What is Sweepstakes Law?
Trying to understand the intricacies of sweepstakes law can be a daunting task. Sweepstakes are marketing promotions that provide customers with an entry into a drawing of chance that gives them the opportunity to win a specific prize, product or service. Prizes for sweepstakes can vary in value from as little as twenty dollars to as much as one hundred million dollars. Sweepstakes are governed by the laws and regulations of the state and country in which the contestant lives.
Sweepstakes Law and Paying to Play
Sweepstakes law is heavily regulated in many countries because of the potential abuse by scammers. The U.S., Canada and individual states all have specific laws governing sweepstakes, depending on where the potential entrant lives. For example, laws governing sweepstakes may permit sponsors to utilize pay-to-play requirements, but the sponsors must engage the services of an independent prize selection individual/committee, and offer an alternative free means of entry, in order to avoid running afoul of existing lottery laws. Sponsors are generally permitted to require that participants fill out a form with personal information in order to enter without violating the pay-to-play prohibition, and the database of personal information collected is often beneficial to sponsors. It is recommended that companies refrain from conducting the drawings for their own contests in order to prevent the appearance, or commission, of fraud and to ensure all the prizes are actually given away to uninterested third parties.
Popular Sweepstakes in the U.S.
One of the most popular sweepstakes in recent years in the U.S. has been the McDonalds’ Monopoly promotion sweepstakes. This promotion has been running since 1987. The purpose of the sweepstakes is to get more customers into McDonalds’ restaurants by offering various prizes – most frequently, free McDonalds’ food items. This sweepstakes is also a case study in some of the legal pitfalls to be avoided when conducting promotions.
In 2000, the McDonalds’ promotion was halted after fraudulent activity was uncovered. A subcontracting company, Simon Marketing, had been hired by McDonalds to run their Monopoly sweepstakes – including organizing and promoting the game. Simon Marketing executives were allegedly able to rig the sweepstakes by removing the most expensive game pieces from the general circulation and distributing them to associates in order to redeem the prizes and share in the proceeds. From the period between 1995-2000, associates of Simon Marketing won almost all of the top prizes. The scheme was uncovered when one of the associates informed the FBI of fraud.
Sweepstakes Law
When companies are deciding to run a sweepstakes they must not only comply with local, state, and federal sweepstakes laws, but must also account for general entrant fraud. Before computers were the norm for sweepstakes entry, the common form of entry was mailed a post card with the entrant’s name and address. In this new age of digital marketing, most sweepstakes are run online, where the potential for fraud in terms of multiple and/or duplicative entries is exponentially greater.
Complying with Sweepstakes Law
If your company is planning on offering a sweepstakes contest, there are a number of things that you should keep in mind. Establishing legally compliant rules for the eligibility of contestants is a top priority and you must set forth in the applicable contest rules the eligibility requirements for each entrant. Usually an entrant must be 18 years of age or older and must reside in a specific geographic location. You may allow entrants to enter the contest more than one time, but you must make sure that you state this option in the rules so that all entrants understand the parameters of entry.
Awarding Sweepstakes Prizes
Sweepstakes laws also require that you announce on what dates the contests end, and when prizes are awarded. Sponsors should make sure to publish in the rules clearly defined opening and closing dates for submitting entries for the sweepstakes, as well as when and how the winners will be selected.
Once a winner is selected, the sweepstakes sponsor must contact the winning entrant. The winner should then be required to file a publicity release (where permitted under state law), an affidavit of eligibility and any state or federal tax forms. Sponsors of the sweepstakes must not require prize winners to pay any shipping or handling charges, or other fees, in order to receive their prizes. Sometimes if a potentially winning entrant does not respond to the attempted prize notification within a certain time period, they can be disqualified from winning a prize in the contest.
Conclusion
Sweepstakes law can be very confusing, and fraught with considerable risk, if you are not well-versed in the laws that apply. While the regulations applicable to the marketing and operations of sweepstakes are complex and nuanced, with the proper planning and knowledgeable legal guidance, these games can be valuable marketing tools.
Please note that this is only a brief overview of some of the legal issues surrounding sweepstakes and other promotions, and as such, please remember to obtain guidance from and experienced attorney prior to conducting a promotional game.
If you are interested in learning more about this topic or pursuing a venture in this area, please e-mail us at info@kleinmoynihan.com, or call us at (212) 246-0900.
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