Last Friday, New York Road Runners, Inc. (“Road Runners”) – organizer and operator of the New York City Marathon (the “Marathon”) – reached an agreement to settle a sweepstakes lawsuit filed in connection with the Marathon’s runner selection process.

How can sponsors of sweepstakes, contests and drawings minimize their risk of legal liability?

NYC Marathon Drawing and Sweepstakes Lawsuit

This January, we reported that two Utah residents had filed a putative class action in the U.S. District Court for the Southern District of New York (Case No. 1:16-cv-00450-KBF) against Road Runners. According to the sweepstakes lawsuit, prospective Marathon runners who did not meet certain guaranteed entry criteria had to apply for a general entry drawing (the “Drawing”) and pay a non-refundable “processing fee” of $11.

The plaintiffs, who claimed to represent all prospective Marathon runners who entered the Drawing between 2010 and 2015, alleged that the Drawing amounted to an illegal lottery and violated New York State and New York City gaming laws because of the Drawing entry fee requirement. Two of the named plaintiffs voluntarily withdrew their claims in April, but the case proceeded.

Parties Tentatively Settle Marathon Sweepstakes Lawsuit

On September 9, 2016, Road Runners entered into a settlement agreement with the two remaining plaintiffs in the sweepstakes lawsuit. If approved by the Court, the agreement will require Road Runners to:

  • Pay each named plaintiff $2,500;
  • Pay Court-approved attorneys’ fees and expenses of up to $670,000;
  • Donate $100,000 to the City Parks Foundation;
  • Refrain from charging Drawing-related fees for three years; and
  • Provide designated “race credits” to certain unsuccessful former Drawing participants (to remain valid for two years).

Is Your Sweepstakes or Contest Compliant with Applicable Law?

Specific federal, state and local laws apply to contests, sweepstakes and drawings. As the above-referenced case illustrates, non-compliant sweepstakes and contests could be deemed illegal lotteries, which would place their sponsors at risk of significant legal liability. As such, promotional contests and sweepstakes should be carefully vetted by an experienced marketing attorney before their launch to ensure compliance with applicable laws, rules and regulations.