Sweepstakes and promotional games are a dynamic and cost-effective way to develop a database of engaged consumers and otherwise increase brand awareness. Consumers are more easily attracted to your marketing message or brand by the opportunity to win prizes than with more mundane advertising that offers little in the way of incentive. When running such promotions, you must follow the specific state and federal laws that apply to promotional games and sweepstakes and the rules for operating and marketing on social media websites. If you do not closely follow both these laws and web platform rules, you risk incurring substantial legal or pecuniary liability (and social media repercussions) for such violations.
Two overarching categories of promotional games: Games of “Skill” and Games of “Chance”
Of the two, games of skill are typically easier to run because they have fewer legal obstacles. However, it is harder to set up a pure game of skill than a game of chance (regulators take a narrow view of what constitutes “skill,” and even slight elements of chance can change the way a game is viewed). Games of skill can run afoul of anti-gambling laws depending on the structure of the prizes awarded and the sponsor’s level of participation in running the games. In addition, some states require that the promoters of games of skill register beforehand with applicable state agencies.
Games of chance are generally considered illegal lotteries, unless one of the following three elements that comprise a lottery is removed: (1) a prize awarded to the winner; (2) an element of “chance” involved in determining the winner; and (3) consideration required from contestants for entry in the game. Because removal of the prize feature undermines the promotional aspect of the game and because chance is hard to eliminate entirely, consideration is the element most frequently removed.
Consideration can be removed by offering a free, alternative means of entry (“AMOE”) that does not require a purchase or other costly action (common AMOEs include mailing in a postcard with certain contact information or calling a toll-free number). To effectively eliminate the consideration element, the AMOE entries must be afforded the same opportunity of winning as entries from consumers that make purchases or otherwise take an action that is so involved that it is recognized as a form of consideration. For example, if you can gain ten entries in a sweepstakes from making ten purchases, you must offer the public the opportunity to enter free up to ten times by calling a toll-free number.
Promotion Game Rules
You must determine all key aspects of the contest (duration, prize amounts, number of prizes, etc.) ahead of time when drafting the all-important contest rules. Once a promotion commences, it is extremely difficult to legally alter material terms. Some of the important contest considerations and corresponding regulations are described below.
Duration: The key with respect to rules drafting is to not overextend in terms of time or the value of prizes. Shorter contest durations with fewer prize commitments are easier to manage. If a shorter contest proves successful, nothing prevents you from conducting another one immediately after the first one ends. But if you are committed to a year-long contest with prizes handed out each month, you cannot simply stop an unsuccessful contest after the first few months.
Winners: You must maintain a list of winners and, depending on the state, file it with the applicable state agency. Prior to issuing a prize, it is advisable to obtain affidavits from prospective winners verifying their identities. If you intend to publish the names or likenesses of winners, you must obtain proper authorization from the winners. In addition, you should always prohibit employees of your business, and relatives of those employees, from contest participation.
Prizes: It is advisable to have a respected, independent third party conduct the winner selection process to ensure the appearance of fair play. Further, where offering non-cash prizes (such as merchandise), it is recommended to offer an alternative cash equivalent. In Florida and New York, sweepstakes that have an aggregate prize value in excess of $5,000 must be registered and bonded. In Rhode Island, the prize threshold for registration is $500, but there is no bonding requirement and registration only applies to contests conducted by brick-and-mortar businesses in connection with a retail outlet. To avoid having to adhere to these requirements, you can bar residents from any or all of these states from entering your applicable contests.
Intellectual Property Rights: In addition to the foregoing, it is vital that you ensure that your marketing approach complies with applicable state and federal laws and guidelines. For example, you must comply with intellectual property laws and the marketing guidelines of social media websites, when promoting your sweepstakes promotions. This is especially true when you are offering the opportunity to win a prize that carries a registered trademark, such as an iPhone®, or marketing your contest within a social media environment, such as Facebook®, and wish to use the Facebook® name in your marketing materials.
Privacy: To the extent that you intend to use a sweepstakes to build a database of customers, you must include the proper disclosures in your privacy policy and associated marketing material.
If you are interested in learning more about this topic or require legal assistance in setting up sweepstakes and other promotional games, 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.
This blog post was originally posted on November 18, 2012 and updated on October 26, 2021.
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