Definition and legal foundations of prize draws
The term prize draw refers, in a legal context, to the organization or brokerage of a game in which the acquisition of a chance to win typically depends on the payment of a participation fee. A key feature is the connection of a potential opportunity to win with a stake to be provided by the participant. In Germany and in other European countries, prize draws are subject to strict legal regulations, which in particular serve to protect participants and to prevent gambling addiction and crime.
Statutory regulations of prize draws in Germany
State Treaty on Gambling (GlüStV)
The central legal basis for prize draws is the State Treaty on Gambling (GlüStV) in Germany. This distinguishes between gambling, lotteries, betting, and other forms of prize draws. A prize draw is generally classified as gambling if the win depends entirely or predominantly on chance and a fee for participation is required (§ 3 GlüStV).
Commercial prize draws
Commercial prize draws are specifically regulated by the Act on Commercial Gaming Brokerage as well as by § 33d of the Trade Regulation Act (GewO). This includes, in particular, raffles, lotteries, and competitions which are carried out repeatedly or in a business context.
Requirements and licensing procedure
For a commercial prize draw, official permission is required in nearly all cases. The requirements include, among other things, proof of the organizer’s reliability, a coherent implementation concept, assurance of protection from manipulation, as well as compliance with youth protection regulations.
Distinction from other prize competitions
In contrast to prize draws, which are typically characterized by the payment of a fee, competitions under § 661 BGB can also be conducted as sales promotions without any additional fee required for participation. This includes, for example, sweepstakes in which participation is by sending in a postcard and no fee is charged.
Prize draws under public and private law
The distinction between public and private prize draws depends on the circle of participants and the manner of the event. Public prize draws are open to the general public, while private prize draws may be limited to a restricted circle (e.g., club members). This differentiation is essential with regard to the required permits and applicable legal provisions.
Legal classification of various types of prize draws
Lotteries and raffles
A lottery is a prize draw in which prizes are awarded by the purchase of tickets. The determination of the winners by chance is paramount. The same applies to raffles which are a special form of lottery, frequently conducted for charitable purposes. Both basically require official permission for public execution.
Competitions and puzzles
Competitions and puzzles with a prize offer are regarded as prize draws when participation is subject to a fee and the winner is determined by an element of chance. Conversely, if the competition is free of charge and the prize depends on a knowledge or skill test, different legal requirements apply, usually less strict with respect to permit obligations.
Online prize draws
With the increase of digital offerings, especially in online gaming and lotteries, the legal assessment of prize draws on the internet has become relevant. The State Treaty on Gambling explicitly includes prize draws offered online. The requirements for licensing, player protection, and data protection are particularly stringent here. Illegal online prize draws may constitute a criminal offense and can lead to license revocations and claims for damages.
Tax aspects of prize draws
In Germany, conducting prize draws may trigger tax obligations. According to the Horse Betting and Lottery Tax Act a tax may be levied on lottery winnings granted. Income generated through the organization of prize draws may also be subject to income tax. The specific classification must be determined on a case-by-case basis, taking into account total revenue and intention to generate profit.
Criminal risks and administrative offenses
The unauthorized organization of prize draws is a criminal offense under § 284 StGB. This particularly concerns the holding of gambling without official authorization. Preparatory acts, such as advertising unauthorized prize draws, can also lead to fines. In addition, all requirements for consumer and player protection must be strictly observed; violations may result in additional sanctions, claims for damages, and measures under anti-money laundering law.
Prize draws in international legal systems
Prize draws are also thoroughly regulated in other countries. In the European Union, harmonization efforts exist, but individual member states still provide for their own regulations and licensing procedures. For cross-border prize draws, it must always be checked which national legal system is relevant in the specific case and which additional requirements must be met.
Player and consumer protection measures
A key aim of statutory regulation is to protect against gambling addiction, manipulation, and fraud. Prize draws must therefore provide clear and transparent terms of participation, implement age verification measures, and offer self-limitation options for players. Compliance with these measures is regularly monitored by the relevant authorities and is a prerequisite for the granting and continued validity of a permit to conduct prize draws.
