Sweepstakes and Promotions: Winning the Marketing Grand Prize

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The use of promotional contests, games and sweepstakes can be a dynamic and cost-effective way to increase conversions, build a database of engaged and responsive consumers and otherwise increase brand awareness and buzz – all valuable commodities in the social media and performance marketing space. The logic is simple, if undeniable: 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 you are competing with the multitude of players vying for attention in the increasingly cluttered social media marketing arena, it pays to have an edge.

Despite the allure of the sweepstakes model, there are very specific state and federal laws that apply to promotional games and sweepstakes, as well as rules for operating and marketing on social media websites such as Facebook®, Google+® and Twitter®. You could incur substantial legal or pecuniary liability if these laws and web platform rules are not followed closely. Also of importance, 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. In order to navigate the legal maze associated with promotions, it is essential to first identify the nature and purpose of the game itself.

There are, generally speaking, two overarching categories of promotional games: games of “skill” and games of “chance.” Games of skill are typically easier to operate because they have fewer legal obstacles, but it is harder to set up a pure game of skill (regulators take a narrow view of what constitutes “skill,” and even slight elements of chance can change the way a game is viewed). Further, some games of skill can run afoul of anti-gambling laws depending on the structure of the prizes awarded and the level and degree of participation of the entity that is running the game. In addition, some states require that the proprietors of games of skill register beforehand with applicable state agencies.

Games of chance, on the other hand, can face an insurmountable legal obstacle: they are generally considered illegal lotteries in each state, unless one of the following three elements that comprise a lottery is removed: (1) there is a prize awarded to the winner; (2) there is an element of “chance” involved in determining the winner; and (3) there is consideration required from contestants for entry in the game. Because removal of the prize feature undermines the promotional aspect of the game (and thus diminishes the effectiveness of the game as a marketing tool), and because chance is hard to eliminate entirely (as mentioned above, many states find that even a small trace of chance in determining the winner satisfies the “chance” element), consideration is the element most frequently removed.

Consideration can be eliminated by offering a free, alternative means of entry that does not require a purchase or other costly action (the frequent use of this method leads to the ubiquitous “no purchase necessary” language appearing in most sweepstakes marketing material). However, in order to qualify as an elimination of consideration, the free, alternative entries must be afforded the same opportunity of winning as entries from consumers that made purchases, paid to enter the contest or otherwise took an action that is so involved that it is considered a form of consideration. So, 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, for example, mailing in a postcard with certain contact information or calling a toll free number.

After you have decided on the basic structure of your promotional game, it is crucial that you determine all key aspects of the contest (duration, prize amounts, number of prizes, etc.) ahead of time when drafting the all-important contest rules, because once a promotion commences, and the rules are published, it is next to impossible to legally alter material terms. The key with respect to rules drafting is: do not overextend in terms of time or the number or 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 can not simply stop after the first month or two if the contest is not meeting your marketing expectations. By conducting several shorter-lived contests, rather than one long-lived variation, you will not be obligated to waste time and money continuing to operate a game (and, possibly, hand out prizes) for the full duration set forth in the rules if the particular game is not serving a useful function. In this instance, a bit of extra time spent in the planning stages can pay dividends and prevent costly obligations that outlive their utility from a marketing perspective.

When drafting the rules, there are also several specific legal requirements that, while seemingly minor, are important to address. For example, the proprietor of the contest must maintain a list of winners – with some states requiring that such list be filed with the applicable state agency. Also, it is advisable to obtain an affidavit from prospective winners verifying their identities prior to issuing a prize. In addition, if you intend to publish the names or likenesses of winners in order to promote your sweepstakes, you must obtain proper authorization from the winners well in advance of any such publication.

It is also vital that you ensure that your marketing approach complies with applicable laws and guidelines. For example, you must at all times comply with trademark and intellectual property laws, as well as the marketing guidelines of social media websites and search engines, when promoting your sweepstakes. 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 material.

The nature and amount of the prize(s) to be awarded, and the process of awarding those prizes, can also present challenges. It is advisable to have an unaffiliated, independent and respected third party conduct the applicable drawing or winner selection in order to ensure the appearance of fair play should any contestant or regulator question your practices. Further, where offering non-cash prizes (such as merchandise), many states require that a cash equivalent be offered as an alternative.

For prizes above certain cash (or cash equivalent) thresholds, three states – Florida, New York and Rhode Island – have specific sweepstakes registration and bonding requirements. If the aggregate value of the prizes in a given contest exceeds a certain limit, Florida and New York require that the game be registered and bonded. In Rhode Island, the prize threshold for registration is lower than in Florida and New York (and only applies for certain contests), but there is no bonding requirement. To avoid having to adhere to these requirements, you can bar residents from any or all of these states from entering the applicable contest. In addition, you should always prohibit employees of your business, and relatives of those employees, from participation.

Despite the occasional hurdle, with the proper planning and knowledgeable legal guidance, promotions and sweepstakes can be valuable marketing tools in the social media world. This is true for new businesses looking to create initial brand awareness in certain demographics, as well as for established brands looking to maintain interest and engagement with the public. Just make sure you take the time and effort to ensure that your promotional contest is a winner!

Please note that this is only a brief overview of some of the legal issues surrounding game promotions. Remember to obtain guidance from a licensed and experienced legal professional prior to conducting your promotional games.

David O. Klein

David O. Klein

David Klein is one of the most recognized attorneys in the telemarketing, 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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