Saper law’s Advertising and Media Law Practice has put together the following Sweepstakes and Contests FAQ to assist businesses launching a promotional campaign. Both state and federal laws govern the use of sweepstakes and contests for advertising purposes.
Sweepstakes and Contest FAQ
While a contest or sweepstakes can be a great way to get word out about a business, businesses using these promotions must comply with both federal and state laws regulating them. The following are some questions a business might have when conducting a contest or sweepstakes promotion.
What is the difference between a sweepstakes, lottery, and a contest?
Before a company decides if its promotion is a sweepstakes or contest, it must make sure the promotion is not an illegal lottery. A lottery consists of three elements: (1) a prize, (2) consideration (payment), and (3) chance. In other words, a participant pays for the chance to win a prize, like purchasing a ticket in the hopes of winning millions of dollars in a legal, state-run lottery. A company must eliminate one of those three elements to be sure the promotion is not a lottery.
A contest, on the other hand, awards prizes based on skill, including art contests, cook-offs, or trivia contests. Because the element of chance is eliminated, companies can require consideration for entry into the contest.
Talk to your lawyer to determine whether your advertising campaign constitutes a sweepstakes, lottery, or a contest.
Are there state laws governing sweepstakes?
Yes. Each state has a different set of laws governing promotions, but most notably, Florida, New York, and Rhode Island require sweepstakes offering prizes over a certain value to be registered.
Companies offering a sweepstakes that awards prizes totaling more than $5,000 must register and bond the sweepstakes in Florida and New York. In Florida, the sweepstakes must be registered seven (7) days before the sweepstakes begins; in New York it must be registered thirty (30) days in advance. Both states require the company to provide a list of winners to the state and to anyone who requests it.
Rhode Island requires retail outlets offering a sweepstakes with prizes valuing more than $500 to register the promotion with the state. The state does not require companies to bond the sweepstakes.
Are there state laws governing contests?
Yes, contests are also subject to specific state laws. For example, for contests that require a purchase to enter, Arizona requires the company to register the contest with the attorney general’s office, including a sworn statement that no additional fee was added to the purchase price in connection with the contest.This is only a sample of the unique requirements of each state’s laws.
What federal laws apply to contests and sweepstakes?
A number of federal laws apply to promotions. Determining which laws apply is largely governed by the medium through which the promotion is conducted.
Promotions conducted by mail are subject to the Deceptive Mail Prevention and Enforcement Act. The act requires promotions mailings to include all terms and conditions, the address of the company conducting the promotion, and prize information such as odds of winning, estimated value, and schedule of payments. For sweepstakes, the company must specify that no purchase is necessary to enter the sweepstakes.
E-mail promotions are subject to the CAN-SPAM Act of 2003. The act requires the sender of e-mails to clearly identify the e-mail as an advertisement, to provide the opportunity for the recipient to opt out of receiving e-mails from the sender, and to provide the sender’s physical postal address.
Promotions by phone must adhere to the Telemarketing Sales Rule. The rule requires the caller to inform the person called the odds of winning a prize, that no purchase is required, that a purchase will not increase the chances of winning, and information on, or how to obtain, the no-purchase/no-payment form of entry.
Additionally, promotions on the internet must take into account the Children’s Online Privacy Protection Act (COPPA), which requires websites who direct their services at children and collect personal information from children to provide notice of what personal information is collected, how it is used, and the website’s disclosure practices. The act also requires websites to obtain “verifiable parental consent” to collect the information.
What are the rules for conducting a promotion through a social networking site?
To conduct a promotion through a social networking site, a company must also comply with the particular site’s terms. Facebook, Twitter, and YouTube all outline guidelines for conducting promotions through their websites. Facebook’s promotions guidelines can be found at http://www.facebook.com/terms.php#!/promotions_guidelines.php, Twitter’s at http://help.twitter.com/entries/68877-guidelines-for-contests-on-twitter, and YouTube’s terms at http://www.youtube.com/t/terms.
What should be included in the promotion’s rules?
The basic guidelines for what should be contained in sweepstakes rules include: a “no purchase necessary” statement, entry procedures, any limits on the number of entries per person, the end date of the sweepstakes and any other deadlines, prizes and their estimated value, the method of selecting winners, geographic scope, eligibility requirements, date winners will be selected, date winners will be notified and the method by which they will be notified, and the identity of the company conducting the promotion.
In addition to those suggestions for sweepstakes, for contest rules, a company should include: proof of purchase requirement if permitted, judging criteria, identity of the judges, statement that entries must be original and will belong to the promotion-conducting company and will not be returned, and the method of tie-breaking, which must be skill-based.
Where can I find more information?
The U.S. Small Business Administration provides a guide to using contests and sweepstakes, with links to more information on complying with federal regulations at: http://community2.business.gov/t5/Business-Law-Advisor/How-to-Use-Contests-Sweepstakes-and-Giveaways-as-Marketing-Tools/ba-p/10881;jsessionid=348BC6703CDA2331AC0103885E034A3F.
Or feel free to contact Saper Law if you have further questions. Our office number is 312.527.4100.
A sweepstakes is a game of chance: the winner is chosen at random. Because a sweepstakes includes chance and a prize (or else it would be unlikely to successfully draw the attention of potential participants), a company cannot require consideration to ensure the promotion is not a lottery. In other words, the company cannot require payment or a product purchase to enter the sweepstakes. If the company wants to require consideration (for example, the purchase of a box of cereal to obtain a game piece inside or completion of a lengthy survey), it must offer a free Alternative Method of Entry (AMOE). The AMOE must give entrants the same odds of winning as those who entered via the consideration method.