The Illegal Lottery Problem

Prohibiting illegal lotteries is an underlying principle of the laws regulating contests and sweepstakes. An illegal lottery is what you may very well produce if your prize promotion mixes

  • the element of chance also known as luck – which is permissible for a sweepstakes
  • the element of consideration also known as money and other stuff that holds value – which is permissible for some contests

In my list of 10 Common Legal Mistakes for Contests and Sweepstakes Promotions, mistake number one is “Inadvertently Offering an Illegal Lottery or Gambling Game”.

Ironman’s Sweepstakes/Contest Mix-Up Leads to $2.7 Million FTC Penalty

WTC runs the annual Hawaii-based Ironman World Championship. People who did not otherwise qualify for the Ironman could purchase a $50 ticket for a chance to win entry into the triathlon via a random selection process.

Do you see the problem with that structure?

In the eyes of the U.S. government, that structure combined consideration (the $50 ticket price), chance (the random selection), and a prize (entry into the triathlon). Those are the three ingredients for an illegal lottery – an activity that carries both civil and criminal penalties.

The WTC promotion snafu prompted the U.S. Attorney’s Office to file a complaint against the organization. As part of settling the complaint, WTC forfeited to the U.S. government all the proceeds earned from the Ironman lottery since 2012 ($2,761,910). WTC did not admit any criminal, civil or other wrongdoing as part of the settlement.

Transforming an Illegal Lottery into a Legal Contest or Legal Sweepstakes

While combining prize, chance, and consideration typically leads to an illegal lottery, offering a promotion with only two of the three typically gets you out of illegal lottery territory. The Ironman promotion might have been a legal prize promotion had WTC eliminated consideration by not charging a fee for the ticket or eliminated chance by awarding the prize based on a skill.