No Purchase Necessary

The phrase ‘no purchase necessary’ is one many people associate with promotions on the back of cereal packets. However the phrase may be a rarer sight on the breakfast table with the implementation of certain provisions of the Gambling Act 2005 (the “Act”) on 1st September.

Under the Act, both free draws and prize competitions are free of external regulatory control. Public lotteries however, which usually require payment to enter, are the preserve of good causes and may come under regulation by the Gambling Commission.

Why is this change important?

• The requirement of businesses to offer the chance to win promotional free prize draws to people who have not bought their products can:
• blunt the effectiveness of the promotional tool; and
• create unnecessary administrative costs.

Why was the phrase required?

• In order to avoid prosecution for running an illegal lottery.
• Historically the requirement to purchase a product in order to enter a prize draw was considered by the courts to amount to a premium to enter and thus the promotion could be classed as an illegal lottery.

Why is the phrase no longer necessary?

• Under the new regime, it is possible to make entry to a free prize draw conditional upon purchase of the product provided that the purchase price is not artificially inflated to reflect the opportunity to participate in the draw. In other words, payment of the normal retail price does not amount to a premium.

What about prize competitions?

• Promoters of “pay to enter” competitions will need to ensure that entrants are required to exercise an appropriate degree of skill.
• Questions that are too easy to deter or eliminate a “significant proportion” of potential participants will fail the skill test.

What happens if I get it wrong?

• There are criminal penalties for breach of the Act, including upon conviction in a magistrates court:

• a prison sentence of up to 51 weeks and / or;
• a maximum fine of £5000.

How could I get it wrong?

• Charging more for products running the  free prize draw or use of a premium rate phone number to enter .
• Charging the entrant of a free prize draw to discover if a prize has been won.
• Entering customers in a free prize draw in return for completing a survey and then making the data obtained commercially available.
• Charging to enter a prize competition where the question is too easy.

Action:

• Review your current and any proposed promotions (the Act will not apply to certain promotions now classed as lotteries which began before 1st September 2007 providing the draw occurs before 1st March 2008).
• Look at the Gambling Commission website at www.gamblingcommission.gov.uk .