Sweepstakes and contests are popular and fairly inexpensive promotional tools for almost any product or service category. They are regulated by a patchwork of state laws, federal law via the Deceptive Mail Prevention and Enforcement Act, and under certain circumstances, by the FTC. As a result, campaign errors can quickly become a nightmare for the promotion’s sponsor, even for small-scale promotions. When planning a prize promotion, advertisers must know the differences between a sweepstakes and a contest and ensure a set of well-crafted rules are in place prior to launch. From a legal standpoint, the official rules are a contract between the sponsor and the entrant, and they may provide options for the sponsor in the event issues or problems arise.
Elevator Pitch Summations:
Sweepstakes winners are chosen by chance, most commonly via a random drawing. Under many states’ statutes, a prize promotion constitutes an illegal lottery or illegal gambling when a purchase of some sort is required to enter and the winner is chosen by chance. To avoid this scenario, the sponsor must provide a free, alternate form of entry, and this is one reason why NO PURCHASE NECESSARY language is found in all sweepstakes rules. Oh, and don’t call a sweepstakes promotion a “contest” in your rules or marketing materials as this could invite trouble!
Don’t forget this fact: Florida and New York require registration and bonding/escrow accounts for any sweepstakes when the prize value exceeds $5,000. To avoid jumping through those regulatory hoops, rules may include a phrase similar to “void in the states of Florida and New York.” Residents of those states are then ineligible to enter the sweepstakes or win a prize.
Contests are decided on the basis of skill, not chance, so entrants can be required to pay an entry fee or purchase a product, and no alternate, free entry method is required. Without an element of chance, there is much less risk of an illegal lottery allegation arising. However, because a contest is based on skill, judging criteria must be plainly stated in the rules, and, the winners must be selected based on the stated criteria. For contests, Florida and New York have no registration requirement if the prizes exceed $5,000 in value.
Before launching a prize promotion, ensure that a solid set of official rules are in place. They must be easily accessible to the entrant, most typically by a hyperlink. In addition, short form rules must be included in advertising materials for the sweepstakes or contest. Even Tweets! These few lines of vital information provide the material elements and restrictions about the promotion (end date, eligibility, etc.) and inform potential entrants where official rules may be located. Again, a hyperlink to the rules generally does the trick for online promotions.