Free prize draws vs. lotteries vs. competitions — what's the difference?

This article is for general information only and is not financial or legal advice. Rules, offers, and availability can change by country and over time.

Why the distinction matters

"Prize draw," "lottery," and "competition" are thrown around interchangeably in advertising, but in UK law they're distinct categories with different rules, different licensing requirements, and different protections for participants.

If you enter a promotion thinking it's free and then discover you've been paying indirectly, or if you're running a promotion and don't understand which category you're in, the consequences can be significant. This post draws the lines clearly.

The three categories at a glance

Free prize draw

Payment required: No
Winner by: Chance
Gambling Act 2005: Outside scope
Gambling Commission licence: Not required
CAP Code applies: Yes
Example: Prizelee weekly draw

Lottery

Payment required: Yes
Winner by: Chance
Gambling Act 2005: Regulated (licence required)
Gambling Commission licence: Required (with exemptions)
CAP Code applies: Yes
Example: National Lottery

Prize competition

Payment required: Usually yes
Winner by: Skill or judgement
Gambling Act 2005: Outside scope
Gambling Commission licence: Not required
CAP Code applies: Yes
Example: Photography contest

The three questions that determine where a promotion sits are:

Does entering cost money?
Is the winner chosen by chance or skill?
Does the promoter benefit financially from entries?

Free prize draws

A free prize draw has all of these:

Entry is genuinely free (no purchase, no payment)
The winner is chosen by chance (random selection)
Any optional paid extras must not be the only realistic route to entry

Because no payment is required, the promotion sits outside the Gambling Act 2005. No licence is needed. This is the legal basis on which Prizelee and similar platforms operate: one free entry, random draw.

The phrase "no purchase necessary" in small print is the operator signalling this distinction. When you see it, the draw should be structured so that not purchasing genuinely doesn't disadvantage you.

Optional extras: where lines can blur

Many free prize draws offer optional paid or effort-based extras — for example, watching an ad for an additional entry, or paying a small amount for more chances. These are legal as long as:

The free entry carries the same weight per entry as the paid one
The free route is no harder to access than the paid route
Marketing doesn't imply that paid entries are significantly more likely to win per entry taken

If an operator offers 1 free entry or 100 paid entries for £5, the odds difference is factual and legal. What wouldn't be acceptable is if the "free" route required something practically impossible — say, writing a 5,000-word essay — while the paid route was a single click.

For a deeper look at the legal framework, see how free UK prize draws work (and how they're legal).

Lotteries

Under the Gambling Act 2005, a lottery exists when three elements are present:

Participants pay to enter
Prizes are awarded
The winner is determined by chance

All three must be present. Remove any one and it is no longer a lottery in the legal sense.

Lotteries require a licence from the Gambling Commission unless they qualify for one of the statutory exemptions — for example, small private lotteries within a workplace or club, or certain charity fundraising lotteries. The National Lottery itself operates under a specific licence.

The Gambling Commission's guidance on lotteries is the definitive source for operators. For entrants, the key implication is: if a lottery isn't Gambling Commission-licensed and doesn't qualify for an exemption, it's unlicensed gambling — a criminal offence for the operator.

Charity lotteries

Charities can run lotteries without a full operating licence under certain conditions — for example, "small society lotteries" have limits on ticket price, total proceeds, and prize values. These must still be registered with a local authority. If a "charity draw" is asking for payments and awarding large cash prizes, check whether they're properly registered.

Premium bonds

A notable exception: Premium Bonds issued by NS&I are not classified as a lottery under the Gambling Act. They have their own statutory basis. Bondholders receive interest equivalent via a monthly prize draw, rather than a guaranteed interest rate. Technically, each bond represents an entry in that month's draw.

Prize competitions

Prize competitions involve skill, not just chance. The winner is selected on the basis of judgement — creative merit, accuracy of an answer, or quality of an entry. Because the outcome depends on skill rather than pure chance, prize competitions sit outside gambling law.

Common examples: photography competitions, writing contests, quiz competitions with genuine knowledge requirements, design challenges.

