Avoiding Illegal Lotteries
Sweepstakes and other promotions are great marketing tools; however, they are highly regulated by both federal and state law. The most basic rule in promotion planning is to avoid having your promotion be deemed a lottery since only state governments can hold lotteries. A promotion is considered a lottery (and thus, illegal) if the following three elements are present:
(1) Prize – anything of value is awarded in the promotion; (2) Chance – random selection of winners (vs. selection based on adherence to defined criteria); and (3) Consideration – any value given by entrant to enter the promotion; “value” can be monetary (making a purchase) or non-monetary (attending a sales presentation, supplying personal information, filling out a form) with the definition of “consideration” varying by state.
Sweepstakes, Contests and Giveaways – The Three Most Common Types of Promotions
Sweepstakes. A sweepstakes is the most common as well as the most regulated type of promotion. Since a sweepstakes requires no skill and each winner is selected at random, the element of consideration must be absent. However, many sweepstakes are conducted in connection with a purchase, such as McDonald’s Monopoly sweepstakes. To comply with the “no consideration” requirement, sweepstakes sponsors must offer an alternative method of entry where consumers can enter the sweepstakes without making a purchase (typically by a consumer mailing in an entry request). All participants must have the same chance to win regardless of method of entry.
Contests. Unlike a sweepstakes, a contest requires skill to win, and the element of chance is absent. Contests vary widely, but some examples are (a) an essay contest to determine a company’s biggest fan, (b) sports-oriented activity such as game result picking challenges or player picking ‘fantasy’ challenges, (c) the best sunset photograph, and (d) the best hashtag to describe a new product. In a contest, it is essential that judging criteria be clearly defined.
Giveaways. Winners aren’t selected at random, no skill is required to win, and the element of chance is absent. A giveaway “winner” simply satisfies defined criteria (for example, Chick-fil-A’s popular “First 100” giveaway).
Additional Legal Requirements and Considerations
Which promotion is right for me?
That depends on your objective. If you are a restaurant launching a new product, a giveaway could be your best option, as this would attract customers and allow them to try your new product for free. Alternatively, if you want to engage more with consumers, you may want to consider a contest, requiring entrants to submit a photograph or other personal creation concerning a subject matter tied to your business. Finally, with their big and sometimes showy prizes, sweepstakes can be great ways to garner attention and create buzz about your company.
Promotions are valuable tools to market your company and interact with your customers and fans, but they must be conducted properly. FisherBroyles attorneys are familiar with ever-changing promotions laws and guidelines and can work with you to minimize your time commitment for the above steps so that your planned promotion is efficiently deployed and compliant.
If you would like additional information, please contact any of the following FisherBroyles partners:
Anne E. Keenan-Yates