HOW TO RUN AN ONLINE COMPETITION

Running competitions online are becoming an increasingly popular way of marketing a business. This is due to the fact that it is more cost effective than traditional methods and is a productive way of attracting customers to a business. However, there are various factors which a business needs to consider in order to comply with the law.

The legal factors that you must consider are:

  • choosing the type of competition that you are going to run;
  • ensuring that you have a set of competition rules that properly protect your interests; and
  • which laws will govern the competition.

The Type of Competition

This will be the most important decision that you make in relation to your competition because different laws apply depending upon the type of competition that you are going to hold.  The decision will depend on the reason for holding the competition.  Is it to attract as many people as possible to look at your website?  Or, is it to reward customers and/or suppliers for their support? 

The three types of competition that are likely to be appropriate for an online competition are a ‘free prize draw' competition, a ‘free entry with purchase' competition and a ‘skill prize draw' competition and are all governed by the Gambling Act 2005.

a)   The ‘free prize draw'

This is a competition where you:

  • DO NOT charge any kind of fee for entering the competition; and
  • DO NOT make entry conditional on the entrant providing you with some benefit (for example, purchasing something from your website).

In this type of competition:

  • You MAY ask entrants to exercise some skill in order to enter (for example, by answering a question or completing a tie breaker), but you are NOT required to do so; and
  • The winner is usually decided by a draw.

The advantage of running this type of competition is that the winner can be decided by a draw, rather than being compelled to purchase anything.  This is likely to result in you having more entrants.

b)   The ‘free entry with purchase' competition

This is a competition where you:

  • DO make entry conditional upon the entrant providing you with some benefit (for example, purchasing something from your website).

In this type of competition:

  • You MUST NOT ask the entrants to pay more for the purchase than they would normally pay;
  • You MUST provide an alternative free entry route which
  •  
    • must be by some communication method which does not involve payment and is not less convenient than the paid route;
    • the choice of entry must be publicised in a way that it comes to the attention of all those participating; and
    • the system used for allocating the prizes does not differ from the paid route.

The advantage of running this type of competition is that this can attract people to buy your products or services.

The disadvantage of running this type of competition is that if you do not provide a free-alternative route to enter the competition, then this could be deemed as an illegal lottery.

c)  The ‘skill prize draw' competition

This is a competition where:

  • You MUST ensure that entrants exercise some skill in order to enter (for example, entrants must answer a question or complete a tie breaker);
  • You MUST NOT ask entrants to make any type of forecast or prediction in order to win a prize; and
  • You must not pose questions that will prevent a significant proportion of people from participating in the competition or from receiving a prize.

The disadvantage of this type of competition is that if it is a question based prize draw, if the  question posed in the competition is too easy, for entrants to answer it may not satisfy the skill requirement according to the Gambling Commission and may be deemed an illegal lottery as such.  We would consider this type of competition a higher risk.

Competition rules

Whichever type of competition you decide to hold, when you publish details of the competition you are effectively making an offer and when an entrant enters your competition they are effectively accepting your offer.  This process forms a binding contract between you and the entrant so it is very important that you have a set of competition rules, which must be easily available for entrants to read, that set out the terms and conditions of the contract between you and your entrants.

Your competition rules will give details such as:

  • Who is allowed to enter your competition (factors such as age and location should be considered).
  • When the decision will be made as to who is the winner.
  • How the decision will be made as to who is the winner.
  • How many entries will be allowed for each entrant.
  • A description of the prize, including details of when and how it will be delivered to the winner.
  • Any publicity that the winner will be required to take part in.

The rules should be as clear and precise as possible, so that there can be no confusion as to what is and is not allowed and as to what you are offering. 

Governing Law

It is important that it is stipulated within the competition rules, what laws will govern the competition. This is particularly important for online competitions as the Internet covers various jurisdictions and it could be problematic to determine which country's laws apply in the event of a dispute, if this is not clear from the outset.

Particular care should also be taken in stating the deadline for entries. As an online competition will mean that entrants could be entering the competition from various parts of the world, it would be a safeguard to state in the competition rules a condition along the lines of:

"the deadline for entries is at midnight (UK local time) on Monday 7th January 2008"

Conclusion

There are three ways of running an online competition.  One is to hold a free prize draw, which will attract the maximum number of people to your website, the other is to hold a competition to reward people who purchase your good and services and the final one is to ask entrants to display a skill to enter into a prize draw.  The legal requirements with which you must comply will depend upon which type of competition you hold.

Whichever type of competition you hold, you will need to put in place terms and conditions, known as competition rules.  These will govern how your competition is run and will ensure that there is no confusion over what you are offering.

Next Steps

  • You should decide who you would like your competition entrants to be.
  • You should then be in a position to choose which of the two types of competition set out above, would be the most appropriate.
  • Once this decision has been made, you will need to decide what the rules of your competition will be, bearing in mind the factors listed above.
  • You may need the help of a solicitor to draft your competition rules.

© The Waterfront Partnership 2006

(This document was first produced in 2006 and update in 2008)