Legal Compliance Guide for Online Contests and Sweepstakes

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Avoid operating an illegal lottery

Legal requirements for promotional contests and sweepstakes are driven by one goal: To avoid operating an illegal lottery. Gambling is heavily regulated on a state-by-state basis, meaning that if a marketer wants to run this kind of promotion, it must either must comply with all 50 states' laws or specify that residents of Florida (for example) are not eligible to enter. An illegal lottery includes these elements: (1) Payment of consideration (such as an entry fee); (2) Winner chosen by random chance; and (3) Prize awarded. The two types of promotions commonly used by marketers are contests and sweepstakes. A contest requires skill of some kind and judging is involved to choose the winner. You can charge an entry fee for a contest (#1 and #3). A sweepstakes is a drawing for prizes by random chance alone (#2 and #3). Never charge a fee to enter a sweepstakes, or require any other form of consideration; that would make it an illegal lottery. Hence "no purchase necessary."


Every contest or sweepstakes needs Official Rules

Official Rules are necessary to satisfy various legal requirements and keep marketers out of trouble. They may look similar, but they are not boilerplate and need to be carefully tailored to the specifics of each promotion. The Official Rules need to be readily accessible to anyone who wants to enter. If it's a web-based entry form, make sure to link to a printable version if the rules are not contained on the page itself. In advertising copy, be certain to state where the reader/viewer/listener can find them ("see our website at ... for official rules and entry form"). The Rules are Official for a reason; make sure you abide by them and strictly enforce start and end dates, methods of entry, etc.


Official Rules basics

Official Rules must cover the following at a minimum: No purchase necessary; start and end dates; eligibility requirements (age, residency, any exclusions); method to enter (including a "no purchase" method); limitations on the number of entries by a single person or household; odds of winning; description and approximate retail value (ARV) of prize; how the winner will be selected and notified; restrictions on receiving the prize; and sponsor's name and address.


Be mindful of eligibility, registration and bonding requirements

Start by determining eligibility. When in doubt, limit entrants to US residents over 18 (21 if alcohol or gambling is involved). Minors have separate issues involving parental consent. Is the prize worth more than $5,000? If so, marketers need to register the sweepstakes in New York, Florida and Rhode Island (or prohibit their residents from entering). NY and FL also require that a bond be posted equal to the total value of the offered prizes.


Disclose any restrictions on receiving the prize up front

Most marketers seek to get as much publicity as possible from a contest or sweepstakes. Individual winners have certain rights of privacy and/or publicity under various state laws; therefore, it's important to state in the Official Rules that the winner will be required to sign a release and affidavit of eligibility. Those documents enable marketers to use the winner's name, likeness and voice for promotional purposes.

Additional Resources

More resources at Bottom Line Law Group

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