The federal government has moved to close a long-standing regulatory loophole that has allowed subscription-based "giveaway" businesses to operate as trade promotions while offering repeated chances to win high-value prizes — a practice critics say amounts to running an unlicensed lottery. The reforms, which passed parliament in August, are being described by Communications Minister Anika Wells as "the most significant in Australia's history" when it comes to gambling regulation.
The Grey Zone: Where Trade Promotions Became Lotteries
Trade promotions have traditionally functioned as marketing tools — customers spend money at a business and receive a chance to win a prize as an added incentive. The prize is incidental. Lotteries, by contrast, are built entirely around the chance to win, with customers paying specifically for that opportunity.
That distinction has grown increasingly blurred as subscription-based rewards clubs have expanded into a booming, multibillion-dollar industry. Businesses including LMCT+, RS Rewards and Victorian operator Horsey People have attracted large customer bases by offering high-value prize draws — including homes and cars — under trade promotion frameworks that carry far lighter regulatory requirements than a licensed lottery.
Under the new federal rules, any subscription-based business where the prize draw is the central reason customers sign up will now be treated as a gambling service or lottery, requiring proper licensing. That means formal applications, background checks, compliance assessments, ongoing reporting obligations, and scrutiny of how customer funds are managed — a significantly more demanding standard than the state-issued permits that have until now governed trade promotions.
Operators Already Facing Legal Scrutiny
The federal intervention comes as several of the industry's biggest names face regulatory and legal pressure at the state level. LMCT+ was recently fined for more than 10 breaches related to running an illegal lottery in South Australia. RS Rewards has been barred from operating in one state. Horsey People is understood to be refunding some customers who were able to enter prize draws despite state laws specifically excluding them.
Adding to consumer concern, a series of cases has emerged in which Australians believed they had won major prizes — homes, vehicles and other high-value items — only to be disqualified because they did not meet residency requirements. Those cases have raised serious questions about fairness, compliance and whether operators had adequate safeguards in place to prevent ineligible entrants from participating in draws in the first place.
Properly licensed lottery operators, such as charity-based lottery systems, are already required to verify a customer's location on entry and restrict access to prizes the customer is not eligible to win. The reforms are intended to bring giveaway clubs up to a comparable standard.
What the Reforms Mean for the Industry
A ministerial spokesperson confirmed the reforms are specifically designed to address gaps that some operators may have been exploiting to offer what are effectively lottery products under the cover of trade promotion permits.
"This includes addressing regulatory gaps that some operators may be exploiting to offer lottery products under the guise of trade promotions," the spokesperson said. "The reforms will support small businesses run by mums and dads like newsagencies, charities and legitimate Australian lotteries that generate revenue for state and territory governments."
The government has indicated it will continue working with state and territory governments to develop a nationally consistent framework — a key challenge given that gambling and lottery regulation has historically been managed at the state level.
For consumers, the changes are intended to provide stronger protections and greater transparency around how prize draws are conducted and who is eligible to enter. For the gambling and lottery sector more broadly, the reforms signal that the era of operating in the space between marketing and gambling — without the obligations that come with either — may be drawing to a close.
Operators who do not meet the new Commonwealth definition of a legitimate trade promotion will face a clear choice: obtain proper gambling or lottery licensing, or cease offering prize draws as a core part of their business model.
