Your Giveaway May Violate Applicable Sweepstakes Laws - Klein Moynihan Turco

Your Giveaway May Violate Applicable Sweepstakes Laws

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 giveaways. However, when a giveaway campaign is poorly structured, brands can suffer reputational harm and may be subject to regulatory action and/or civil litigation.  

Giveaway Gone Wrong 

An example of a giveaway gone wrong concerns one offered by Reese Witherspoon’s fashion line, Draper James, LLC (“Draper James”) in 2020. The subject Draper James’ Instagram giveaway post read: “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 disclaimer language, the Draper James disclosure proved to be insufficient. After publishing the promotional post, thousands of teachers signed up, believing that they would receive a free dress. In reality, teachers were entered into a sweepstakes to win one (1) of the 250 dresses available. Teachers who did not receive a dress went to social media to express their outrage about the giveaway. A class action was later brought against Draper James, which was quickly settled outside of court in September 2020.

The Draper James campaign example should serve as a cautionary tale to brands interested in engaging in promotional marketing. Brands must use clear language to explain when a promotion is, in fact, a sweepstakes and is NOT a giveaway with prizes provided to all who sign up. To avoid such a situation, it is recommended that brands obtain guidance from attorneys experienced with sweepstakes and promotional marketing.

What Should Brands Be Aware of When Offering Giveaways?

Brands may employ giveaways, sweepstakes and other contests as exciting ways to promote their respective products and services. A giveaway is a type of promotion where something is given away for free. In contrast, a lottery exists when people pay for the chance to win a prize, which can only be run by state governments. While private entities cannot offer lotteries, they can offer sweepstakes or contests. If payment is removed, the lottery becomes a legal sweepstakes, and if chance is removed, the lottery becomes a contest/game of skill. 

Offering legal sweepstakes requires brands to comply with state sweepstakes laws in order to avoid fines, reputational harm, and criminal sanctions. 

Complying with Sweepstakes Law

When conducting sweepstakes, brands should be mindful of the following sweepstakes law requirements:

  • Sweepstakes must be conducted in accordance with official contest rules, which act as a binding contract between sweepstakes operators and the entrants. Among other things, sweepstakes rules must include all eligibility requirements and any exclusions to entry. 

In addition to complying with the law, brands must be cognizant of how consumers will perceive their promotions. On its face, Draper James appears to have had good intentions. However, by using the word “give” instead of “offering the chance to win” in its promotional marketing, Draper James received considerable consumer backlash that could have been avoided. 

It is crucial that all sweepstakes promotions have comprehensive contest rules and clear and conspicuous disclosures that accompany both the promotion marketing and sweepstakes registration flow. Consulting with experienced sweepstakes attorneys well in advance of a promotional launch can help prevent regulatory and reputational harm. 

If you are interested in learning more about this topic or require assistance in connection with your sweepstakes and contest promotions, please email 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. 

This blog post was originally published on April 30, 2020 and updated on April 1, 2022.

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David Klein

David Klein is one of the most recognized attorneys in the technology, Internet marketing, sweepstakes, and telecommunications fields. Skilled at counseling clients on a broad range of technology-related matters, David Klein has substantial experience in negotiating and drafting complex licensing, marketing and Internet agreements.
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