Don't Gamble With Sweepstakes
Generally, promotions requiring players to pay something of value or buy items for a chance to win prizes are illegal lotteries. For them to be legal, payment or chance must be eliminated. As a result, the two types of legal promotional games are sweepstakes and skill contests. When there is no purchase or payment requirement (legally known as consideration) and consumers may participate for free, the promotion is a sweepstakes - the most common promotion on the Internet.
When the element of chance is eliminated and the winner is determined by skill, the sponsor may generally charge participants to enter. Some examples of online skill contests are fantasy leagues, essay writing contests, trivia games and treasure hunts.
The most important issue concerning sweepstakes is eliminating all types of payment or consideration. In traditional media, instead of requiring participants to buy something, sponsors allow people to send index cards with their names, addresses, ages and other pertinent information. This "alternative method of entry" applies equally to sweepstakes conducted on the Internet.
And although most sites don't require consumers to make purchases or pay fees to enter online games, some legal experts believe payment to an Internet service provider to access the Internet may be considered consideration, even if the game sponsor does not receive any portion of the access fee.
While the safest approach is allowing consumers to enter by postal mail as well as online, there has been little enforcement against online-only games. If mail-in entries are used, they must be treated with "equal dignity" as the online entries. That is, entry deadlines must be consistent, consumers should be allowed to submit the same number of entries regardless of the method used, and the winner must be selected from all entries submitted.
Allowing mail-in entries may prove difficult for daily or weekly drawings, because the entry deadline may not be practical. If issues such as timing and extra costs make mail-in entries impractical, consider limiting eligibility only to consumers who had Internet access prior to the start of the promotion. This approach would overcome the objection that consumers were enticed to sign up for Internet access just to enter the game.
Even if a purchase or payment is not mandatory, consideration may still be found in contests that require participants to expend substantial effort. The most common example is where consumers must answer long questionnaires to enter. While there is significant case law on offline time-expenditure requirements, there has been little, if any, regulatory precedent in the online space.
In New York and Florida, a promotion that offers prizes with an approximate retail value of more than $5,000 must be registered and bonded.
Florida also requires an offline method of entry if the prize value exceeds $5,000. If this is not practical, consider dropping the prize amount below $5,000 or voiding the game in Florida and to all Florida residents.
If offering a promotion outside the United States, be aware of rules and regulations governing games in the other countries where it is offered.
The official rules for an online promotion are a contract between the sponsor and the participants, and must disclose all material terms of the game.
Official rules must include all eligibility requirements and restrictions, start and end dates, methods of entry, limitations on the number of entries allowed, odds of winning, the prize offerings, disclaimers for phone line and other failures, and limitation on sponsor liability.
Entrants and/or winners should also be made aware that by entering, they give the sponsor permission to use their name and likeness for future promotional purposes without compensation. Most importantly, the official rules should clearly and prominently disclose that no purchase is necessary to enter or win. And, as always, have legal counsel review the official rules and related marketing materials before any promotion goes live.