May 21, 2015
Last week, the United States Attorney for the Middle District of Florida filed a Complaint seeking the forfeiture of proceeds received by the World Triathlon Corporation (“WTC”) over a period of time spanning from 2013 until 2015. The Complaint alleges that the funds were generated as proceeds from a lottery that violated both federal and state law. The filing of the Complaint follows a consent agreement between the U.S. Attorney and the WTC, in which the WTC consented to the forfeiture of $2,761,910.00 in exchange for the federal prosecutor’s agreement not to pursue criminal charges against WTC, or its current or past shareholders, directors or officers in connection with the conduct that comprised the alleged illegal lottery operation.
How did WTC structure its Sweepstakes that ultimately drew the ire of the Feds?
WTC organizes, promotes and licenses triathlon races, including the famous “Ironman” triathlons. Generally, athletes gain entry into the Ironman World Championship race in one of four ways, one of which included by being selected in the “Ironman Lottery.” The Ironman Lottery worked as follows:
- The lottery was used to award 100 athletes the opportunity to compete in the triathlon;
- Entry fees ranged from $35-$50, depending on the year;
- Each athlete could only register once per year, although the lottery did not sell out;
- Athletes were offered an opportunity to pay an addition $50 to purchase a “membership”
in the “Passport Club,” which offered an increased chance of being selected in the lottery, insofar as the athlete would be afforded two entries in the lottery; - If selected in the lottery drawing, winners were permitted to pay the $850.00 entry fee in order to participate in the race.
The U.S. Attorney concluded that the Ironman Lottery contained all of the necessary elements to constitute an illegal lottery under applicable law: consideration (entry fees ranging from $35 to $50), chance (winners were drawn at random), and prize (the opportunity to compete in the triathlon).
Best Sweepstakes Practices to Avoid Running an Illegal Lottery
As evidenced by the U.S. Attorney’s complaint, and the resulting consent forfeiture agreement, the federal government takes a strong stance against those that do not comply with sweepstakes regulations. By failing to provide a free, alternative method of entry (“AMOE”), the WTC operated its promotional sweepstakes in a manner that plainly violated state and federal prohibitions against lotteries. We have previously discussed how companies and marketing professionals can best protect themselves through the proper structuring of sweepstakes promotions. It is imperative that anyone seeking to set up a sweepstakes promotion retain qualified legal counsel to ensure that the contest rules and AMOE, if applicable, are properly structured in advance, as well as to help navigate any related issues that may arise during the course of the subject promotion. The financial consequences for failure to do so, as this case demonstrates, can be catastrophic.
If you are interested in learning more about this topic or setting up 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 information 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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