November 9, 2018
Before running a contest, it is essential to ensure it abides by all federal and state laws. In general, lotteries, other than those run by either a state of federal government agency, are illegal. But what constitutes a lottery? You may be surprised by the answer.
Lotteries have three essential components: chance, a prize and consideration. Sweepstakes and contests (typically random drawings) consist of both, the game of chance and prize components. Legal interpretation becomes tricky when analyzing the third component of a lottery – consideration. What is consideration? In the general sense, the term insinuates a requirement. The requirement could be prompting the entrant to either part with or possess something of value to participate. In many states, consideration can be interpreted as having any benefit to the promoter. This interpretation may seem vague, prompting you to take a closer look at the structure of your contest and ask some thought-provoking questions before drafting your rules.
A legal sweepstakes should not require significant effort to participate, be overly burdensome to the entrant, or require a purchase, membership or major action (such as filling out a long survey to be entered). The sweepstakes also needs to provide equal dignity. Meaning the contest should not discriminate among the entrants. For example, if a bank chooses to host a contest and only allow entries from account holders, it would be deemed a consideration that lacks equal dignity. There is a way, however to offer a free entry method to bypass this roadblock. Simply ask entrants to send in a postcard with their contact information and also a registration form at branch locations. Subsequently, the contest becomes open to everyone, customer or not. Free entry is especially important for online and social media promotions. Additionally, if a participant wants to enter an online contest and does not have a computer or mobile device, another form of entry needs to be available so all participants can easily enter, making the contest entry not overly burdensome.
Considerations can be difficult to interpret. The best way to protect yourself and your bank/credit union is to make sure to have some carefully crafted rules in place for your contest. To start, these basic elements are key:
- A statement that no purchase is necessary to win
- Entry procedures and other contest details (random drawing)
- Limit on number of entries allowed (one entry per person or per household)
- The closing date for entries and any other deadlines (i.e., date to claim prize in case another entry has to be drawn)
- Explanation of the winner selection and notification process as well as the date of notification
- List of prizes and their retail values plus any conditions of the prize (i.e., unavailable dates for a prize redemption)
- Odds of winning
- Eligibility (Age – must be over 18 and have a valid driver’s license, residential locality)
- Release forms will be required if winner’s names, photos, submissions, etc. will be shared publicly
- A statement that prizes are non-transferrable
- A statement that the winner is responsible for taxes and gratuities or any additional costs that may be associated with prize (airline travel to prize destination, etc.)
- A statement that a winners list will be made available as well as where the list can be accessed
If you’re planning to promote a contest or sweepstakes on social media, it’s also important to research the promotional guidelines for each social site your contest or sweepstakes will be promoted on. For example, Facebook prohibits requiring sharing and/or tagging a “friend” as a form of entry. You might recall a few contests with this requirement, which ran the risk of having either their contest, or their whole Page, shut down by Facebook.
This may seem like a lot of work and a lot to comprehend for a simple social media contest or sweepstakes but exercising this due-diligence will ensure the success of your promotion. If you have access to legal expertise, we advise that you take advantage of them as a resource. It’s important to remember that gaming laws vary state-to-state and they are constantly changing.
References: The Practical Lawyer, An Introduction to Sweepstakes and Contest Law; FTC regulations: Facts for consumers, www.ftc.gov