1) Not Providing Rules, or Changing Rules After Launch
All game promotions should have a well-drafted, comprehensive set of rules conspicuously accessible by all participants prior to registration. Once rules are in place, they should not be changed after the promotion has launched. Promoters should be absolutely certain, prior to launch, what the rules are going to be, e.g., who is eligible to register, the dates that registrations will be collected, exactly how winners will be determined and drawn, how and when winners will be notified, what happens if winners cannot be contacted, how personal information will be collected, stored and used, etc. All of these items should be included in the rules, and the rules should be reviewed prior to launch to make sure they match exactly how the administrators intend to run the promotion.
2) Not Following Your Own Rules
Ironically, though most promotions include rules, their promoters don't always follow them. Perhaps in order to avoid changing a faulty set of rules after launch, the promoter will, instead, ignore the rules and do things differently. Even if the intentions are perfectly good, such improvisations are a big mistake.
Because most promotions are highly visible and conducted on a mass scale, the chances of a participant, or a regulator, noticing an irregularity is significant and, in the event of a dispute or inquiry by a regulator, there will be no mercy given to a promoter that failed to observe its own rules. Systems should be in place to make sure that, once the promotion is launched, the promoter, its employees, and any third party administrators, are following the rules to the letter. All such personnel should be given specific instructions on the mechanics and deadlines of the promotion, and there should be at least one person overseeing and regularly checking the process.
3) Conducting an Illegal Lottery
Promoters must be careful not to run afoul of the numerous federal and state statutes prohibiting illegal lotteries. States with anti-lottery statutes currently include California, Connecticut, Georgia, Maryland, Massachusetts and Michigan.
Under most anti-lottery laws, an activity is prohibited whenever the elements of prize, chance and consideration are present together. Without all three elements, an activity is not a lottery. Therefore, promoters should ensure the absence of at least one of the three elements. The best way to do this is to not require a purchase in order to participate, minimize entry requirements as much as possible, provide a "free" alternative method of entry via fax or mail, or, remove the element of chance by converting the sweepstakes into a contest.
4) Failing to Register and/or Bond Promotions
Various states require the registration and, in some cases, bonding of promotions. For example, in New York, the law requires that consumer sweepstakes be registered and bonded 30 days before the commencement of the sweepstakes, if the value of the prize offered is more than $5,000.00. Florida, Rhode Island and Arizona have similar registration requirements for game promotions. Promoters should be very careful to meet all such requirements, especially for promotions directed at participants in numerous states or nationwide. Failure to do so can result in stiff penalties and sanctions.
5) Not Providing Clear and Conspicuous Access to the Rules
The rules of the promotion should be treated as a contract between the participant and the promoter. As such, the participant should be given a clear and conspicuous opportunity to read the rules and agree to those rules prior to registering or providing anything of value to the promoter. Specifically, we recommend the following: (i) for internet promotions, a conspicuous link to the rules should be present on every page; (ii) for offline promotions, the rules should be permanently and prominently displayed anywhere registrations are distributed and collected; (iii) for all promotions, a full copy of the rules should be displayed on the registration form and participants must be required to accept the rules prior to submitting any registration information.
7) Using Deceptive Language on Promotion Advertisements and Materials
Promoters need to be certain that all materials displayed in connection with the promotion (online, offline, in advertisements, etc.) cannot be characterized as deceptive or misleading. For example, promotions should not imply that someone is a winner if that person is not, in fact, a winner; imply that failure to purchase may disqualify the participant from future sweepstakes; contain language that contradicts with language that appears on other material or in the rules; or contain language that is poorly written or confusing. Mail-in sweepstakes are particularly problematic in this regard and should be reviewed carefully for these items and features such as official-looking stamps and fake checks, etc. Consumers and regulators have become increasingly jaded and intolerant of these practices, and promoters that are honest in the small print and take liberties elsewhere will be taking a risk.
8) Not Referencing Rules or Key Terms in Advertisements
Radio, television, and print advertisements must provide the key terms of the promotion within the advertisement (such as eligibility requirements, prize descriptions, prize values, winner selection dates, etc.) and provide registrants with a means to access the entire rules prior to registering (such as on a website, via a written request for the rules, etc.).
9) Not Withholding Taxes as Needed and Filing a 1099
Promoters must be aware that sweepstakes, lottery, and raffle winnings of $600 or more are taxable and considered as "other income" on the winner's income tax return. The rules should make clear that the winner will be responsible for any such taxes. There may be withholding requirements as well. Where applicable, it is very important for promoters to receive completed W-2 and 1099 forms from the winners prior to awarding the prize.
10) Violating Anti-Spam Laws
Many game promotions use refer-a-friend components and other viral marketing techniques to increase participation. Promoters must be aware that, according to the FTC, such extra chances to enter a sweepstakes will bring the promotion within the confines of the CAN SPAM Act.
In order for a sweepstakes with a refer-a-friend component to comply with CAN-SPAM, it must have a method for friend referrals to opt-out from receiving future e-mails from the sponsor(s), a statement of the physical postal address of the sponsor(s) and it must be clear that the e-mail is an advertisement. Also, prior to sending out an e-mail to a "friend" though the refer-a-friend feature on the website, the e-mail address of the friend referral must be scrubbed against the sponsor(s) opt-out list. Finally, if any referred "friend" requests not to receive future e-mails, that person should be added to the sponsor(s) opt-out list.
The attorneys at the Business and Real Estate Law Group hope that this list will be useful in helping current and prospective clients improve their promotions and avoid liability in the process. However, the list merely provides general information about the legalities of game promotions and is not intended to be all-inclusive. Furthermore, the information provided herein does not, by itself, create any attorney-client relationship or constitute legal advice to any person reading such information.
We Are Sweepstakes, Contest, and Game Promotion Experts
For a more detailed consultation regarding a particular game promotion, please call the Business and Real Estate Law Group at 1-800-398-6795 or email us at [email protected] Our sweepstakes, contest and game promotion services are described on our website at www.sweepstakeslaws.com and provided for a flat-fee that is quoted at the beginning of the process.
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