Promotions and give-aways can be a low-cost, easy, and engaging method of garnering positive attention for a business. However, some business owners do not realize that contests and sweepstakes must comply with an assortment of laws and regulations. That failure sometimes leads to well-intentioned businesses inadvertently engaging in illegal activity. Here is one real-life example that I recently encountered.
The Promotion
While the structure of this promotion remains intact, I have altered names and details.
Dr. Smith offers you an extra incentive to maintain your health - A FREE WEEKEND GET-AWAY.Dr. Smith’s office will draw the name of one patient during {Health Awareness Day}, on June XX, 2017. You may enter the drawing in one of two ways:
1. Schedule and complete a wellness exam by June XX, 2017
2. Register to use our telemedicine service AND complete your first televisit by June XX, 2017
Why Is Dr. Smith’s Weekend-Getaway Promotion Likely Illegal?
Dr. Smith likely wants to offer a valid sweepstakes. Instead, he is offering what is likely a lottery. With few exceptions, only the federal and state governments can legally offer a lottery. Hence, Dr. Smith’s lottery is an illegal lottery. Inadvertently offering an illegal lottery or gambling game is mistake number one on my list of 10 Common Legal Mistakes for Contests and Sweepstakes Promotions.
A promotion in which participants pay consideration (e.g., money or other item of value) for the chance to win a prize is a lottery. For Dr. Smith’s promotion, payment for the wellness exam or televisit qualifies as the consideration, the free weekend get-away is the prize, and selection of the winner via random drawing injects chance.
How to Transform this Malformed Sweepstakes into a Legal Promotion
Successfully removing just one of the three elements – prize, consideration, or chance – lifts the illegal lottery stigma. Which one should be removed?
Remove the Prize? Possible but often not practical since removing the prize also removes much of the incentive for people to participate.
Remove Chance? Removing the element of chance to award the prize to one of many entrants means structuring the promotion as a skill-based contest. That is definitely possible and the method used by many promotion sponsors to avoid the illegal lottery issue. A skill-based contest requires entrants to demonstrate a skill (e.g., dance, photography, essay writing, etc.) and for a winner to be selected based on objective judging criteria. For this short discussion, assume that Dr. Smith wants to keep his office promotion very simple and avoid a structure requiring an objective evaluation of entrants’ skill.
Remove Consideration? Removing the element of consideration makes this promotion a valid sweepstakes – and that seems to be the structure Dr. Smith actually desires.
Removing Consideration as Method of Changing Illegal Lottery into a Legal Sweepstakes
There are a few approaches to removing the element of consideration from a promotion:
Offer a Free Alternative Method of Entry. Providing a free alternative method of entry can remove the element of consideration for a promotion where entry comes automatically with a purchase. In Dr. Smith’s promotion, entry for the weekend get-away might include the third option of entry by mail or by the internet without the requirement of scheduling a wellness exam or televisit.
Restrict Promotion to Existing Patients Who Have Already Paid for Dr. Smith’s Medical Services. For example, suppose Dr. Smith operates his practice as a concierge service where patients pay a fixed annual fee that covers certain services during the year including a wellness exam and televisits. The wellness exam and televisits are available to existing patients at no additional charge. Hence, while the wellness exam and televisits are not “free”, they do not serve as incentives for participation in the promotion. The success of this approach depends on the applicable state law. States have varying opinions on whether a promotion open only to existing customers, paying members, or event attendees qualifies as a promotion charging consideration.
Offer the Wellness Exam and Televisits Free to Anyone. Although perhaps unlikely, let’s imagine that there are circumstances in which Dr. Smith chooses to offer wellness exams and televisits to anyone free of charge for a period of time. If the free services are true “no-strings-attached” benefits to the recipients, this structure likely removes consideration. However, even “free” might be problematic if the offered “wellness exams” and “televisits” more closely resemble some type of sales pitch (e.g., persuading people to sign up for Dr. Smith’s annual concierge service). There are federal and state prize notice laws that specifically address and regulate any promotions offered as an incentive for consumers to attend a sales presentation or accept a telemarketing call.
