This guest post is brought to you by Richard Newman. He is is an attorney at Hinch Newman LLP focusing on the U.S. advertising and digital media matters.
Online sweepstakes have long been a popular promotional vehicle to attract and reward publishers. In the United States, such promotions are subject to strict legal and regulatory requirements. This article focuses upon the state –related restrictions on “pay-for-play” games of chance.
In short, games of chance – in contrast to games of skill – are considered unlawful if all of the following elements are present:
- Chance (although not the subject of this article, removal of the chance element creates a contest)
In order to generally be considered a lawfully compliant sweep in the U.S., one of these three elements must be removed. Removal of the consideration element creates sweepstakes. Simply speaking, “consideration” is something given in exchange for something else. The inclusion of consideration creates an unlawful lottery.
Consideration can be more than just monetary payment to the sweepstakes promoter. It can also include things like imposing a requirement to purchase a product/service, obligating entrants to complete burdensome steps and disguising entry fees as something else.
So, how does a promoter remove the element of consideration?
The most common method is simple. Participants are not charged by the promoter to enter the promotion.
Another method may, under specifically defined circumstances, permit sponsors to require that entrants pay consideration “indirectly” via the purchase of a product/service while providing a free alternative method of entry (“AMOE”) for entry. Non-paying entrants must have an “equal opportunity” to enter and win. A majority of states in the U.S. require that promoters conspicuously disclose the AMOE.
The value of the prize
Another important thing to consider is the value of the prize.
Prize values are relevant when it comes to evaluating legal requirements. For example, if the aggregate value of the prize exceeds $5,000 in the states of Florida and New York, promoters are required to register and bond the subject sweep. Rhode Island requires that sweepstakes conducted by brick-and-mortar-businesses at a retail outlet be registered if the aggregate prize amount exceeds $500. With experienced lawyering, promoters may be able to circumvent registration and bonding requirements.
Marketers that wish to implement online sweepstakes should consult experienced FTC advertising compliance and defense counsel as states’ legal requirements (not to mention federal law) where entrants are accepted can be rather complex. In addition to knowing relevant laws and state attorneys’ general opinions – the risk in some states may be higher than in others – compliance protocols should be implemented.
Drafting proper sweepstakes rules is also critical in order to avoid potential problems and minimize liability exposure. Rules should, without limitation, include a statement that no purchase is necessary to enter or win, set forth entry details and limitations, disclose deadlines and the approximate numeric odds of winning, describe the winner selection process, describe eligibility requirements and the geographic scope of the promotion, describe how winners will be notified, and set forth the prizes and corresponding values. Rules should also disclose whether winners will be required to execute an affidavit of eligibility and publicity release.
Promoters should bear in mind that the Federal Trade Commission protects against deceptive trade practices and the official rules must include basic information regarding, without limitation, the sponsor and prizes. Advertising and privacy policies should also be vetted for compliance by counsel.
Informational purposes only. Brief overview of U.S. sweepstakes legal issues only. Not legal advice. Always seek the advice of an attorney.