Legal sweepstakes are an effective means for brands to attract consumer attention and interaction through the allure of possible prize winnings. Some sweepstakes operators, however, have attempted to create business models based primarily on offering stand-alone forms of serial sweepstakes called “social casinos” or “sweepstakes casinos.” These newer models may run afoul of anti-gambling laws, and have come under increasing scrutiny from state lawmakers. In fact, some states have already passed laws to ban certain variations of the social casino/sweepstakes casino model.
How Does A Sweepstakes Casino Differ from A Legal Sweepstakes?
In order to operate legal sweepstakes games, sponsors must eliminate one of the following three elements: prize, chance or consideration. Sweepstakes casinos, as a rule, involve chance and charge entry fees to purchase “basic coins” that enable entrants to play the associated promotional games. Given that, the salient issue is whether or not entrants can win prizes. The answer to that question depends on the means of entry utilized.
The most popular sweepstakes casino model involves a dual-currency “coin” system. With his construct, certain “basic coins” (or other designated currency) have no value other than granting the basic coin holder the ability to play the promotional games. Other, more exclusive “sweepstakes coins” entitle the holder to obtain real world prizes, including cash and merchandise.
While basic coins can typically be purchased for cash, sweepstakes coins are obtained by winning those games that are entered using basic coins. Sweepstake casino operators also often offer prospective entrants the opportunity to obtain a certain number of basic coins and/or sweepstakes coins via free alternative means of entry (“AMOE”).
However, depending on whether or not there are purchase caps, an entrant may be able to obtain more chances to win sweepstakes coins (and by extension, valuable prizes) by paying money for basic coins as opposed to entrants that use the AMOE method for obtaining basic coins. In such instances, regulators will likely deem the sweepstakes promotion to have triggered the consideration element of the three-part test referenced above BECAUSE THIS IS NOT A REAL AMOE.
As a rule, entrants who utilize a sweepstakes AMOE must be given the exact same opportunity, with the exact same odds, to win each sweepstakes prize (including sweepstakes coins, where sweepstakes coins can be traded in for cash/merchandise). To satisfy that requirement in a dual currency model, entrants who utilize only the free AMOE method of obtaining basic coins must be able to obtain the same number of basic coins as a entrants who pay for basic coins.
Sweepstakes Lawyers Can Help Ensure Compliance with Applicable Law
The criteria for ensuring that a sweepstakes promotion satisfies all the elements that make up a legal sweepstakes can be complex and subject to frequent change. For example, if a sweepstakes model charges money for any entry-enabling currency, like coins, the same number of coins must be available via a free alternative method of entry. Further, the actual game types used (if they resemble real-world casino games) can result in a violation of law depending on jurisdiction. Significant legal and regulatory liability may result if a sweepstakes sponsor does not take the necessary steps to ensure that its sweepstakes model is fully compliant with state and federal law.
Please note that this is only a brief overview of some of the legal issues involved in designing and conducting legal sweepstakes promotions. As such, remember to obtain guidance from an experienced sweepstakes attorney prior to conducting any sweepstakes promotion.
If you are interested in learning more about this topic or require assistance in connection with your sweepstakes promotions, 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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