Running a contest or sweepstakes (both are generally are referred to as promotions) via social media is great way to increase interest and traffic and to collect valuable user information that can be used for marketing and nurturing campaigns. However, if not properly structured, a promotion might constitute an illegal lottery (i.e., gambling) which is prohibited by all 50 states and by the federal government. Most states permit lotteries to be run by a state government agency, a regulated gaming entity, or by churches (and other houses of worship).
What makes a promotion illegal?
An illegal lottery (gambling) is where you have the following elements: (1) a prize, (2) selection of winners by chance and (3) consideration provided for the opportunity to participate. Basically, this constitutes gambling because the participant pays for the random chance of winning a prize – like a classic state-run lottery or betting on a horse race.
Now, if you remove any one of these items – you will be out of the illegal lottery woods. Generally, there will always be a prize, so in order to take a contest out of being an illegal lottery, you have to remove either “chance” or “consideration.” True skill contests do not operate by chance and therefore can require consideration to participate and will not be an illegal lottery. However, most promotions used for marketing purpose solve the problem by not requiring any consideration to participate. Hence, the following ubiquitous language: NO PURCHASE OR PAYMENT OF ANY KIND IS NECESSARY TO ENTER OR WIN THIS PROMOTION
Relevant terms defined and briefly explained:
- Consideration is not just money, but can be anything of value.
- Chance means that the winner is selected in a random manner.
- Prize is what a limited number of entrants receive, as opposed to what all entrants may receive.
- Lotteries are games of chance that require consideration to participate and are only lawful for government agencies, regulated gaming entities and churches/houses of worship.
- Sweepstakes usually refers to where a winner is randomly selected and no consideration is required to enter.
- Contest usually refers to a skill contest, so the element of chance is removed. Winners are selected by performing a skill (producing a beautiful nature photo, running a race, eating lots of hotdogs) or by qualified judges determining winners based upon clearly defined criteria.
- Promotions are sweepstakes or contests and not lotteries.
So in order to run a legally compliant promotion online, you will need (1) Official Rules detailing the promotion terms, (2) if a sweepstakes, make sure there is a method to enter without consideration – or value provided, (3) if a contest, make sure that the skill criteria actually qualifies as a skill under applicable laws, (4) comply with special rules for promotions required by social media networks, (5) legally avoid, or comply with, state registration or bonding requirements, if applicable, and (6) comply with unique requirements when user-generated content is submitted.
There are a lot of nuances when determining compliance and legal counsel should always be consulted for structuring a promotion and preparing the promotions Official Rules document.
We can usually advise on a promotion and prepare Official Rules for a flat fee. Please contact us to find out more.