United States: Staying Legal with Promotional Games and Sweepstakes

It is increasingly popular for companies - both on and off the Web - to seek to promote their products and services by sponsoring promotional contests such as sweepstakes. Whether your company is a sponsor of such a contest or a media company that promotes the contest through print or broadcast advertising, it is important to keep in mind some crucial points about promotional games and contests.

First, recognize that promotional contests and sweepstakes, like any games, are regulated by gambling laws, and gambling laws vary -sometimes greatly -from country to country, and from state to state within the United States. Generally speaking, US companies should limit participation in their promotional contests to residents of the United States, or at most the US and Canada. Sometimes even narrower eligibility may be wise. For example, the states of New York, Florida, and Rhode Island and the territory of Puerto Rico all have stringent registration and bonding requirements with which game sponsors must comply or face penalties. In addition, Florida prohibits promotional contests for which the only means of entry is by email or through a Web site. Many companies prefer to exclude residents of those jurisdictions rather than to undertake the sometimes difficult and costly burden of compliance with local rules like these.

The fundamental rule is that a promotional game, especially a sweepstakes, is illegal if it constitutes a lottery. A lottery consists of three elements: prize, chance, and consideration. Put differently, a lottery is a game in which something of value, usually money (consideration) is paid for a chance to win a prize. While most states allow nonprofit organizations to hold raffles if a permit is obtained, a fee is paid, and the proceeds go to a bona fide charity, that is the exception. As a general rule, lotteries are universally considered illegal—and most states do not even have a lottery permit policy.

With this in mind, the best way to make sure your promotional contest is not an illegal lottery is to eliminate one of the three elements, prize, chance, or consideration. Of course, you don't want to eliminate the prize, otherwise there is no incentive to play the game. The most common thing to do is to omit the consideration, by enabling persons to enter the contest without paying a fee or making a purchase. This is the reason for the "no purchase necessary" language seen on many contest entry forms.

It is also common to eliminate the element of chance, either by sponsoring a game in which skill, not chance is the decisive factor (such as essay-writing, photography, artwork, or creating a name or character), or by simply awarding a prize to everyone who makes a purchase or pays an entry fee. One can even eliminate both chance and consideration, by sponsoring a simple product giveaway for a limited period of time or to a limited number of customers.

All of the above suggested means of eliminating chance, consideration, or both are ways of avoiding the trap of sponsoring a contest that turns out to be an illegal lottery. However, even if your contest is not a lottery, there are other legal requirements regarding how the contest must be promoted and conducted, and what disclosures must be made to those entering the contest. It is always best to engage a lawyer familiar with the conditions for operating a promotional game in the jurisdiction where you intend to do so.

Robert C. Cumbow counsels clients on intellectual property, advertising, and Internet issues. He focuses on trademark selection and protection, trademark and copyright dispute resolution, and making sure clients' Web sites are legally protected and comply with advertising and privacy laws. For more information, contact Bob at 206.340-9619 or email rcumbow@grahamdunn.com