Major trade promotions changes proposed in NSW

16 January 2020
David Smith, Partner, Melbourne

The New South Wales government is proposing big changes to the way trade promotions are regulated.

It has released a consultation draft of the Community Gaming Regulation 2020, which will give effect to the changes.

In this update we explain the key proposed changes and some areas of uncertainty.

Most notably:

  • permits will no longer be required for promotions with a prize value of $10,000 or less, however a range of legal requirements will still apply to all trade promotions;
  • it may no longer be permissible to require all entrants in a promotion to join the promoter’s direct marketing database;
  • promotions where entrants are entered automatically (e.g. because they make a relevant purchase on their credit card) may no longer be permitted;
  • trade promotions which do not require the purchase of goods or services may be prohibited; and
  • the regulator (NSW Fair Trading) will have new enforcement options including significantly higher penalties.

Reason for the changes

The changes will affect a range of community gaming activities.  These include lotteries conducted to raise funds for charities, low-value raffles conducted by clubs to attract patronage, sweeps conducted for social purposes (such as a Melbourne Cup sweep) and lucky door prizes, as well as trade promotions.

A key reason for the changes is to reduce “red tape” and minimise the regulatory burden on operators of these games, particularly low-risk games.

Games of skill versus games of chance

It appears that the new regulations will only apply to trade promotions that involve an element of chance.  If a trade promotion is purely based on skill, none of the requirements below will apply.

Permits/authorities

The current concept of a “permit” for a trade promotion will be replaced by an “authority”.

Only promotions with a total prize value over $10,000 will require an authority.  This should make life much easier for promoters since previously, all trade promotions involving an element of chance required a permit in NSW.

The current concept of a “multi permit” (or “blanket permit”) will cease to exist.  Instead, where a promoter wishes to run a series of very similar promotions over a period of time, it will be able to obtain either a 1, 3 or 5 year authority.  This will be a significant improvement over the current multi permits which can only run for 1 year.

Terms and conditions

Under the proposed regulation all trade promotions – whether or not they require an authority – must have terms and conditions that cover various prescribed points.

A new point that must be covered in the terms and conditions is the way disputes about the conduct of the promotion or the claiming of a prize are to be resolved.

The terms and conditions will need to state the manner of notifying and announcing the prize winners but apparently, the promoter will be free to determine how this is done (for example, on a website or in a newspaper).

In addition, where there is no prize winner or the prize winner cannot be found, that information will also have to be published.  This is a new requirement.

Permit fees

The fees to conduct a one-off trade promotion will initially be $400.  For promotions with a prize value between $10,000 and $50,000 this is an increase of $80 over the current fee.  But for promotions with higher value prize pools, this is a decrease – for example, currently the permit fee in NSW for a promotion with prizes worth over $200,000 is over $2,000.

There will also be a saving for promoters in that amendment fees will no longer be charged.  Instead of having to obtain formal approval of amendments, a promoter that holds an authority will simply be required to notify the regulator in writing of any substantial change to the promotion.

Direct marketing

It appears that the changes include an important restriction in relation to privacy and spam law.  The wording of the regulation that permits the conduct of a trade promotion (regulation 14) appears to require that the right of an entrant to participate in the promotion is not associated with any obligation to participate in marketing.

If this is the intention, the value of running trade promotions may be significantly reduced for many promoters.

At present, many promoters use trade promotions to build their direct marketing databases.  They take the approach (and their terms and conditions state) that by entering, entrants consent to join the marketing database.  If this regulation is implemented in its current form, it appears that this will no longer be permissible.

In effect, a promoter would then only be able to add an entrant to its marketing database if the entrant opts in by (for example) ticking a box on the entry form.  This could result in much lower participation in the promoter’s marketing database.

Automatic entry promotions

In recent years we have seen numerous promotions with the following type of structure:

  • entry is open to all participants in a retailer’s loyalty program; and
  • spend $X at the retailer and swipe your loyalty card during the promotion period and you will be automatically entered in the promotion, for a chance to win a prize.

A similar structure would be: spend $X on a specific credit card during the promotion period and you will be automatically entered in the promotion, for a chance to win a prize.

Many entrants would be unlikely to realise they were entered in the promotion unless notified that they have won a prize, in which case they are unlikely to object.

Proposed regulation 28 appears to prohibit entering a person in a trade promotion unless the person has consented.  This may severely limit the ability for a promoter to conduct the above types of promotion.

