This summer, after giving away her property as a prize to the winner of a promotional contest, Maine innkeeper Janice Sage was the subject of a police investigation and over a dozen complaints filed with the State’s Attorney General’s Office.

Why are government regulators investigating promotional contests and sweepstakes?

The Center Lovell Inn

In 1993, Sage paid a $100 entry fee and submitting a 250-word essay on why she wanted to own the 200+ year old Center Lovell Inn in Lovell, Maine. She ultimately won the historic property as a prize. This year, she decided to sell the inn using the same method.

Driven by social media and other online sharing, the promotional contest received 7,255 entries, and Sage netted $906,875 before declaring a winner. Almost immediately afterward, however, contestants began to allege that the essay contest was deceptively advertised, and 15 complaints were filed against Sage with the Maine Attorney General’s Office. Additionally, the Maine State Police conducted an investigation into Sage’s promotional contest concerning potential violations of State gaming laws.

Sponsoring Promotional Contests and Sweepstakes – Some Legal Concerns

Contests and sweepstakes are deemed illegal gambling across the country if all of the following elements are present: (1) a prize awarded to the winner; (2) chance in determining the winner; and (3) consideration for entry in the game. Because the sweepstakes model is premised on the awarding of a prize through chance, consideration (typically monetary) is the element most frequently removed by allowing sweepstakes entrants to participate for free.

Alternatively, the sponsor of a promotional contest may argue that its promotion is a game of skill and, therefore, not a gambling offense. However, many states adhere to a strict interpretation of what is considered a game of skill, and will view certain elements of chance as sufficient to designate the applicable contest as a game of chance. Further, even where a promotional contest is deemed a game of skill, certain anti-gambling laws may still apply, depending on the structure of the prizes awarded and the level and degree of participation of the contest sponsor.

Keep Your Promotional Contest Compliant with Applicable Law

When administered effectively, contests and sweepstakes have the potential to create a lot of buzz (and revenue) in connection with the promotion of a property, product or service. However, specific state and federal laws apply to such promotions, and sponsors that do not conduct their sweepstakes and contests – and draft associated contest rules – in compliance with those laws could incur significant legal liability. In the Center Lovell Inn matter, Sage was fortunate, as the State Police determined that her contest was a game of skill that did not violate state consumer protection laws.