The UK Government’s recent announcement of a proposed voluntary code of conduct for online prize draws marks a considered and proportionate response to a sector that has grown in popularity but remained, until now, lightly regulated and not well understood.

Following a detailed market assessment and consultation process, the Department for Culture, Media and Sport (DCMS) has recognised both the legal complexity and practical reality of prize draw competitions (PDCs), which often operate in a grey space adjacent to regulated gambling. While concerns were raised about transparency, advertising, and player understanding – particularly with respect to free entry routes and instant win mechanics – the Government has opted against legislative reform or formal regulation under the Gambling Act 2005. That decision matters.

A legitimate business model

The tone of the Government’s assessment stands in contrast to the more combative regulatory posture we have seen in recent years in gambling reform debates. Here, there is clear acknowledgment of the legitimacy of the PDC business model and of strong consumer demand for prize-based promotions. The Government concluded that many consumers “enjoy participating in prize draws” and, importantly, that “stronger interventions” risked unintended consequences, including undermining the sector’s commercial viability or pushing activity into less regulated spaces.

This is a significant departure from earlier calls to treat PDCs as lotteries in disguise. While the research reveals that almost 95% of entries are paid, and that “free” postal entry routes are rarely used, the assessment carefully stops short of concluding that this renders the current legal model disingenuous or in breach. Instead, it reflects a more nuanced understanding of the statutory definitions of a “requirement to pay” and a prize being awarded “wholly by chance”, which the Gambling Commission itself concedes are too subjective to prosecute with confidence – a point that was made in the regulator’s advice to government ahead of the publication of the White Paper in April 2023, together with a brief explanation that its resource is more effectively deployed engaging with promoters to change offerings as opposed to attempting prosecution through the courts on a “grey piece of legislation”.

“The Commission is not confident of securing convictions… since operators can argue they are in fact PDCs.”

For those of us who regularly advise operators on how to structure prize draws lawfully – ensuring compliance with the Gambling Act while navigating ASA scrutiny – the report’s acknowledgment of legal ambiguity is refreshing. It lends weight to what practitioners have long argued: that legal definitions alone are not well suited to dealing with the full spectrum of prize-led marketing activity, and that transparency, not prohibition, should be the regulatory goal.

Free entry: The crux of the problem?

One of the most closely analysed issues is the role of the free entry route – the key legal differentiator between prize draws and lotteries. The market study reveals that although 88% of operators offer a free route, typically by post, this accounts for only 6% of total entries. The reasons are unsurprising: postage costs, inconvenience, and poor signposting.

“Only one [out of 31 websites reviewed] marketed the free entry route in the same way as paid options.”

“Free entry routes often have associated costs… that make them impractical or unattractive.”

This reinforces the practical reality that many consumers may not realise a free route exists, let alone choose to use it. But it does not follow that the legal structure is invalid – only that there is work to be done on transparency and prominence, particularly where instant win mechanics are involved.

In that regard, a well-designed and widely adopted voluntary code offers a practical way forward. It can drive improvements in clarity of advertising, parity of information, and potentially in the format of free entry mechanisms without the need for formal legislative change.

It’s also notable that the Government has examined the arguments against pursuing more assertive enforcement of existing consumer protection rules, particularly through the ASA, which has played the lead role in regulating prize draws to date. The report observes that:

“Given the competing priorities of the ASA, there are limits in terms of the extent to which they can monitor the sector on an ongoing basis.”

This factors into why a voluntary code, with industry commitment and consistency, may achieve more than relying solely on reactive advertising complaints. Nevertheless, operators should not lose sight of the significantly stronger consumer protection enforcement powers now available to UK regulators (in particular the CMA) and the courts under the recently implemented Digital Markets, Competition and Consumers Act 2024, which includes a reinforced version of the ‘unfair commercial practices’ regime which underpins much of the ASA’s activity.

The considered alternatives were more damaging

The Government’s full report considered a number of alternative interventions – some of which would have placed significant burdens on operators or inadvertently transformed PDCs into something more akin to regulated gambling.

For example, introducing a licensing regime would have brought PDCs within scope of the Gambling Commission’s oversight, potentially requiring 20% of proceeds to be donated to charity. In electing not to recommend bringing PDCs within scope, the Government appear to give weight to the existential threat this might present to the PDC business model:

“Operators argue that their margins are already quite small… [and] their businesses would not be viable financially.”

Similarly, enforcement-led strategies – such as stricter ASA action – risked curtailing legitimate promotional activity, and could have paradoxically discouraged operators from maintaining any form of free entry at all.

“Strict interventions… may undermine the entire business model… as if an unlimited and truly ‘free’ entry route was available there would be no incentive for players to purchase entries.”

This highlights a critical tension: while the report notes that PDCs may adversely affect the lottery sector, any intervention must balance the need to protect charitable and regulated lottery funding models with the recognition that PDC operators have a legitimate commercial interest in incentivising paid participation. That balance is particularly delicate in a market where prize draws are not only legally distinct from lotteries, but also appeal to different consumer motivations and operate on different economic assumptions.

The Government should be credited for not rushing to legislate or to impose reforms that would have had wide-ranging consequences for both operators and consumers. In opting for a voluntary code, the proposal reflects a measured effort to raise standards without extinguishing innovation – and without unintentionally disadvantaging consumers who choose to pay for the entertainment and engagement that PDCs offer.

What next?

The proposed voluntary code, which is still being developed and expected to be published later this year, and is expected to focus on three core pillars:

• Player protections
• Transparency
• Operator accountability

Whether it succeeds will depend on industry buy-in. The report recognises that some operators may be reluctant to sign up, especially if the Code demands substantial changes to free entry practices:

“Operators are unlikely to be amenable to a pledge requiring them to offer more attractive free entry routes.”

Nonetheless, the signal is clear: the onus is now on the sector to demonstrate maturity, improve practices, and adopt the code in good faith. The Government has left the door open to stronger action if adherence is low or problems persist – but for now, it has opted for evolution over enforcement.

Final thoughts

From a legal and compliance perspective, this is a sensible and balanced outcome. It confirms that prize draw businesses, when structured properly, are not unlawful lotteries, and that the industry deserves the chance to regulate itself, improve standards, and retain consumer trust.

At Wiggin, we continue to advise a wide range of clients on structuring, advertising, and operating PDCs in compliance with UK law. As the voluntary code develops, we will be supporting clients in assessing whether and how to align with its provisions, and in preparing for potential future regulatory change.

The publication of the Government’s report should be viewed not as a rebuke, but as an opportunity to raise standards, increase transparency, and cement the legitimacy of an industry that, quite evidently, has enduring consumer appeal.