Sweepstakes Phone Cards Under Investigation in Alabama

December 7, 2015

sweepstakesLast Wednesday, CBS network affiliate WKRG in Mobile, Alabama reported that the Mobile County District Attorney’s Office is conducting an ongoing investigation to determine whether certain sweepstakes phone cards violate Alabama State gambling laws.

Why is the Attorney General investigating these sweepstakes promotions?

Sweepstakes Phone Cards Explained

In convenience stores around Mobile, Alabama, consumers can purchase $1 or $2 sweepstakes phone cards that advertise jackpots and prize money. As a phone card, purchasers can call a toll-free number and enter a PIN code for five to ten minutes of long-distance phone service.

Once peeled apart, the sweepstakes portion of the phone cards either display a prize dollar amount, or instruct participants to “please try again.” Winners can return their sweepstakes phone cards to the point of sale for cash.

Mobile DA’s Investigation into Legality of Sweepstakes Phone Cards

Most consumers interviewed by WKRG described the subject sweepstakes phone cards as “lottery tickets.” When approached by news reporters, Mobile County District Attorney Ashley Rich replied, “It was brought to our attention very recently, but we have an ongoing investigation trying to determine the legality of these devices.”

In the State of Alabama, it is a criminal offense to promote a lottery. Like many states, Alabama defines a “lottery” broadly to include any contest in which:

  • a prize is awarded to the winner;
  • chance is used in determining the winner; and
  • participants pay some sort of consideration (e.g., purchase price or entry fee) for entry in the contest.

In October 2009, after then-Mobile County District Attorney John Tyson Jr. questioned the legality of similar sweepstakes phone cards, he received a legal letter from sweepstakes phone card operator Pre-Paid Promotions Inc. (“PPP”) refuting Attorney General Tyson’s claims and demanding that his office retract all allegations of illegal activity against PPP and its product vendors. “Our phone cards provide valuable long-distance calling minutes for use nationwide, and we promote the sale of some of our phone cards through the use of a standard sweepstakes model which requires no purchase by members of the public in order to participate,” PPP’s President Michael Moore maintained.

Although it is unclear what became of Attorney General Tyson’s 2009 claims and investigation, WKRG reports that one or more sweepstakes phone card operators were ultimately prosecuted and pleaded guilty to gambling-related charges.

Promotion Sponsors: Are Your Sweepstakes Contests Legal?

As the above-mentioned investigation in Mobile, Alabama indicates, it is extremely important that sweepstakes operators minimize the substantial legal risk that their contests are categorized as illegal lotteries. As such, it is recommended that operators of sweepstakes phone card promotions retain qualified legal counsel in connection with the structuring, operating, registering, bonding and advertising of such promotions to avoid the numerous potential legal pitfalls that loom when sweepstakes contests are not operated in compliance with applicable law.

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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