Don’t Chance Your Luck: The Problem with Promotional Competitions

August 20, 2018

How often have you seen fellow entrepreneurs sweetening attendance at their webinar or enlisting your help to promote their course or membership with a promise to gift a free place or session to some lucky attendee? You may even have done it yourself. It is a great way to get people enthusiastic about your offering – and encourage them to share your offering (such as by giving them extra entries if they like your post, tag a friend or share it to their own social media streams.)

Is it legal to use a competition to promote your business?

Under the law, this kind of competition is known as a “trade promotion lottery” and like all lotteries, there are rules that apply. Confusingly for Australians, these laws are different from state to state. Since I am in NSW, that is what I will focus on today, but if you are in another state and need to quickly check what the rules are for you, send me an email, book a quick free consultation, or book a full Consumer Law consultation using the link at the bottom of this blog post to really explore the issues and get specific legal advice.

In NSW, the Departments of Fair Trading require you to have a permit before you can run a business trade promotion where the winner is chosen by chance. It doesn’t matter if there are prerequisites for entering the competition – such as share my post for one entry, tag a friend for a second entry, attend the webinar live to win a free place in my program… these are the equivalent to having to buy your ticket in the Powerball.

So, what is involved?

If you make your application online, a licence in NSW for a trade promotion lottery currently costs:

  • $80 for a single use licence where the prize is less than $10K
  • $320 for a year-long licence where no single prize is more than $250 and the total value of prizes in the year is less than $50K, or
  • $585 for a year-long licence where no single prize is more than $1000 and the total value of prizes is less than $100K.

For most of us, the cost of the licence is going to be prohibitive and may completely negate the value of running the lottery.

You might find it tempting to just ignore these rules. However, you should be aware that all it takes is one unhappy person to report you to the relevant Office of Fair Trading. In NSW, actions for breach of the Lotteries and Art Unions Act 1901 may be brought up to 3 years after the breach, with penalties up to $792.85 at the current penalty rate.

Chance… or skill?

So, what can we do? Games of chance or lotteries are much more highly regulated than games of skill. It is a game of chance if there is any element of random selection involved. If there is no element of chance, then no permit is required (in any Australian state or territory). That means, the easiest way around the rules is to get your entrants to do something that can be judged – find a quote, create a graphic, answer a question in 25 words or less, share a story, a memory or be the first person to complete a quiz… This is your opportunity to get creative instead of taking the easy way out and relying on the random number generator! (If a game involves both skill and chance, it is still counted as a game of chance.)

While it is true that skills-based competitions will generally attract fewer entrants than luck-based giveaways, and the purpose of such giveaways is generally to get as many people as possible to share, sign up for or attend your marvellous promotion, the advantage is that those who do enter a skills-based competition are going to be much more engaged in and aware of your offering.

What other rules apply?

Of course, you need to remember that in some states (but not NSW) even if no permit is required, there are still rules you have to comply with, no matter what type of game / challenge / competition it is. These rules generally require:

  • Making sure all entrants have access to clear guidelines about the criteria that will be used for judging
  • Every entry must be judged individually on their merit, and
  • A winner must be chosen based on the skill and originality of their submission, or any other skill-based criteria that you choose.

Don’t forget, Facebook has rules about this too!

In addition to the state and territory Fair Trading rules, we also need to remember that social media platforms such as Facebook also have their own rules around running competitions and giveaways. For example, on FB:

  • You must not involve people’s personal timelines and friend connections in any way (eg “share on your timeline” or “tag a friend to enter” are both actually against FB’s rules)
  • You have to comply with the rules in your jurisdiction (eg the stuff we have just been talking about above), and
  • The promotion for the competition has to include:
    • A complete release of Facebook by each entrant or participant, and
    • Acknowledgement that the promotion is in no way sponsored, endorsed, administered by or associated with Facebook.
How I can help

In my Serenity Connective membership, we make best practice our highest priority – and that includes exploring how to offer our services legally and fairly.

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