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. However, when designing a sweepstakes it is important to be mindful of the total prize amount, because prizes above certain cash (or cash equivalent) thresholds may trigger specific sweepstakes registration and bonding requirements in three states: Florida, New York and Rhode Island.
Sweepstakes in Florida, New York and Rhode Island
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, but 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.
While there are numerous third party service providers that can help a business to process the paperwork involved in the registration and bonding process, there is, obviously, a cost involved in retaining those service providers.
Aggregation Aggravation and Possible Workarounds
It is worth noting that the aggregate value of the prizes is considered when determining if a given sweepstakes requires registration and bonding in the applicable states. In other words, if you run a sweepstakes that is set to last for six months, and there is a $1,000 prize given away at the end of each month, then the aggregate prize amount for that sweepstakes would be $6,000. This amount would trigger the registration and bonding requirements in the three jurisdictions.
One way to avoid falling under the registration and bonding requirements would be to break up the sweepstakes in the prior example into six separate one month contests with one prize each, rather than one six month contest with six separate prizes. In addition, companies that want to avoid time and cost associated with the registration and bonding process altogether can bar residents from Florida, New York and/or Rhode Island from entering the applicable contest.
Rules, Rules, Rules
As should be apparent, it is crucial that you determine the contest duration, prize amounts and number of prizes ahead of time in order to account for potential registration and bonding requirements. It is highly recommended that you retain qualified legal counsel to ensure that you get the prize amount right in advance, as well as to help you with any registration and bonding requirements that may arise.
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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