Contests and sweepstakes must comply with an assortment of federal and state laws, regulations, and rules. In this two-part blog posting, I outline ten areas of contests and sweepstakes law featured in my book on Contests and Sweepstakes Law (Get a free 40-page excerpt of the book here).
HERE ARE LEGAL PITFALLS TO AVOID WHEN SPONSORING A CONTEST OR SWEEPSTAKES:
1. Offering an Illegal Lottery or Gambling Game
Many laws relevant to contests and sweepstakes focus on preventing the promotion from being an illegal lottery or illegal gambling game. A lottery combines the three elements of chance, prize, and consideration.
To avoid being a lottery, a legal contest or sweepstakes may have only two of these three elements. Sweepstakes have the elements of chance and prize. Contests have the elements of prize and potentially consideration. (Read why non-profit raffles are the exception to this rule and why raffles are promotions that may combine all three elements of chance, prize, and consideration.)
What qualifies as chance, consideration, and a prize is not always straight-forward. As a result, sponsors sometimes inadvertently structure their promotions in a manner that turns their otherwise legal contest or sweepstakes into an illegal lottery or gambling game.
2. Failing to Provide Entrants with Complete Rules
I often see the statement that all contests and sweepstakes must have official rules. This statement is not completely accurate.
There are certainly circumstances in which sponsors are legally required to have official rules and to make those rules publicly available. For example, promotions requiring rules include a promotion in which the sponsor uses direct mail, a promotion offered by a broadcast station, and a promotion offered on a social media platform requiring rules.
There are many types of contests and sweepstakes and there is not one general law that requires written rules for all of them. Hence, in some circumstances, having published promotion rules might not be legally required. Nevertheless, it is always a good idea for a contest or sweepstakes to have written official rules.
Promotion rules serve as the contract between the sponsor and each participant. Well-written rules are one of the sponsor’s best defenses to complaints from disgruntled entrants, inquiries from government regulators, and promotion mistakes.
3. Making the Official Rules Hard to Find
Consumers interested in the promotion should be able to obtain or access a copy of the rules with ease. Sponsors of online promotions should not require a social media connection or other like-gating techniques as a prerequisite to seeing the complete official rules.
4. Diverging from the Official Rules
To obtain the maximum value from written official rules, the sponsor must adhere to them. A sponsor’s failure to follow its own rules can lead to accusations of fraud, lawsuits from entrants, and negative interest from state attorney generals.
5. Offering an Invalid Free Alternative Method of Entry (AMOE).
The “no purchase required necessary” language means that entrants in chance-based sweepstakes must be able to participate without making any payment. If, for example, consumers are automatically entered into a sweepstakes when making a purchase, the sweepstakes sponsor must also offer an entry method that requires no purchase – often referred to as a free alternative method of entry, or AMOE for short.
Sometimes sponsors do not realize their contest or sweepstakes requires payment (referred to as consideration in the promotions law context). While money qualifies as consideration, consideration is not limited to money. Other factors that might qualify as payment or consideration include the following:
- Requiring significant effort or personal information from entrants
- Requiring participants to submit entries of original photos, videos, and other original content (depending on the structure of the promotion)
- Accepting entries via text message
- Restricting entry to paying customers