“Contest” or “Skill Contest” refers to a promotion where skill or the ability to perform a required task determines the winner. A contest is not an illegal lottery because winning does not involve the element of chance. Therefore, in most (but not all) states, the sponsor of a skill contest may require payment or purchase of a product as a condition of entry in a skill contest. Up until now, Vermont was one of the few states that prohibited consideration when offering a skill contest. However, effective April 26, 2013, Vermont amended its contest and sweepstakes statute (13 V.S.A. § 2143b) to allow "an entry fee, service charge, purchase, or similar consideration in order to enter, or continue to remain eligible for, a game of skill or other promotion that is not based on chance".
However, it is important to point out that all states in the U.S. still prohibit companies from requiring people to pay money or make a purchase to enter a sweepstakes (where winners are selected at random) without also offering a free way to enter.
Thus, when structuring a sweepstakes or contest, it is important to remember the line between chance and skill isn’t always clear. An effective contest requires nothing that would be outcome-determinative be left to chance. States take a range of approaches on what constitutes skill verses chance: (1) any chance taints, (2) chance persistent in a material degree, (3) dominant element test and (4) pure chance. To the extent practicable, when setting up a contest, it is important to develop specific objective criteria that will be used to judge contestants and avoid any element of randomness or chance. Further, some state gambling statutes do not specify whether they apply only to games of chance and focus more on whether players are asked to risk or wager something of value. Therefore, absent close state-by-state regulatory compliance scrutiny, it is recommended that a skill contest be structured in a way that does not involve betting or wagering and that offers set prizes that are not dependent upon the number of entries received and are not comprised of the combined entry fees or purchase proceeds. Thus, although technically consideration for skill contests may be acceptable, such as now being the case in Vermont, payment for entry into a skill contest may still present public relations issues for companies, which is why most contest sponsors still offer a free method of entry or do not charge to enter a skill contest.
In light of the increase in lawsuits and regulatory inquiries regarding contests and sweepstakes, sponsors are advised to review their marketing and promotion practices to ensure full compliance with the provisions of the numerous laws governing contests and similar promotions. Review by an attorney experienced in sweepstakes, contests and marketing prior to launching a promotion is a modest investment compared to the cost of regulatory action or a lawsuit, which can impact not only the sponsor, but also any co-promotion partners or agencies involved in the promotion.