ILL-GOTTEN GAMES

Many competitions run by big brand owners effectively break the law; some even charge consumers to enter. But the 14bn gaming industry is policed by a part-time watchdog, unwilling to act. How much longer can this go on? By Jon Rees and David Benady

Brand owners are breaking the law. Many are running illegal scratchcard and other sales promotion competitions. And they are doing it in the knowledge that the Gaming Board – a Government-funded body – created to ensure that gaming is “run fairly and in accordance with the law” will not stop them.

But now, stung by criticism and controversy surrounding recent promotions – especially one involving the Royal Mail exposed by Marketing Week (May 3) – members of the Gaming Board will meet within the next two weeks to reassess their position. If they decide to enforce the law it could blow a hole in a sales promotion sector which has mushroomed in the past five years and now makes up a substantial slice of the total 7bn sales promotion industry.

Brand owners ranging from Associated Newspapers to Mirror Group, McDonald’s and the brewer Bass are among those running promotions which are questionable under existing law.

But they have not been investigated because the Gaming Board does not have the resources – or the inclination it seems – to prosecute.

In fact the only case it has prosecuted involved the controversial Telemillion scheme.

Organiser Interactive Telephone Services was fined a nominal 250 and ordered to pay costs of 7,500 for running an illegal lottery in August 1995 (MW August 11 1995).

At the time observers believed the prosecution would change the whole environment and force companies to act within the existing laws. But rather than creating a precedent, the case was the exception rather than the rule.

The unwillingness of the Gaming Board to prosecute raises questions about its continued existence. Most recently it described the first Royal Mail scratchcard promotion, offering a family holiday to Walt Disney World as illegal. But it will do nothing to stop it.

Its reasons were simple. For a promotion to be legal it must be possible to enter without making a purchase. Crucially, it must be as easy for consumers to enter without making a purchase as it is for them to enter via the purchase route. And the fact that a free entry route is available must be printed on all promotional material.

The requirement was not met, says the Gaming Board, so the promotion is in effect an illegal lottery, a claim which the Royal Mail vehemently denies, saying it complies with all relevant rules.

According to the Gaming Board, however, this is only one of many. It cites everything from newspaper promotions, to TV Goal of the Month competitions to the competition at the end of ITV’s Wish You Were Here holiday programme.

“We have always said the great majority of these promotions are illegal,” says Gaming Board secretary Tom Kavanagh.

His argument is that the competitions are illegal because the free entry route is not genuine and rarely used, and the use of premium rate phone lines means consumers pay to enter. The notion that the competition involves skill is nonsense given the level of questions involved (along the lines of “Which country is New York in? A. USA B. China C. Madagascar”) and the winner is picked by chance from those candidates who answer the questions correctly.

So there is payment required for entry, the winner is determined by chance and there then follows a distribution of prizes. In other words, it is a lottery by any other name – lotteries are illegal unless they comply with the 1976 Lotteries & Amuse- ments Act or the 1993 Lottery Act.

“There is illegal gaming in this country and there’s no point in denying it and all [such games] are at risk of being prosecuted,” says Kavanagh. “Most are not causing major concern and it will cost a lot of money (to prosecute).”

He points out that the Gaming Board budget is 3m a year to oversee a 14bn gambling industry – but how much money does it take to make a complaint to the Crown Prosecution Service (CPS)?

The CPS says it has had very few referrals, or complaints, about illegal sales promotions or lotteries. “We’ve checked our files and can only find two cases which have been referred to us, one of which was Telemillion,” says a spokesman.

The CPS is in regular contact with the Gaming Board, though it is not able to say how frequently contact is made. Kavanagh admits there are “hundreds” of illegal competitions running at the moment where companies involved are making a lot of money out of people entering.

“I do not deny that; but we’re in the quandary of all enforcement bodies: if we come across a breach of the law, do we go hell for leather after those involved? It’s a choice we have to make,” he says.

So, given the Gaming Board’s remit. Its Home Office funding to keep an eye on and advise about the gaming industry, why isn’t it taking steps to see that these promotions are banned and prosecuted?

The Gaming Board claims it does and points to the successful prosecution of Telemillion. Participants in the Telemillion scheme called an 0891 number at a charge, and then answered a question. Those that got it right were able to go for the jackpot of up to 250,000 in a game of chance.

The legal question hinged on two areas – was Telemillion a free entry game? And what was the level of skill involved? The CPS decided Telemillion was distributing tickets in an illegal lottery and that it was running an illegal competition in connection with business or “the sale of any article to the public” in which success does not depend to a substantial degree on skill.

