You’ve seen them: “Post the best video of your dog fighting off the deadly snake wrapped around a toddler to qualify to be entered in the drawing for a free iPod!” or “Post a picture of the craziest outfit your neighbors wear when getting their morning papers to get a 30% discount coupon!” Maybe you’ve only entered the ones asking you to be a company’s 1,000th “fan” for a Starbucks gift card. While this may seem like an effective way to increase customer engagement and gain legions of “fans” for your business, using Facebook and other digital platforms to promote and run sweepstakes and contests could be against the law. Breaking these laws can lead to government investigations and even criminal penalties.
The regulations concerning sweepstakes and contests are numerous and complex. At minimum, it is important to consider the following:
A sweepstakes, typically a random drawing, involves chance and a prize. It is governed by both state and federal law, and requires a variety of disclosures to entrants. Although specific rules vary by jurisdiction, companies running sweepstakes generally must provide entrants with the rules that contain at least the following elements:
- A conspicuous statement that no purchase is necessary to enter or win. If something of value (such as a purchase or payment) is required to enter, the promotion may be deemed an illegal lottery.
- An identification of the sponsor.
- A description of the entry procedures, including the methods of entry, eligibility restrictions, limits on the number of times a person can enter, relevant deadlines, and so on.
- Geographic scope of the promotion, and a statement that reads “void where prohibited by law.”
- Information about how and when winners are selected, including notification procedures.
- The approximate odds of winning each prize, which typically can be a statement that the odds depend on the number of entrants.
- A list of the prizes, their approximate values, any conditions on the use of the prizes, and a statement that the winner is responsible for all taxes.
A contest, on the other hand, is a promotion in which a prize is awarded based on the skill of the entrant (such as a writing contest) and not on chance. Contests are also regulated by state and federal law, and typically require “official rules” that make similar disclosures to the ones we just mentioned for sweepstakes. In addition to those, contest rules should include:
- The standards and procedures used to judge the entrants, which the sponsor must follow.
- Information about what happens in the event of a tie.
The regulation of sweepstakes and contests is complex and varies by location and the marketing channel used.
If you are promoting a sweepstakes in New York, you may be required to register and bond the sweepstakes. In addition, you must provide a list of winners to the state and to anyone who requests it. Records of the winner(s) should be retained for no fewer than four years. However, state laws around contests and sweepstakes are always subject to change. There are numerous websites and articles discussing these rules. But, if you’re thinking of using them as your sole advice, you should be aware that they may not address your specific issues—or reflect the latest changes in the law.
Still tempted to run a contest or sweepstakes?
With all of these rules, and potential changes to these rules, what should you do? Being aware that there are evolving regulations is the first step. The next is to properly define what you’re planning to do. Some things to consider include:
- Are you running a sweepstakes or a contest?
- Through what media will this be promoted?
- Which geographical areas do you plan to target?
- Are you defining a specific age range for the entrants?
- Do you have a plan for proper registration and follow-up?
While you could stop there and reference the internet, you’d be likely to miss some of the fine print. In light of the complexities in this area, companies that plan to run contests, promotions, or sweepstakes should consider getting assistance from either an attorney or a consultant who specializes in these subjects.
New laws are constantly emerging and changing for existing and new media, contests, and sweepstakes. Most recently, a bill (Senate Bill 431) passed in May 2012 in Georgia broadly limits electronic sweepstakes. The intent was to better regulate gambling and state lottery laws, but because the language is ambiguous, there is concern about the law impacting all types of sweepstakes offering cash prizes.
Having someone familiar with recent and pending changes—and their impact on your business’ activities—will minimize the complications you may face for incentivizing people to “like” you.
Matthew Savare is counsel in the Tech Group at Lowenstein Sandler PC, and Stacy Robin is the founder of The Degania Group. They can be reached at email@example.com and firstname.lastname@example.org.