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Understanding the Key Differences Between Games of Skill and Games of Chance in Trade Promotions

When planning trade promotions, it’s crucial to understand the difference between a game of skill vs a game of chance. This distinction determines how competitions must be structured, the legal obligations under Australian trade promotion laws, and how prizes are awarded. Whether you’re running a contest, sweepstakes, or other promotional competition, knowing which category your promotion falls into helps ensure compliance, avoids potential penalties, and creates a fair experience for participants. In this guide, we’ll break down the key differences and explain what businesses need to know before launching their next promotion.

What Is the Legal Difference Between a Game of Skill and a Game of Chance?

Under Australian law, the key difference lies in how the winner is determined:

• A game of skill involves a participant demonstrating some form of talent, knowledge, or creativity. The outcome is based solely on merit or performance—such as answering a question in 25 words or less, submitting a photo, or writing a caption that is judged the best by a panel.
• A game of chance, by contrast, involves a random draw or other form of luck—regardless of the effort or quality of entry. Examples include a lucky dip, spinning a wheel, or drawing names from a hat.

The dominant element of the competition is what regulators will assess. If chance plays the primary role in selecting a winner—even if some skill is involved—it will likely be treated as a game of chance.

When Is a Permit Required for a Trade Promotion?

Permit requirements vary across Australia, but generally:

• Games of skill do not require a permit in any state or territory.
• Games of chance do require a permit in certain jurisdictions—such as New South Wales, South Australia and the ACT—if there is no fee to enter. (If there is a fee to enter, it may fall under gambling laws, which involve a separate and more complex framework.)

For example:

• If you’re running a nationwide promotion with a random prize draw, you may need to apply for multiple permits depending on the participating states and the prize value.
• If the promotion is limited to Victoria and Queensland, you may not need permits, but you’ll still need clear terms and conditions and must comply with general consumer law obligations.

Failing to obtain the appropriate permits can lead to penalties, cancellation of the promotion, or reputational damage for your brand.

Why Does It Matter How Your Promotion Is Classified?

Correctly classifying your promotion ensures you:

• Comply with state and territory regulations
• Avoid fines or cancellation orders
• Maintain consumer trust and brand reputation

The classification also affects how you can advertise and run the promotion. For example:

• A game of skill requires objective judging criteria and a process to assess entries fairly and transparently.
• A game of chance must clearly outline the draw mechanism, any permit numbers, and the details of when and how winners will be announced.

From a marketing perspective, the classification can impact your timeline, legal costs, and strategy. It may be tempting to add an element of chance to drive participation—but doing so without the correct approvals can be a legal trap for the unwary.

What Are Some Common Mistakes Businesses Make?

Here are just a few of the common errors we see:

• Assuming a “25 words or less” entry makes it a game of skill: If the winner is randomly selected instead of judged, it will likely be classified as a game of chance—regardless of the entry format.
• Running a national competition with only one state permit: Each jurisdiction has its own rules. For example, NSW requires a trade promotion lottery permit, while Victoria currently does not. Businesses often overlook this when running competitions Australia-wide.
• Failing to publish or follow judging criteria: For a game of skill, not outlining how entries will be judged—or simply picking one the team likes best without defined criteria—can open you up to complaints or legal challenge.
• Offering high-value prizes without permit consideration: The total prize pool value often determines whether a permit is needed. Some jurisdictions have thresholds (e.g. over $5,000) that trigger additional legal obligations.

These mistakes can often be avoided with proper legal review before the promotion launches.

Let us review your promotion format to ensure it’s classified (and permitted) correctly.

At Gladwin Legal, we specialise in helping businesses run legally compliant and commercially effective trade promotions. Whether you’re planning a social media giveaway, an in-store competition or a national prize draw, we’ll ensure your competition is set up for success—without the legal risk.

Get in touch with us today at  or 1300 033 934 to discuss your next campaign.