Although for example a retailer may be able to include a clause in the terms of its loyalty program that requires participants to consent to be entered in trade promotions from time to time, it is debatable whether this would constitute a valid consent as it is “bundled” with participation in the loyalty program.  The validity of the consent may be even more doubtful if such a clause does not already exist in the retailer’s loyalty program terms, and the retailer seeks to add it now.

Promotions that don’t require purchase of goods or services

Because of the way proposed regulation 14 is drafted, it may be the case that only a trade promotion where entry is based on the purchase of goods or services is permitted.  It may be that a trade promotion which does not require purchase of goods or services is prohibited.

Consent of a principal within the promoter’s business

For all trade promotions, whether or not an authority is required, the promoter must obtain the written consent of a “principal” in the promoter’s business for the conduct of the promotion.  It is not clear who a “principal” is (for example, whether it must be a director or the CEO of a company) or whether a separate letter will be required for every promotion, as opposed to the principal providing a letter that covers numerous promotions that the promoter may run over a period of time.

Record keeping

Where an authority is required, the body conducting a trade promotion will have to keep records for at least 7 years after the end of the promotion.  These records must cover matters such as a statement of the income and expenses related to the conduct of the promotion – even though this does not make much practical sense in relation to a trade promotion.  Presumably there would be no income as entry into a trade promotion must be free.

For all trade promotions, regardless of whether an authority is required, the proposed regulations require appropriate records to be kept.  These would typically include matters such as the dates of the promotion, details of the prizes and their total value, and the names and contact details of all prize winners.

Keeping prize winners’ details is likely to be problematic for some types of instant win promotion.  For example, a promoter may wish to run a promotion where consumers who buy a product at a particular location are handed a scratch card to reveal if they have won an instant win prize, which is redeemed immediately in-store.  The promoter will need to ensure it has a way to capture winners’ names and contact details and that it records the prize won by each winner.

For trade promotions that don’t require an authority, there is no prescribed period for which the promoter must keep records – it must keep appropriate records for the period it “thinks fit”.  This obligation seems vague and potentially difficult for regulators to enforce, although it seems likely that the regulation intends that records must be kept for at least some period of time – we don’t think a promoter could simply “think fit” not to keep records at all.  Of course, regardless of this regulation, there are sound business reasons in any event for keeping records in relation to each trade promotion.

Liquor prizes

The regulations propose to retain the current limits on alcohol prizes, i.e. 20 litres of liquor with an alcohol content of 20% or less, or 5 litres of liquor with an alcohol content over 20%, for the entire promotion (not per winner).

Advertising

Proposed regulation 52 would appear to prohibit any advertising promoting a trade promotion that depicts children participating in a trade promotion – even a promotion that is directed to children.  This may be an unintendedly broad effect of regulation 52, which is probably intended to be directed more at preventing depictions of children participating in gaming activities that require payment to participate.  If regulation 52 remains in its present form, promoters will need to take care with their advertising of any promotion that anticipates participation by children.

Enforcement

One purpose of the proposed regulation is to “hold operators to account” for breaches of their trade promotion terms and conditions.

The regulator will be given more extensive and flexible enforcement tools.  In particular, NSW Fair Trading will be able to issue a penalty notice in relation to a minor breach of the regulations.  The promoter can pay the penalty without admission of liability, in order to resolve the matter – or can choose to go to court, and potentially face a higher penalty.

For more serious breaches, the regulator might be inclined to commence court proceedings immediately rather than issuing a penalty notice.

Maximum penalties for breaches of the regulations will generally be significantly higher than under the existing regime.  This is intended to strengthen consumer protection.

Next steps

To find out more about the proposed regulation head to this page of the NSW Fair Trading website.

You can provide comments on any matter relevant to the proposed regulation until 5pm on Friday 7 February 2020.  We will be making our own submission to raise the issues highlighted above.

Once feedback has been considered, the NSW government anticipates that the regulation will commence in mid-2020.  After that the regulation will be subject to ongoing monitoring and review.

 

Authored by:

David Smith, Partner
Jessica Bell, Paralegal
Cassandra Cox, Paralegal
Jade Lamb, Paralegal

This update does not constitute legal advice and should not be relied upon as such. It is intended only to provide a summary and general overview on matters of interest and it is not intended to be comprehensive. You should seek legal or other professional advice before acting or relying on any of the content.

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