regulation that anyone running a prize draw or competition should be aware of.

The Gambling Act 2005 remains the primary legislation governing lotteries, prize draws, and competitions in Great Britain, and sets out the legal distinctions between them covered earlier in this article. The Advertising Standards Authority also regulates aspects of prize draws and competitions. The ASA's CAP Code (for non-broadcast advertising) and BCAP Code (for broadcast) both contain rules on how competitions may be advertised, as well as requirements around transparency, clarity and the avoidance of misleading claims. Similarly, the Consumer Protection from Unfair Trading Regulations 2008 has its own rules around misleading actions and omissions in commercial practices, and they too extend to how prizes and odds are described in promotional material.

The prize draw sector is growing, especially online, and so regulation is important for both participants and operators. Being able to follow both legal rules and advisory asks, such as those the new code for prize draws requests, helps competition holders to be compliant, responsible and proactive. As a result, this can work to improve trust in the industry and the practice. So, whether you're running a giveaway on TikTok or operating a full-scale prize draw platform, now is a good time to make sure you're doing it right.

If you have any questions or want to make sure your promotional activity is legally compliant, please get in touch for legal advice on running a competition or prize draw. You will need bespoke set of Terms and Conditions (in compliance with the CAP Code on Promotions) and all the proper website documents if you are running the competition online. Aubergine can assist with any bespoke drafting you need. Or you can also view my online shop below for various business resources, including my Website Policies Toolkit.