Summary
Prize draws hold a special position in German and European law and are characterized by strict statutory requirements. Organizers must observe extensive obligations regarding licensing, player and consumer protection, taxation, and transparency of the terms of participation. Violations of legal requirements can entail significant civil, tax, and criminal consequences. Ongoing digitalization and the international nature of many prize draws additionally present further challenges for lawful operation.
Frequently Asked Questions
Are prize draws subject to official licensing requirements?
Whether and to what extent a prize draw (in the sense of organizing a game of chance, sweepstake, or other lottery) is subject to an official license depends primarily on the legal structure of the specific offer and its territorial scope. In Germany, the State Treaty on Gambling (GlüStV) primarily regulates the requirements for legality. For chance-based prize draws with paid participation (gaming), an explicit license from the responsible state authority is generally required (§ 4 GlüStV). Additional requirements for commercial prize draws apply under the Trade Regulation Act and the gambling supervision of the respective federal state. Exemptions exist for prize draws without fees (e.g., free competitions), which are generally license-free provided there are no hidden payments involved. In case of doubt, a legal review and coordination with the relevant authority is recommended.
What information obligations exist when conducting a prize draw?
The organizer of a prize draw is subject to comprehensive information obligations towards participants. According to § 6 (1) of the German Telemedia Act (TMG) and § 312d BGB in conjunction with Art. 246a EGBGB, there is an obligation to make the terms of participation, the duration of the draw, the selection process for winners, information about the organizer, and any costs clearly and understandably accessible. For competitions related to goods or services, competition law also applies (§ 5a UWG), requiring in particular the transparency of chances and terms of participation. Non-compliance with these information obligations may lead to competition law warnings and cease-and-desist claims.
What data protection requirements must be observed in the context of a prize draw?
As soon as personal data is processed in connection with a prize draw, the provisions of the General Data Protection Regulation (GDPR) apply. Even when collecting data (such as name, contact address, or bank details), the information requirements under Art. 13 GDPR must be implemented. This includes, among other things, identification of the responsible party, purpose of data processing, storage duration, and notices regarding data subjects’ rights. For processing not necessary to conduct the competition (e.g., marketing), explicit consent is required. Violations may result in considerable fines.
What restrictions or prohibitions apply regarding protection of minors in prize draws?
The protection of children and adolescents is given high priority in prize draws. According to § 4 (3) GlüStV, minors are generally prohibited from participating in public gambling. Even for free competitions, organizers must actively ensure that there is no unlawful targeting of minors, especially in advertising on platforms commonly used by minors (§ 6 JMStV). Violations of these provisions are strictly sanctioned by the relevant authorities and may lead to significant fines and withdrawal of any licenses.
How should the tax aspects of prize draws be legally assessed?
In prize draws, both the organizer and the winners may be subject to tax. Organizers may be liable for lottery, betting, or sales tax under § 17 (2) No. 2 UStG if the turnovers are taxable – this is especially relevant for fee-based prize draws. Winners must consider that received winnings may be subject to income tax if they constitute taxable income (§ 22 No. 3 EStG). For non-cash prizes, the respective assessment rules of the Income Tax Act apply. Tax treatment should be clarified in advance of a prize draw with a tax advisor.
What role does fair trading law play in the conduct of competitions?
Fair trading law, in particular the Act Against Unfair Competition (UWG), plays a central role in prize draws. According to § 4 No. 5 UWG, it is inadmissible to make participation in a prize draw dependent on the purchase of a product or use of a service unless the combination is appropriate and objectively justified under all circumstances. Misleading advertising claims must also be avoided. Full disclosure of the odds of winning, the selection process, and the terms of participation are mandatory to prevent warnings from competitors or consumer associations.
What civil liability risks exist in connection with prize draws?
Civil liability risks must also be considered in the context of prize draws. For example, if there is an incorrect determination of winners, erroneous prize information, or insufficient disclosure of information, participants may assert claims for damages under § 280 BGB or for fulfillment of the promised performance under § 657 BGB. Organizers must always ensure that the associated terms and conditions of participation are formulated and implemented in full legal compliance to minimize liability risks. A comprehensive legal review of the prize draw prior to its commencement is recommended.