Michael Biden, the chief executive of ITS – who left the company before it was prosecuted – said at the time: “If Telemillion is not legal, and at the present time there is no substantive point of law under which we are being challenged, then the history of sales promotion will be rewritten. A lot of people with similar games will have to watch out.”

Despite the successful prosecution, Biden’s words have yet to come true.

Kavanagh says the Gaming Board prosecuted ITS because there was a clear “public interest” in doing so on the grounds that it offered a large prize, had 2m advertising support and threatened the fledgling National Lottery. However, the Gaming Board does not think there is any public interest in censuring the others.

It is the same flawed logic that would pursue an armed robber who stole 10m from a bank but reject a case against a similarly tooled up thief who stole 10,000 from a building society. There cannot be one law for a promotion that flouts the law by running an illegal lottery, while others can continue with impunity.

The Gaming Board says when courts look at the free-entry route, they consider the number of players who have actually used that route. In the case of Telemillion, the magistrate decided that not enough people had used the free-entry route, which was another reason for its prosecution.

The sales promotion industry and many of the brand owners say the Gaming Board is wrong. The agency KLP developed the First Past the Winning Post promotion for the brewer Bass, which offers drinkers a free 1 bet through Bass subsidiary Coral. It says all its schemes are “researched fastidiously to ensure acceptability under law and this promotion is no exception”.

David Moore, director of sales promotion agency CBH, calls the Gaming Board claim “complete nonsense”, underlining the confusion over the issue. He says that while it must be easy for participants to enter without making a purchase, there is no requirement that a substantial number of people actually do so. “If that were true, all the games would be illegal.”

Which is exactly the point Kavanagh makes, even if he is not willing to do anything about it.

Moore says the industry has moved away from free draws because of the activities of magazines including The Competitors Journal. It published the names and addresses of brands which were running prize draws, and “professional competitors” entered without making a purchase – exercising their legal right.

As a result, the industry has moved towards instant-win games such as scratchcards specifically because fewer people will enter without making a purchase.

Moore is implicitly saying it makes it less likely that people will enter – an admission that companies are breaching the spirit and probably the letter of the law.

The essential point is that there should be a “genuine, realistic and unlimited” free entry route.

Moore points to the Spot Cash case, which reached the House of Lords in 1978. This offered lottery tickets inside cigarette packs, and the no-purchase-necessary route was established through having the cards available in newsagents. Their Lordships deemed this illegal, because it meant there were a limited number of cards available, and it is illegal to restrict the number of freely available options for entry.

The man to whom the Institute of Practitioners in Advertising and the Institute of Sales Promotion turn to for legal advice on sales promotions and scratchcard competitions is Philip Circus, a principal at the marketing law advisory service Lawmark.

He says the problem lies in the public and industry attitude to gaming, and more particularly instant-win scratchcard promotions. But says the National Lottery has made prosecutions even less likely.

“There’s been a change in the public climate about gambling.

The National Lottery destroyed the rationale for controls in this area. It’s made it even less likely that these games will be prosecuted,” says Circus.

“The only case in which they [the authorities] would be concerned would be if there was a threat to the National Lottery. The wider picture is that we’re in a mess.”

He says it is the National Lottery which has had a profound effect on the sales promotion industry, leading to the growth of instant-win schemes, like the Royal Mail’s and McDonald’s Euro 96 promotion. There is also a trend towards offering one big prize in an ef fort to attract consumer attention.

In cases of this sort the organisers face problems if for instance the prize is won in the first week. Should the promoter then continue to advertise a promotion knowing the main prize is no longer available? Such an action would certainly fall foul of the Sales Promotion Code, says Circus, which says “promoters should not abuse customers’ trust or exploit their lack of knowledge or experience”.

However, Circus suggests the situation may be resolved, inadvertently, by the growing popularity of sales promotions and the public’s increased understanding of the mechanics of the business.

It is a self-serving suggestion that as people grow more used to playing the games they will automatically become more aware of their rights. But at the moment the onus is on the brand owner to explain, rather than the consumer to know, the law governing the games.

The burgeoning sales promotion industry, and the sea-change in attitudes to gambling prompted by the National Lottery, are putting the Gaming Board under pressure. Part of its brief is to advise the Home Secretary on developments in gaming so the law can respond to change.

But since it does not seem prepared to fulfil even its most basic of roles in ensuring gaming is run fairly and in accordance with the law it has failed in its primary undertaking.

It must either recognise this change and enforce the law, or give in and lobby to change it.

If the law is enforced, it will change the face of sales promotion. The way things stand, the Gaming Board allows brand owners to spend a figure running into billions of pounds on promotions which potentially mislead consumers.