Sweepstakes Are an Effective Marketing Tool
Promotional contests and sweepstakes are an increasingly popular marketing tool – and for good reason. They provide a cost-effective way to generate publicity and notoriety for a brand or product line. Since most sweepstakes games include both the elements of chance and the awarding of a prize, it is critical that participants are not required to provide any consideration in order to participate. As we have recently discussed, attorneys general aggressively scrutinize and prosecute violations of this rule.
Assuming that the sweepstakes contest is set up properly, it is critical to be mindful of the total prize amount, since prizes above certain cash (or cash equivalent) thresholds may trigger specific sweepstakes registration and bonding requirements, and potential consequences, in three states: Florida, New York and Rhode Island.
Florida, New York and Rhode Island Sweepstakes Thresholds
If the aggregate value of the prizes in a given contest exceeds $5,000, Florida and New York require that the game be registered and bonded. In Rhode Island, the prize threshold for registration is $500, however there is no bonding requirement and the registration requirement only applies to contests that are conducted by brick and mortar-businesses in connection with a retail outlet.
Possible Workarounds
Since it is the aggregate value of the prizes that is considered when determining if a given sweepstakes contest requires registration and bonding in the applicable states, it is critical to know for certain the full value of the sweepstakes prize(s) at contest inception. Some sweepstakes promotion sponsors attempt to circumvent this rule by running a series of smaller contests (e.g. monthly $1,000 prizes, rather than a $6,000 semi-annual prize).
Alternatively, companies that wish to avoid the time and cost associated with the registration and bonding process altogether can bar residents of Florida, New York and/or Rhode Island from entering the applicable contest. However, since Florida and New York each have a very large potential contestant pool, blocking those states may be a less than optimal solution.
Penalties for Failure to Register and Bond Sweepstakes Games
The attorney general is responsible for policing and enforcing the registration and bonding requirements in each respective state. In each state, the consequences for failure to comply with the statutory requirements can be quite significant.
The Florida promotional game statute authorizes the Florida State Attorney General to commence suit to shut down any sweepstakes game that is operating in violation of the statute, and fine any person, firm, agent or employee involved an amount of $1,000.00. More significantly, however, the statute carries a criminal penalty. Any person, firm, agent or employee who violates the statute is guilty of a misdemeanor in the second degree, punishable by imprisonment for up to sixty (60) days and a fine of up to $500.00.
Similarly, in New York and Rhode Island, the Attorney General is authorized to commence suit to enjoin any violation of the sweepstakes statute and in New York, the Attorney General is explicitly granted all powers that the District Attorney would have to prosecute a violation on a criminal basis.
Conclusion
In light of the potential civil and criminal consequences, it is highly recommended that you retain qualified legal counsel to: 1) ensure that your sweepstakes contest complies with all consideration and prize threshold issues; 2) prepare your contest rules; and 3) help you with any and all registration and bonding requirements.
If you are interested in learning more about this topic or pursuing a sweepstakes-related venture, please e-mail us at info@kleinmoynihan.com or call us at (212) 246-0900.
The material contained herein is provided for informational purposes only and is not legal advice, nor is it a substitute for obtaining legal advice from an attorney. Each situation is unique, and you should not act or rely on any information contained herein without seeking the advice of an experienced attorney.
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