Reverse auctions are schemes where to win a prize you must make the lowest unique bid (generally in pence). Depending on the format (online, TV, radio, SMS or print) the prize is shown or described (including the retail value) and you are asked to submit a bid.
You are charged for each bid you make. Bids are generally made via text message (at a premium rate) or through registering on the auction website and paying by debit/credit card or pre-purchased credits.
The prize is won by the person who makes the lowest unique bid. As well as the cost of making each bid the winner is usually required to pay the amount of their winning bid to receive the prize.
Reverse auctions tend to fall into two categories:
- those where operators only provide participants with information on whether they were successful or not
- those where the operator provides additional information, usually following the submission of a first bid. For example:
- full bid history
- placement of received bid
- current lowest unique bid.
You can run a reverse auction without a licence as long as it qualifies as a prize competition rather than a lottery.
A prize competition depends on skill, judgment or knowledge to enter and does not rely wholly on chance. If it is just down to chance – then it is a lottery.
Gambling Act section 14 (5) explains in detail about the skill test
Examples of how you can ensure skill is a factor could include:
- time limits for the submission of bids
- giving information about previous winning bids (for similar items)
- updates on the status of current bids.
These factors may make it possible to apply a strategy to bidding (demonstrating a level of skill or application of knowledge).
If your reverse auction does not meet the test for prize competitions and all the elements of a lottery are present - that is payment, chance and allocation of prizes - then it may be an unlicensed, and therefore, unlawful lottery.
We can take action against the organisers of schemes which, in our view, are unlicensed and therefore illegal public lotteries.
If you are organising a reverse auction it is your responsibility to ensure you are compliant with the law. If in doubt, you should seek legal advice.