The skill requirement must be real. There's a legal concept of "substantial skill" — if a tiebreaker question is so simple that virtually anyone can answer it correctly, regulators may take the view that skill isn't genuinely determining the winner, and the promotion slides back toward lottery territory.

The "spot the ball" grey area

Competitions that look like skill but involve significant chance elements — for example, predicting the location of a removed ball in a football photo — have historically been treated as competitions rather than lotteries, because the "correct" answer requires judgement. Courts have upheld this in the past, but it's a contested area that's less relevant today.

What entrants should care about

	Free prize draw	Lottery	Prize competition
Cost to enter	Nothing	Face value of ticket	Entry fee (often)
Skill improves chances?	No	No	Yes
Regulated by Gambling Commission?	No	Yes	No
Key consumer protection	CAP Code, Consumer Protection regs	Gambling Act + Licence conditions	CAP Code, Consumer Protection regs

From a practical standpoint, free prize draws require the least effort with no financial outlay. Lotteries offer defined odds on defined prizes. Prize competitions reward research and skill. Which is worth your time depends on what you're good at and what you're willing to spend.

What this means for platforms you're evaluating

When you land on a prize draw or competition website, these are the questions to answer quickly:

Is there a free entry route? If yes, is it genuinely accessible — or buried?
Is entry by chance or skill? If chance, and payment is required, is the operator Gambling Commission licensed?
Who is the promoter? Is there a named company with a real address?
Are the terms published in full? Closing date, eligibility, how the winner is chosen, how you're notified?
What happens to your data? Is there a clear privacy policy with opt-out options for marketing?

If the answers to those questions are unsatisfying, the promotion may not be worth entering — not because draws are inherently risky, but because opaque operators are a warning sign regardless of category.

For a more detailed checklist, see are free prize draw sites legit? What to check before entering.

Common mistakes people make

Using "lottery" and "prize draw" interchangeably when researching — they're different legally. Search results for "free lottery" will often return licensed National Lottery content, not free-entry draws.
Assuming skill competitions are always better value — they require effort and the competition may be fierce. A free, low-effort prize draw can have better expected value for your time.
Not checking Gambling Commission registration for anything that asks you to pay to enter a chance-based draw. If it's not licensed, avoid it.
Ignoring prize competition closing dates and judging criteria — unlike draws, competition entrants need to understand exactly what judges are looking for. Submitting generically rarely wins.
Entering multiple competitions with the same strategy — what works in a photography competition won't work in a quiz. Tailor your effort.

Common questions

Can a promotion be both a prize draw and a competition? Not simultaneously in the same entry route. But a promotion might offer separate routes — free random-draw entry AND a skill-based entry where the skill entrant wins a separate category. This is uncommon but legal when structured correctly.

If I pay for a product and there's a draw on the packaging, is that a lottery? Not necessarily. If the draw entry is clearly tied to a purchase but the same entry is available free on request (the "no purchase necessary" route), the promotion can still qualify as a free prize draw rather than a lottery. The free route must be genuine.

Do prize competitions need to be licensed? No Gambling Commission licence is needed. But they must comply with the CAP Code, which requires fair judging criteria, transparency about how winners are selected, and honest marketing.

Is the National Lottery the only licensed lottery I can enter in the UK? No. There are many licensed lotteries — charity raffles, football pools, private lotteries run by clubs and societies. The Gambling Commission publishes a register of licensed operators. The National Lottery is simply the largest.

What if I win a prize competition but the promoter doesn't pay out? You have recourse through civil courts and can report the non-payment to the ASA and Trading Standards. Keep records of your entry, confirmation of win, and all communication.

Are online draws treated the same as in-store promotions? Yes. The same legal framework applies. The medium (online, postal, in-store) doesn't change the category. What matters is whether payment is required, and whether the winner is chosen by chance or skill.

Where to go next

How free UK prize draws work (and how they're legal) — the legal detail behind free draws
Are free prize draw sites legit? What to check before entering — practical due diligence before you enter

Ready to enter a free draw? Prizelee runs a weekly cash prize draw — free entry, no purchase required, open to eligible adults wherever permitted. Enter now.