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Stuff to Consider Before Holding a Sweepstakes

Companies commonly use sweepstakes as a marketing tactic to promote their products and services. A sweepstakes is a promotion in which prizes are awarded based on chance. When conducting a sweepstakes, a company (sponsor) must be careful not to run afoul of state lottery and gambling laws. These state laws generally prohibit sponsors from running a promotion that combines:
  • Awarding a prize.
  • Choosing the winner by chance.
  • Requiring consideration to enter.
Because a sweepstakes by its nature includes the elements of prize and chance, it must eliminate the element of consideration to avoid characterization of the sweepstakes as gambling or a lottery. Consideration is a broader concept than just requiring payment to enter. It can also be:
  • Requiring a purchase.
  • Text message fees.
  • Substantial time or effort expended by a participant.
However, consideration can be an optional element of a legal sweepstakes if it is not mandatory. If consideration is involved, the sponsor must also provide an alternative method of entry (AMOE) that does not require any form of consideration. The AMOE must be treated with equal dignity as the method of entry involving consideration.
When companies first started conducting online entry sweepstakes, they typically included a mail-in entry option as well. So many consumers initially did not have internet access and it was unclear whether states were likely to deem that requiring internet access to enter a sweepstakes constituted consideration. Florida did for a time hold that requiring internet access to enter a promotion constituted consideration. The mail-in alternative therefore became the standard AMOE for online sweepstakes.
Now that internet access is so common and is free in many places (like libraries), Florida changed its position and it has become clear that the other states do not consider internet access as consideration. Companies have therefore moved away from including a mail-in alternative as an AMOE for online entry sweepstakes.
When conducting a sweepstakes, a sponsor must provide official rules to participants that disclose:
  • That no purchase is necessary to enter or win (this statement must be prominent).
  • The mechanics of the sweepstakes, including:
    • start and end dates and, if applicable, times and time zones;
    • the method of entering, including the no-purchase-necessary method; and
    • how the winners are to be selected and notified.
  • The eligibility requirements for participating in the sweepstakes, such as:
    • age;
    • residency;
    • exclusions (such as employees of the sponsor); and
    • any limitations on the number of entries by a single person or household.
  • A description of the prizes and their values.
  • Restrictions on receiving a prize.
  • The odds of winning the promotion.
  • The sponsor’s name and address.
  • How to obtain a copy of the winners list.
The official rules represent a contract between the sponsor and the participant. Participants can sue the sponsor based on the sponsor failing to adhere to the rules, such as failure of:
  • The prizes to meet the descriptions or values set out in the rules.
  • The sponsor to choose winners as set out in the rules.
  • The sponsor to begin or end the promotion at the times set out in the rules.
An issue with a promotion leaves the sponsor open to enforcement actions not only from the Federal Trade Commission (FTC) but also from the state attorneys general because promotion laws vary from state to state. The rules therefore also contain language to protect the interests of the sponsor, such as:
  • The right to substitute a prize of equal or greater value.
  • A release of liability from entrants.
  • The right to modify the sweepstakes if an error occurs and in the case of online sweepstakes, a technical malfunction.
Online sweepstakes also raise privacy concerns because personally identifiable information is collected on a website. Although federal law does not require companies to have a privacy policy on their websites, the FTC advises companies to post a privacy policy on any site where a company collects personal information. A few states, like California and Delaware, require any site that collects personal information from their residents to post a privacy policy.

Featured image credit to: dylan nolte on Unsplash

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