Running a contest or a giveaway is a brilliant, and cost-effective way to get your audience engaged and get fresh leads, drive lots of meaningful actions, Attract people to your content, get them to share it, and more.
But it's important to exercise caution and make sure that you're complying with the relevant laws. You want to make sure that what you're doing, the kind of promotion, whether it's a contest or a giveaway doesn't amount to an illegal lottery.
How to stay legal with your contest or sweepstakes
A promotion will be considered an illegal lottery if it has all three of the following components, those are: Consideration, an element of chance, and a prize.
CONSIDERATION
Consideration refers to ways that people can essentially purchase their entry by some monetary or non-monetary action
Monetary actions are ways that people enter that require them to make some kind of a financial contribution or payment, whether by purchasing a product or by buying an entry or a ticket or similar.
Non-monetary actions are ways for people to enter promotions that require them to give up a significant amount of their time other resources. Things like having to fill out a lengthy, complex survey making multiple visits to a store.
These non-monetary actions are often a gray area. So you'll want to avoid those if at all possible.
ELEMENT OF CHANCE
The element of chance is the fundamental difference between a contest and a sweepstakes. A sweepstakes is a luck-based promotion where the winners are chosen at random, such as by drawing a name out of a hat or, or a numbered ball from a basket.
Contests, on the other hand, are skill-based promotions where the winners are chosen on the basis of some kind of merit; they've entered a, a writing contest or a piece of artwork or, or engaged in challenge of some sort where skill, creativity, or effort is required.
In most jurisdictions, it is permissible to require consideration for entry into a contest, where the winners are chosen on some merit based criteria and not randomly,
PRIZE
A prize is the value that the winner of the contest or sweepstakes receives when they are identified as the winner. Normally, even a minimal value is enough to constitute a prize for the purposes of the illegal lottery analysis.
So, in order to avoid having your promotion classified as an illegal lottery, it must exclude one of these elements. Sweepstakes (prize drawings and giveaways) typically exclude a requirement of consideration, while contests exclude the element of chance.
OTHER REGULATIONS ON SWEEPSTAKES AND CONTESTS
In the United States, there are other important laws and regulations to consider. These may require some kind of a free alternative means of entry. If you're going to allow people to enter sweepstakes with a purchase, you should also make a way for them to enter without buying anything. But beware. If you require submission of a name and an email address or a phone number or other personal identifying information, you also need to be aware of privacy laws that regulate the collection of that kind of data.
Regulations may also require that the sponsor of a promotion:
- Announce the opening and closing dates for entries
- Disclose when and how winners will be selected.
- Publish the rules of the contest or sweepstakes (this is a good idea even if not required in your jurisdiction, so that there's transparency about what's going on.
- Announce when the prizes will actually be awarded.
- Contact all the winning entrants. And in some jurisdictions
- Publish or post the names of all the winners.
PRIZES MUST ACTUALLY BE AWARDED
Finally, you need to follow through on all the prizes. Running a contest, or a sweepstakes does form a binding contract with the entrance. The rules are binding and the obligation to select a winner and actually furnished. The prizes are binding contractual promises as well. And breach in this kind of situation could very easily be considered a fraud, which can have both civil and criminal consequences.
JURISDICTIONAL VARIANTS
There are a few U.S. state by state variations to the above-referenced general rules. For example:
- Tobacco related promotions are not permitted in the States of Massachusetts, Michigan, and Virginia.
- In Texas. It is against the law to automatically enter purchasers in a contest or a sweepstakes when the prizes have a value in excess of $50,000.
(And you'll also want to be aware of other state and international privacy regulations that can make automatic entry. Illegal.) - Several States require registration of your promotion.
- in Florida, a sweepstakes having prizes over $5,000 has to be registered seven days before the promotion begins.
- in New York. You have to post a bond and register 30 days before the promotion begins if it's over $5,000.
- In Rhode Island, if the prize pool is over $500, you have to register. (This only seems to apply to retail stores that run sweepstakes and contests, but it’s important to verify, as such rules change frequently)
- Publication of the winners is required in the state of New York, where you have to post a list of winners. In most States, if you're running a contest where some skill or merit is involved in being selected as a winner, it is okay to require a purchase.
Some states do not permit any purchase requirement, even for contests. And that purchase requirement might actually apply to any form of consideration.
Those States are:
- Colorado,
- Maryland,
- Michigan (where even a visit to a store requirement can be considered consideration),
- Nebraska,
- North Dakota,
- Vermont, and
- Virginia (which also treats a store visit as consideration required)
And in Tennessee, it is illegal to require entrance to grant a publicity release “in perpetuity”. (Presumably a “reasonable amount of time” might be permissible, but this requires further inquiry).
In other States like California and Indiana with strong property rights in name, likeness and so on, such a release might also be treated as valuable consideration, so caution is advised.
CONCLUSION
The bottom line is running a contest or giveaway is a great way to get an audience engaged, generate leads and get your audience to help you promote and grow your business or program. But you do have some legal requirements to comply with.
Be sure to check with your lawyer before you launch anything that might be considered an illegal lottery.
