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Online Gambling Law

How Sweepstakes Compliance Can Save Your Reputation

by David Klein

The popular TikTok content creator collective, “Not a Content House,” recently received some negative publicity for failing to reveal the winners of a sweepstakes by the promised deadline. Not a Content House is the ironic name of an all-girl team that lives together in Los Angeles where they collaborate on content posted on YouTube, Instagram and TikTok. It is reported that on December 23, 2020, Not a Content House was to announce who the two lucky fans were that had won the sweepstakes and would be flown to Los Angeles to visit the all-female crew. When December 23, 2020 came and went without fans being told of the winners, people took to social media to accuse Not a Content House of running a scam. Not a Content House has since announced the contest winners and apologized for its late announcement. 

This sweepstakes promotion is a case study in the role that sweepstakes compliance plays in determining whether a sweepstakes serves as the intended beneficial marketing tool that it is or a promotional blunder that causes reputational harm.

What are some of the key elements of Sweepstakes Compliance?

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Who Governs Sweepstakes Law?

by Klein Moynihan Turco

Sponsoring sweepstakes promotions are one of the most exciting marketing vehicles that a business can use to increase visibility and engage customers. Before starting, it is essential to take detailed consideration of all rules and regulations governing sweepstakes promotions. By now, readers are familiar with the basics of how to conduct a sweepstakes promotion. However, many do not know who implements and oversees compliance with applicable sweepstakes laws, or which governmental entities they should be aware of. 

In this blog, we take a look at the various entities which are tasked with enforcing sweepstakes rules and regulations across the country. There are both federal and state agencies that oversee sweepstakes promotions. These agencies work on multiple levels to ensure fair business practices in the advertising and administration of sweepstakes contests. 

Federal Agencies that Govern Sweepstakes Promotions

Federal agencies with jurisdiction over sweepstakes promotions include:

  1. The Federal Trade Commission (“FTC”). Originally established in 1914 to prevent anticompetitive business practices, Congress eventually provided the FTC with authority to police “deceptive acts or practices” and the power to administer and enforce consumer protection laws. According to the FTC, telemarketers that advertise sweepstakes promotions are required to inform consumers of  “the nature or value of the prizes, that entering is free, and the terms and conditions to redeem a prize.” In addition, sweepstakes marketing materials that are sent through the U.S. Mail or via the Internet must clearly disclose that consumers do not have to pay to participate. 
  2. The Federal Communications Commission (“FCC”). The FCC regulates communications via radio, television, wire, satellite and cable across the United States. This agency was established in 1934 as the country’s primary independent authority over communications and technology. FCC regulations dictate that television and radio broadcast stations that run sweepstakes promotions are required to accurately disclose their respective contest rules and entrance eligibility criteria.
  3. The United States Postal Service (“USPS”). The USPS created the United States Postal Inspection Service (“USPIS”), an agency that is charged with enforcing laws that are meant to protect the nation’s mail system against illegal and dangerous use. Among other responsibilities, the USPIS protects consumers from predatory scams and promotions. For example, sweepstakes promotions that are advertised through use of the USPS could run afoul of mail fraud regulations if sponsors do not comply with applicable contest laws.
  4. The United States Department of Justice (“DOJ”). The Consumer Protection Branch of the DOJ works with the above-mentioned agencies to enforce applicable laws. Resources listed on their website are aimed at protecting consumers from deceptive promotions, such as lottery fraud.

States Govern Sweepstakes

Sweepstakes promotions are also regulated by various state bodies. For example, cash prizes above certain thresholds trigger sweepstakes registration and bonding requirements. These requirements predominantly apply to sweepstakes conducted in the states of Florida, New York and Rhode Island. In Florida and New York, sweepstakes must be registered and bonded if the aggregate prize values exceed $5,000. Comparatively, where the aggregate prize amounts exceed $500, the State of Rhode Island requires such sweepstakes operators to register with the Secretary of State (but no bonding is necessary.) This registration requirement only applies to promotions that are conducted by brick and mortar-businesses in Rhode Island via a retail outlet. 

Don’t Leave Your Future to Chance

Sweepstakes laws can be nuanced and confusing, and there are significant costs involved if you do not take the necessary precautions to ensure that your promotional contest matches your budget and goals. 

