In my last blog posting, Autopsy of a Malformed Referral Contest Promotion. DOA., I deconstructed the potential legal and public relations problems a local business generated for itself with a lead-generating promotion. In this posting, I discuss how one might fix that malformed promotion.

Brevity Is Not Always a Good Thing

In the malformed promotion, a local gym seeking referrals for new gym members used the following three sentences to describe its referral promotion:

For every member you refer, you’ll receive one ticket for a drawing. For every referral that joins, you’ll receive two additional tickets. Once we hit 20 members, we will draw two prizes, one for the member that has brought in the most members, and the other will be drawn randomly from all tickets.

Mistakes Were Made

The gym made several of the mistakes included on my list of the 10 Common Legal Mistakes for Contests and Sweepstakes Promotions including the following:

1) The gym’s promotion (arguably) combined the elements of chance, consideration, and prize so that some states might view the promotion as an illegal lottery.

2) The gym did not provide entrants with complete rules for the promotion. This included a failure to explain how to enter and a failure to identify the prize.

3) The gym did not offer a free alternative method of entry.

The full analysis of the promotion’s mistakes is here.

One Potential Method to Fix this Malformed Promotion

Because of the consideration and skill/chance questions (discussed in Part One), I would discourage trying to structure this referral promotion as a contest or as a sweepstakes. Instead, I would explore a “you do this for us, and in exchange, we’ll do this for you” promotion.

For example, the gym could give every patron who refers a new member a complimentary personal training session, a free class that normally comes only with premium membership, a complimentary tropical smoothie from the juice bar – you get the idea. Of course, a business following this approach must still ensure that this exchange promotion does not trigger (or, if it does trigger, complies with) any of the federal and state laws applicable to gift cards and loyalty programs or any industry- specific regulations. For example, in some industries such as real estate and insurance, it is not permissible to pay anything to anyone for the production of business unless that person is licensed in the industry.

A Real-Life Example of this Approach

Refer a friend and Save $20.

All you have to do to start saving is refer ABC Company to a friend or neighbor. When your referral contacts us to schedule their free, no obligation consultation they must give your name as the referring customer. After your referral schedules service with ABC Company, you will receive a $20.00 credit toward your account. There is no limit to the number of friends or neighbors you recommend or the amount you can save.

This real-life example of the “you do this for us, and in exchange, we’ll do this for you” promotion works well for the service company offering it. Unlike the malformed promotion, the ABC Company promotion explains exactly how to participate, identifies the incentive, and has no element of chance or randomness (as viewed in promotion law terms).