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 independent legal advice.
Reverse auctions fall into two categories:
- Those where the operator only tells players when they are successful or not.
- Those where the operator provides more information, usually following the first bid. More information can include:
- full bid history
- placement of received bid
- current lowest unique bid.
Running a reverse auction
You can run a reverse auction without a licence as long as it qualifies as a prize competition and not as a lottery.
A prize competition depends on skill, judgment, or knowledge to enter and does not rely completely on chance. If it is just down to chance – then it is a lottery. Gambling Act section 14 (5) (opens in a new tab) explains in detail about the skill test.
Some examples of how you can ensure your reverse auction is a game of skill could include:
- time limits for putting in 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, for example, demonstrating a level of skill or application of knowledge.
Your reverse auction must meet the test for prize competitions, and all the elements of a lottery should be present, these include:
- allocation of prizes.
Taking part in a reverse auction
Reverse auctions are schemes where in order to win a prize you must make the lowest unique bid. These bids are usually in pence and the item and it's retail value are shown or described.
These auctions can be run:
- on TV
- on text
- in print.
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 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.
It costs 50p per bid, and the winner bid £50 and submitted five bids. This means that they spent £2.50 on bidding and £50 on the item. They will pay £52.50 in total.
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