The sales promotion industry suffered a serious setback last week when a High Court judge effectively made prize draws more difficult and more expensive to run.
Under existing law covering the &£1bn prize draw industry, promoters must make it clear that entry does not depend on making a purchase, otherwise the games constitute an illegal lottery.
Last week’s ruling found one such scheme illegal, sparking fears that sales promotion companies will have to radically redesign the games to stay safely within the law.
Just how far prize draw operators need to go to demonstrate that everyone can take part – whether they make a purchase or not – is unclear.
William King, a solicitor for City law firm Macfarlanes and a specialist in this area, suggests promotions should actively encourage people to take up the “free entry” route with extra advertising or point-of-sale material, and that promoters should monitor the take-up by people who choose not to make a purchase.
He says: “The ruling will move a sales promotion to a brand promotion. I can see people advertising a free prize draw instead of just putting it on the pack in order to ensure entry is free.”
He says organisers of free prize draws should ensure that at least 15 per cent of players come through the free-entry route.
Sales promotion companies also risk losing their legal protection covering payment for work done on draws if they are deemed illegal. Courts will not enforce debts on illegal contracts.
Philip Circus, head of legal services at the Institute of Sales Promotion (ISP), says: “That is the real danger. Some people involved in developing prize draws could find their contracts are unenforcable.”
In last week’s ruling, High Court judge Raymond Jack QC ruled that a newsagent’s free scratchcard game was an illegal lottery as it was difficult for players to obtain a scratchcard without making a purchase.
The organisers of the scratchcard game sued the retailers because they still had not received payment for the work they had done, but they lost the case and failed to get their money as the game was ruled unlawful.
The ISP has written to the Crown Prosecution Service to see whether it will change the advice it gave in 1991 that instant wins are acceptable so long as there is a genuine, realistic and unlimited free-entry route.
Circus says: “We are all – lawyers and the ISP – advising the industry that clarity and genuineness of free entry is going to be the paramount consideration. It means that the ‘no purchase necessary’ clause cannot be tucked away as rule 76 when the rest of the copy is predicated on the idea of a purchase being needed. “
Prize draws – which offer about &£5m in prizes a year, yet are worth &£1bn to the sales promotion industry, one tenth of its turnover – have become increasingly popular as a way of promoting brands over the past ten years.