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Article
Sweepstakes and Contests
Sweepstakes and contests often serve as promotional devices in addition to or in conjunction with other advertising efforts. By completing and submitting entry forms, contestants take the time to become actively involved in your company's activities. Formulating and designing a successful contest takes a good deal of effort on your part as the contest promoter. Your labors will be fruitless, however, if consumers do not have a clear understanding of the contest rules or if state or federal regulators question the legitimacy of your activities. The following article explains the federal and state laws that apply to conducting most sweepstakes and contests, as well as offers practical advice you may want to consider in drafting contest rules.
Lottery Laws
Your first consideration when planning a sweepstakes or contest is to be sure that you are not conducting an illegal lottery. Several federal agencies as well as every state have laws which prohibit contest sponsors from conducting a lottery. An illegal lottery is defined as a contest which involves the three elements of (1) awarding a prize; (2) which is determined by chance; and (3) to a person who has paid something of value to enter the contest.
Thus, contests in which prizes are awarded on the basis of chance do not constitute illegal lotteries so long as entrants need not pay any money or purchase any product to enter or to win. So, if winners are chosen by a drawing, entrants must have an equal chance of winning whether or not they order your product. Alternatively, contests in which prizes are awarded on the basis of skill do not constitute an illegal lottery even if entrants are required to pay money or to purchase your product. Be certain, nonetheless, to disclose all fees that entrants are required to pay including the entrance fee, and any shipping and handling charges for prizes. An example of a contest of skill may be where entrants are required to write an essay in order to win a prize. The following section explains how you can be sure that your contest is considered a true game of skill.
Games of Skill
Many states consider a contest a game of skill if the elements of skill predominate over chance in distributing prizes. Other states consider a contest a game of skill if there are no elements that can be considered chance. Thus, in order for your contest to avoid the scrutiny of state and federal regulators, you should strive to eliminate all elements of chance.
Accordingly, every game of skill should conform to the following criteria in order to insure that it is, in fact, a game of skill.
Entrants should expend a reasonable standard of creative skill based upon the target audience.
Judges should apply objective criteria, which bear a reasonable relation to the contest, when evaluating the entrants.
Contestants should be advised of the standards of comparison that will be applied by the judges -- not that the "best" entry will win. For example, acceptable criteria for an essay contest might be: appropriateness (20%); creativity (30%); clarity (20%); and sincerity (10%).
In selecting winners, the disclosed criteria of comparison must, in fact, determine the result.
In the case of tying entries, a winner must not be determined by chance. For example, in case of a tie, duplicate prizes should be awarded, rather than given to the first entry to be received.
Contest Disclosures
In addition to lottery laws, various state laws require contest promoters to disclose certain information in the contest rules. In addition, while not expressly required by law, other disclosures are recommended so that entrants are not misled about the how the contest works. State laws vary greatly regarding what, if anything, must be disclosed to contest entrants. Therefore, in conducting a local or regional contest, you need only comply with the laws in the states where you will be conducting the contest. However, if you conduct a nationwide contest, the most prudent approach is to comply with all state laws.
By including the following disclosures in your contest rules, you will be sure to satisfy most state laws. Unless otherwise stated, these laws apply equally to games of chance and games of skill. It is important to note, that this list of disclosures is not a substitute for individual advice from counsel about your particular contest or sweepstakes.
Terms and Conditions of Entry
In conducting a game of chance, it is wise to include a statement in the rules that "No purchase is necessary to win." This way, federal and state regulators know that you have not violated the lottery laws. For all contests, you should explain all methods of entry, such as email, traditional mail and/or telephone. Further, you should state the starting and ending dates for receiving entries. If you wish to impose limitations on entries, you need to explain them, such as, the number of times that an individual person or household may enter. To limit your liability for acts outside of your control, you should include a statement in the rules that you assume no responsibility for lost, mutilated, or misdirected entries. Finally, while you are responsible for paying the sales tax on any prize awarded, many contest promoters include a statement in the rules that all income taxes are the responsibility of the winner.
Eligibility Requirements
Any eligibility requirements for entering or winning must be clearly disclosed in the rules. For example, you may want to limit your contest to entrants who are residents of certain states or any other geographic area, are a minimum age, are not affiliated with the sponsor, or upon winning, agree to submit an affidavit of eligibility and compliance with rules, a post- winning interview, and allow the use of their names or photographs in future promotions. In addition, you may want to limit the number of times a single person or persons in the same household can win.
Prizes
Nearly all state laws regarding contests require promoters to include the number and a description of the prizes to be awarded, as well as the approximate retail value of each prize. If applicable, the rules should state whether prizes can be substituted for cash or by the sponsor at its discretion. How and when winners will be chosen and the manner in which winners will be notified also should be contained in the rules, as well as how and when winners may claim prizes. Also, the rules should state wh ether unclaimed prizes will be awarded. If so, for games of chance, the rules should indicate whether there will be a second chance drawing, how that drawing will be conducted, and which entrants are eligible to participate.
Odds of Winning
Several states require contest promoters to disclose the odds of winning the contest. If there are a finite number of entries, you must state the exact odds in the rules. Alternatively, if you do not limit the number of entries, it will not be possible to calculate the odds of winning the contest before all of the entries are received. In that case, you should state in the contest rules, "The odds of winning depend upon the number of entrants received."
Winners list
Many states require contest promoters to provide a mailing address for entrants to request a list of prize winners. In so doing, you may request entrants send a stamped self-addressed envelope for this purpose. Posting the winners' list on your website should also be sufficient
Void Where Prohibited
Even if you are certain that you have complied with all state laws, you may want to include the statement "void where prohibited" as a precautionary measure. Where your contest complies with the requirements of some states, but not of others, it is important to name the states specifically where the contest is void, as "void where prohibited" may not be deemed sufficient to avoid liability in those states.
Name Of Sponsor
While only required in a few states, it is advisable to include the name of the contest sponsor somewhere in the rules. This way, you distinguish yourself from less than reputable contest sponsors who wish to remain anonymous.
Alternative Means Of Entry Required
In conducting a game of skill that has an entry fee, certain states, such as Maryland, prohibit promotional contests where entrants are required to pay any money to participate. Thus, unless the rules explicitly prohibit the contest in such states, you must provide a free alternative method of entry.
Precontest Filing
Presently in three states, Florida, New York, and Rhode Island, if the value of prizes awarded in a game of chance exceeds a certain amount, the contest promoter is required to file a registration statement with these states before conducting the contest. As part of these precontest requirements, promoters also are required to file a bond with the state or establish a trust account for the amount of the prizes to be awarded, as well as adhere to certain recordkeeping requirements. In addition, Arizona requires most contest promotions to file a simple, no cost, registration statement before conducting a game of skill. Thus, when conducting a game of chance or skill in these states, you must be especially careful to examine the applicable laws.
While following these requirements and including all of the above disclosures may seem burdensome, experience shows that it is worth your while to do so. By fully informing entrants of the rules of the contest, they are less likely to be confused or disappointed by the outcome. In the process, you will insure that the effort, time, and money you have put into conducting the contest will bring you only the increased publicity and goodwill you seek.
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