Last Thursday, two Utah residents filed a class action complaint against New York Road Runners, Inc. (“Road Runners”), the organizer and operator of the New York City Marathon (the “Marathon”), alleging that Road Runners are conducting an illegal lottery to select a limited number of runners for the Marathon.
How can sponsors of sweepstakes, contests and drawings minimize their risk of legal liability?
In order to compete in the Marathon, those who do not meet certain guaranteed entry criteria (e.g., donating time or money to designated charities or running a qualifying time in another race) must apply for a general entry drawing (the “Drawing”). According to court documents filed by the Plaintiffs, in order to enter the Drawing, prospective runners are required to pay Road Runners a non-refundable “processing fee” of $11. The Plaintiffs allege that over 80,000 prospective runners have participated in the Drawing since 2010, and that fewer than 18% of the Drawing participants won a spot in the Marathon.
Charles Konopa of Salt Lake County, Utah paid the $11 fee to enter the 2014 Drawing but did not win. Likewise, Utah County resident Matthew Clark was passed over for the Marathons held in 2011 and 2015 after entering the Drawing and paying the same fee. According to the Plaintiffs, Road Runners retains all such entry fees.
Illegal Lottery Allegations
In the Complaint filed last Thursday with the U.S. District Court for the Southern District of New York, Konopa and Clark claim to represent all those who entered the Drawing in 2010, 2011, 2012, 2013, 2014 and/or 2015 and suffered damages as a result.
Much like in the IRONMAN Triathlon lawsuit that we covered last May, Konopa and Clark allege that Road Runners conducted an illegal lottery because each member of the class purportedly risked something of value (the entry fee) upon the outcome of a game of chance (the Drawing) for the opportunity to receive something of value (qualification to run in the Marathon). The Plaintiffs further allege that Road Runners organized and operated the Drawing without obtaining appropriate New York State and New York City regulatory approval.
The Complaint claims that the prospective Marathon runners have suffered damages of approximately $10.56 million dollars and further requests that the Court enjoin Road Runners from offering Drawings that are not compliant with New York State gaming laws.
Promotional Contests and Sweepstakes
Typically, contests and sweepstakes are deemed illegal lotteries 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/drawing 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.
Keep Drawings Compliant with Applicable Law
When administered effectively, contests, sweepstakes and drawings can create a lot of buzz (and revenue) in connection with the promotion of a product or service. However, specific state and federal laws apply to such promotions. Non-compliant sweepstakes and contests could be deemed illegal lotteries, which would place such sponsors at risk of significant legal liability.