Contests, Sweepstakes, and Lotteries: What You Need to Know and Why You Need to Know It

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December 2012
by Steve Gillen and Lori Krafte

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Publishers can and do use prize promotions in two ways—to find and acquire content, and to promote their books. But it’s important to understand the practical and legal differences among contests, sweepstakes, and lotteries.

First, lotteries are not legal. A lottery combines three elements—prize, chance, and consideration—and is illegal in all states (except when run by the state or, in the case of certain charitable organizations, under certain limited circumstances). In this context, prize means cash, coupons, tickets, merchandise, or anything else of value; chance encompasses any random element that leads to a winner being determined by luck rather than by skill; and consideration is usually money paid (or, in some states, considerable effort expended) for participation.

Contests and sweepstakes are legal, but there are distinctions with a difference.

A contest differs from an illegal lottery in that the element of chance is absent; the outcome of a contest is determined by skill and not luck. So it is important, when styling your promotion as a contest, to be sure that the outcome is indeed determined by skill and that chance does not creep into the process.

Use a contest when your objective is to increase engagement with your audience. A contest can be particularly effective at drawing participants into a conversation with you or about your book or your list.

A sweepstakes differs from an illegal lottery in that the element of consideration is absent; there is no price or burden for participating (as seen in the ubiquitous “no purchase necessary” language in sweepstakes literature, and in the free method of entry made available when paid entries are possible). But since a purchase and a payment are not the only forms of consideration, it is important to understand what sort of burden or demand might cross the line.

Use a sweepstakes when your objective is to build buzz. Sweepstakes are less effective at creating engagement, but because they make smaller demands on participants—and on you—they can be effective marketing tools.

 

Missteps to Sidestep

These promotions all involve a quirky area of U.S. law. The rules are established state by state, but with an overlay of federal regulation because contest/sweepstakes rules and promotional materials that are unclear or misleading may constitute deceptive or unfair advertising. Some states have registration and/or bonding requirements for contests and sweepstakes, as well as notification requirements, prize restrictions, and so on. And other countries may have very different requirements, so if you are running an online promotion, make sure you don’t inadvertently enter multiple jurisdictions. Tell participants where the promotion is open (e.g., open to Ohio residents only) and then filter and block entries to be sure they don’t come from outside the intended territory.

You might think your small promotion would never invite attention from a state attorney general or a Justice Department lawyer. And you might be right. On the other hand, losers who think they should have won may initiate complaints about a flaw in your process, and there’s no shortage of such losers in every contest or sweepstakes.

So what are the rules and potential pitfalls? Although you won’t find a single list, you need to make sure your promotion does not include all the elements of an illegal lottery. Other rules concern making necessary disclosures and avoiding deceptive or unfair statements in your rules and promotional materials. Still others involve compliance with registration and bonding requirements, privacy and publicity restrictions, and simple matters of contract law.

Asking yourself certain questions will help you avoid common missteps.

● For contests. To be sure that your contest is really a contest, ask yourself whether every element of chance has been eliminated.

Does the contest entail any elimination of entries before judging, or is there a random drawing to settle a tie?

Is an actual skill necessary to win? And have you set forth clear and specific criteria for the winning entry?

Have you identified your judges, and are they competent to judge according to the criteria you have listed?

● For sweepstakes. To be sure that your sweepstakes is really a sweepstakes, ask yourself whether every element of consideration (i.e., payment) has been eliminated. A monetary entrance fee is deemed consideration, of course, but you must also watch out for other types of consideration, which might include sitting through a two-hour sales presentation, providing certain kinds of personal information, or completing a long survey.

If you have not eliminated every possible element of consideration, have you provided an AMOE (alternative method of entry)? If so, are the odds of winning, the deadlines for entry, and the ease of entry the same as for the regular method?

● For both contests and sweepstakes. Whether you are running a contest or a sweepstakes, the rules of the promotion must be written and readily available to participants. Questions to focus on include:

Are the terms and conditions of the promotion easy to find, read, and understand?

Have you clearly identified yourself as the sponsor, together with any co-sponsors?

Have you clearly identified the prize or prizes, the approximate retail value, and the number of prizes to be awarded?

Have you clearly identified eligibility requirements and exclusions?

Have you stated where interested parties can get a winners list?

Have you included clear and conspicuous “no purchase or payment necessary” language in compliance with the California standards? Those are the most rigorous; if you are running a national promotion and it complies with California standards on this point, it is okay everywhere.

Have you complied with bonding and registration requirements, which vary from state to state? Although a thorough Internet search might turn them up, the best move is to get assistance from a lawyer familiar with contest/sweepstakes compliance.

Also focus on whether your official rules anticipate and provide for the things that might go wrong. Relevant questions to confront are:

Have you disclaimed responsibility for lost, misdirected, mutilated, or late entries?

If you have had game pieces or other materials produced for the promotion, have you included a clause disclaiming responsibility for the manufacturer’s errors?

Have you included “void where prohibited” language, and have you avoided targeting states where the promotion would not be permitted? Here too, it would be best to consult someone experienced in this area.

If you are conducting a user-generated-content contest, have you secured the right to use the entries by having the participants agree to a release and warrant that they have not provided any submission they don’t have rights to?

Have you taken steps to protect yourself from infringing content in those entries, such as reviewing the entries for content that is obviously the property of a third party (embedded music is a common example)?

Have you spelled out what you will expect from winners, including publicity requirements (e.g., permission to use their names/likenesses in ads) and maybe a requirement for making public appearances?

Do your publicity requirements for winners comply with state laws?

 

Safeguards

If the design or operation of your promotion has been outsourced to a PR or ad agency, be sure that your contract with the agency makes it responsible for any failure to comply with legal requirements. But don’t count on the agency to execute flawlessly, because agencies do not always do that.

It’s good to have recourse against a company you hire in case you need it, but it’s better to have the comfort of determining that you are in compliance with the laws that apply to any contests and/or sweepstakes you run. Consider getting a legal review by a lawyer experienced in this quirky and complicated niche practice. In any prize promotion, there will always be losers, and you don’t want to hand sore losers a claim to file against you.

 

Lori Krafte and Steve Gillen are lawyers and partners in the intellectual property firm of Wood Herron & Evans. Lori Krafte concentrates her practice in advertising (including contests and sweepstakes), trademarks, publishing, media, and privacy matters. Steve Gillen has focused his practice on publishing and media matters; he is a member of IBPA and a frequent contributor to the Independent. To learn more: lkrafte@whe-law.com, 513/241-2324; sgillen@whe-law.com, 513/241-2324, ext. 470.


 

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