Avoiding possible penalties associated with improperly conducting sweepstakes promotions is a must. An experienced attorney can help guide you through the complexities of federal and state rules and regulations. Klein Moynihan Turco regularly assists businesses with the regulatory compliance issues associated with conducting sweepstakes promotions. Contact us today to get started by emailing us at info@kleinmoynihan.com, or calling 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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Photo by Joshua Sukoff on Unsplash

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Advertising a Game of Chance? Contact a Sweepstakes Lawyer

by David Klein

Businesses often use games of chance to promote products, increase traffic to their websites, and increase revenues. When set up correctly, games of chance can be a boon for business. However, when fashioned incorrectly, the consequences include reputational harm, civil litigation and even criminal liability. Games of skill (as opposed to chance) are regulated at both the state and federal level. Each state evaluates games of skill by using either: 1) the dominant factor test; 2) the material element test; or 3) the any chance test. A sweepstakes lawyer can help analyze the risk associated with promoting games of chance and skill based on the various jurisdictional tests.

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Sweepstakes Law Follow Up: Draper James Sued

by David Klein

In April, we blogged about how Reese Witherspoon’s fashion line, Draper James, LLC (“Draper James”), was roundly criticized for creating the false impression that all teachers who registered on its website would be given a free dress. In reality, teachers were merely entered into a sweepstakes for a chance to win only one of a limited 250 dresses available to entrants. Recently, a group of teachers in California sued both Draper James and Reese Witherspoon over the failed marketing stunt.  The complaint alleges, among other things, that “[t]here was no indication this was some form of lottery, or that Defendants would only be making an unreasonably limited number of products available under this offer or place an unreasonable limitation on quantity, or that there were any other material limitations on this offer.” Had Draper James retained a sweepstakes law attorney prior to launching their promotion, they would have likely avoided the ensuing social media firestorm. 

How do you comply with sweepstakes law?

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Planning on Running a Facebook Sweepstakes? Here’s What you Need to Know

by David Klein

Sweepstakes promotions are great promotional tools which serve to engage consumers and attract new ones. When advertising sweepstakes on social media, businesses must be careful to abide by each respective social media platform’s distinct promotional contest rules, policies and guidelines. By way of example, in this blog we highlight the rules that sweepstakes operators must follow when creating and advertising Facebook sweepstakes promotions. 

What are Facebook’s sweepstakes policies?

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Your Giveaway May Violate Sweepstakes Law

by David Klein

Brands often use giveaways as a marketing tool to create buzz among the consuming public. When done correctly, businesses can see an increase in revenue and consumer loyalty through use of giveaways. However, when a giveaway campaign is poorly structured, brands can suffer irreversible reputational harm. A recent example of a giveaway gone wrong concerns one offered by Reese Witherspoon’s fashion line, Draper James, LLC (“Draper James”). The subject Draper James Instagram giveaway post read: “Dear Teachers: We want to say thank you. During quarantine, we see you working harder than ever to educate our children. To show our gratitude, Draper James would like to give teachers a free dress.” The post did go on to explain that a registration form needed to be completed and that the offer was only “valid while supplies last.” Despite the additional language, the Draper James disclosure proved to be insufficient. After publishing the promotional post, many of the thousands of teachers who signed up believed that they would each receive  a free dress, when, in reality, teachers were entered into a sweepstakes for a chance to win one of only a limited 250 dresses available to entrants. After nearly one million entries were received, Draper James’ sweepstakes site crashed. Teachers who did not receive a dress went to social media to express their outrage about the deceptive giveaway. In an attempt to quell the firestorm, Draper James: 1) publicized that it would make an unspecified donation earmarked to help educators support their remote classrooms; and 2) gave every registrant a Draper James discount code. How this response plays out both in the court of public opinion and with regulators, remains to be seen. The Draper James campaign example is a reminder to brands that they need to use clear language to explain when a promotion is, in fact, really a sweepstakes and not a giveaway with prizes provided to all who sign up. In order to avoid situations similar to this, it is wise to speak with a promotions law attorney who is familiar with the nuances of sweepstakes law and other games of skill and chance. 

What should brands know when offering giveaways?

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Important Illinois Fantasy Sports Law Decision

by David Klein

On April 16, 2020, the Supreme Court of the State of Illinois (the “Supreme Court”) rejected a claim that online fantasy sports constitute illegal gambling under the State’s criminal code. In Dew-Becker v. Wu, the plaintiff initiated suit seeking to recover the $100 he had lost to defendant in a fantasy basketball league on FanDuel. Plaintiff based his lawsuit on a section of the State’s criminal code that allows individuals who lose money through illegal gambling to seek recovery from the winner. The trial court, the intermediary appellate court, and ultimately the State’s highest court, all rejected the plaintiff’s attempt to shoehorn this criminal statute into a case involving fantasy sports law. 

What did Plaintiff allege?

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