Elon Musk, A Sweepstakes And Law Enforcement: Why Marketers Should Care

A sweepstakes by Elon Musk's Political Action Committee, America PAC – which on October 19 announced and began offering a daily prize of $1,000,000, through Election Day, to one U.S. citizen who is registered to vote in a swing state and who signs America PAC's petition supporting the First and Second Amendments of the U.S. Constitution – has invited federal and state regulatory scrutiny.

According to press reports, the U.S. Department of Justice (DOJ) has sent a letter to America PAC warning the organization that its sweepstakes is a potential violation of a federal law prohibiting payments for voting or registering to vote. Meanwhile, on October 28, Philadelphia District Attorney Lawrence S. Krasner filed suit against America PAC, alleging that the sweepstakes constitutes an illegal lottery and violates the Pennsylvania Unfair Trade Practices and Consumer Protection Law.

Marketers looking to launch similar election-related promotions should pay heed, as any requirements to vote or register to vote that are part of their promotions could similarly draw legal scrutiny.

Background

U.S. law, under 18 U.S.C. § 597 and 52 U.S.C. § 10307, makes it illegal to pay, offer to pay, or accept payment, in exchange for voting or registering to vote. The Fifth Circuit Court of Appeals has found that under the precursor law to Section 10307, "pay" applies to any item of pecuniary value. The DOJ's manual titled "Federal Prosecution of Election Offenses" specifically lists "lottery chances" as an item of pecuniary value that would run afoul of Section 10307. In other words, federal law bans paying, offering, or accepting cash or lottery entries in exchange for voting or voter registration.

This prohibition applies regardless of whether the "payment" is tied to a vote for a particular candidate or registration with a particular political party. Violations are punishable with a fine of up to $10,000, a jail term of up to five years or both. Often overlooked is the fact that violators are not only those who give, but also those who receive, cash (or other pecuniary value) for the act of voting or voter registration.

The America PAC Sweepstakes

To be eligible for the America PAC daily $1,000,000 prize, entrants must be registered to vote in one of seven identified swing states. They must also sign a petition purporting to support freedom of speech, the right to bear arms and the other protections offered by the First and Second Amendments. In Pennsylvania, America PAC is also providing registered voters both a sweepstakes entry and $100 for signing the petition, and $100 additional for referring other registered voters who sign the petition. (America PAC is not giving registered voters in the other six states a cash bonus for signing the petition, but is giving $47 for referring registered voters who sign the petition.)

Although the DOJ's letter was not released publicly, it likely points to Section 10307 and the DOJ's previously stated position on that statute, arguing that a sweepstakes prize of $1,000,000 constitutes an illegal payment (to a winner) or offer to pay (to entrants) to induce individuals to register to vote. The illegality stems from the fact that the sweepstakes allows entrants to register to vote after the sweepstakes was announced, making the $1,000,000 sweepstakes prize (and, in Pennsylvania, the $100 petition payout) an incentive to register to vote. Had the sweepstakes required that all entrants be registered to vote before the date that the sweepstakes was announced, there likely would not be a legal issue, since the sweepstakes (and any additional payout) chronologically could not incentivize voter registration: All entrants' voter registration activity would pre-date the sweepstakes announcement.

The DOJ's warning letter to America PAC has ignited allegations that the DOJ is singling out Republicans, with Senator Tom Cotton pointing to sweepstakes by get-out-the-vote organizations HeadCount and Michelle Obama's initiative When We All Vote. However, neither of those two sweepstakes requires voter registration as qualification to enter and win, so neither of those two organizations is likely to run afoul of Section 10307.

Despite the DOJ's letter, America PAC has continued to both operate its sweepstakes and offer registered voters cash payments to sign and/or refer other registered voters to sign its petition. Since the date of the letter, America PAC has issued several $1,000,000 daily payments to sweepstakes winners.

On the state enforcement level, Philadelphia District Attorney Krasner has filed suit against America PAC, alleging that the sweepstakes constitutes an illegal lottery under Pennsylvania law. District Attorney Krasner has also alleged that the sweepstakes violates the Pennsylvania Unfair Trade Practices and Consumer Protection Law, including by failing to include detailed terms and conditions, failing to disclose the odds of winning and failing to disclose how entrants' personal data will be used.

Why This Matters for Marketers

Every election cycle, brands look to align themselves with and encourage consumer political engagement. Because sweepstakes, contests, and similar promotions are a time-tested way for brands to connect with consumers, it is not uncommon to see brands attempt to link political engagement to consumer promotions.

While the DOJ's letter should not foreclose brands from tying promotions to Election Day, marketers should avoid any promotion entry requirements that, directly or indirectly, reward participants for voting or registering to vote. Additionally, the pending Philadelphia lawsuit should serve as a reminder that every sweepstakes should have detailed rules, setting forth the full terms and conditions governing the promotion, the selection of winners, the awarding of prizes, and the use of entrants' personal data.

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