With the HGTV dream home madness in full swing (why yes, I do enter twice a day on both HGTV.com and the foodnetwork.com!), I thought I’d do a little post about sweepstakes.
For me, these engagements usually start with a request to draft raffle or sweepstakes rules. But before I can even put pen to paper (or fingertips to keyboard), we have to back up and dig into whether the desired promotion is even legally compliant in the first place.
As background, promotions are regulated by State anti-gambling and lottery laws. If a promotion has chance, consideration and a prize, you’ve got yourself a private lottery and you’ll need to remove one of the components in order to run a legal promotion.
It wouldn’t make much sense to remove the prize, so let’s turn to the other two.
Chance vs. Skill
You can remove the element of chance and, voila, your promotion becomes a contest of skill. I like this option because (1) we don’t even have to talk about consideration (see below) and (2) we don’t even have to talk about bonding and registration requirements (see below, below). Essay contests, photo contests, scavenger hunts and other competitions are all great ways to engage with customers.
So what’s the downside of contests? They take time and effort – both from your customers to enter and from your organization to evaluate the entries and pick a winner. In contrast, there’s a simplicity and ease to the randomness of a sweepstakes…
The Consideration Conundrum
… which is why so many companies still choose to run them even though they can be a real pain in the rear. This pain is largely due to the kick of consideration.
Under applicable laws, you cannot ask someone to give something of value (usually money but sometimes the output of effort) in exchange for the mere chance to win the prize. This is why you almost always see the phrases “no purchase necessary” and “free alternative method of entry” in sweepstakes rules.
In plain language, you generally can’t limit your sweepstakes to paying customers; you must also give non-customers parity. Evaluating the parity of a free alternative method of entry is a careful exercise and one could easily find oneself on the wrong side of what’s acceptable.
Bonding and Registration
Even if you’re able to navigate those waters with skilled counsel such as yours truly, you still have to consider bonding and registration in a small number of States if the value of prizes exceeds $5,000. Nothing puts a damper on the excitement of offering a free car like having to deal with insurance brokers and state consumer protection agencies. This would be why residents of Florida, New York and Rhode Island often find themselves disinvited from the party.
Exceptions
They say there’s an exception to every rule, and in this case there are two:
1. Bona fide non-profit organizations like churches & charities may charge consideration. Hello church bingo night!
2. Certain internal promotions that are limited to small non-public groups may not run afoul of sweepstakes laws even if they are ultimately tied to some sort of consideration. This exception is not clear-cut and you should engage legal counsel to evaluate potential exceptions on a case-by-case basis. That’s what I’m here for, friends!
A Final Plea
I don’t ask for much my dear readers but please (please!) do not simply cut and paste rules from the Internet. Imitation may be a form of flattery but in this case, it might also be a violation of Section 5 of the FTC Act. Your sweepstakes rules are a contract with your entrants and this is not the time to rely on another company for a legal document. Truthfully, I’m not sure there’s ever a time for that but I think you get my point.
*I’ve got to be honest; I’ve spent the past 20 minutes trying to think of a clever title for this blog post and I’ve got nuthin’. No Game of Thrones puns. No Latin legal terms. No witty pop culture references. Nuthin’. Apologies folks but “Sweepstakes Primer” is all I’ve got for you today.