In general, a lottery exists when entrants pay for the chance to win a prize. States alone reserve the right to administer lotteries. Businesses can eliminate one element of what would otherwise be an illegal lottery, in order to transform it into a legal promotional game. If the requirement to pay to enter is removed, the lottery becomes a legal sweepstakes, and if chance is removed, the lottery becomes a game of skill. In addition to this simple breakdown on the elements of promotional games, some states have their own regulations that govern sweepstakes-related conduct within their respective borders. New York sweepstakes law stands out for its strict registration, bonding and reporting requirements. Businesses that fail to adhere to New York sweepstakes law may find themselves the subject of an investigation by the New York State Attorney General’s Office (“AGO”).
What are the particulars of New York Sweepstakes Law Regulation?
Registration, Bonding and Reporting
New York sweepstakes law regulations require that sweepstakes operators that offer contest prizes that, in the aggregate, exceed $5,000 during the contest term file a Games of Chance Registration form (the “Form”) with the New York Department of State thirty (30) days before the start of the applicable sweepstakes promotion. There is a $100, nonrefundable filing fee associated with filing the Form. Businesses that fail to register with the New York Department of State are subject to a class B misdemeanor.
Some important Form disclosures include: 1) sweepstakes official contest rules; 2) an itemized list of prizes, prize levels and the odds of winning each prize; 3) contest period; and 4) any geographical restrictions.
Businesses must secure a bond, or establish a trust account, to guarantee that contest prize winners receive payment. Bonds can be secured through insurance companies, and trust accounts can be set up through financial institutions. To issue bonds, insurance companies will review: 1) sweepstakes official rules; 2) prizes; 3) business creditworthiness; and 4) sponsor ability to payout on the prizes. During registration, businesses must file both the Games of Chance Registration form and either a copy of the trust account certificate of deposit or a copy of the bond. Sweepstakes sponsors that cannot cover the prizes will be required to pay winners out of the bond or trust account.
Companies offering a prize pool of over $5,000 must file a Certification of Winners form with the New York Department of State within ninety (90) days from the sweepstakes contest end date. The Certification of Winners form must include: 1) name and address of each winner; 2) a description of each winner’s prize over $25; 3) value of each prize; and 4) dates when prizes were delivered. New York sweepstakes law requires that a copy of the list of winners be retained for at least six (6) months after completion of the subject contest.
Complying with New York Sweepstakes Law
Sweepstakes promotions serve as powerful tools to engage customers and increase brand visibility. Businesses must be aware that complying with New York sweepstakes law addresses only one of a group of jurisdictions that regulate sweepstakes promotions. Sweepstakes operators should work with competent legal counsel to ensure that they do not garner unwelcome attention from federal and/or state agencies that oversee sweepstakes promotions.
If you require assistance in connection with setting up a sweepstakes promotion, 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.
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