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Contingent Prizes' Ins and Outs

Online consumers love big bucks. That’s why lottery and contest Web sites are continually jumping into the top 100. They’re generating excitement and millions of visits per week with multimillion-dollar prizes.

However, these sites do not have a cool million sitting in the bank. They are offering what is called a contingent prize. Unlike a guaranteed prize, a contingent prize constitutes a chance to win. Perhaps the most prevalent examples of contingent prizes are state lotteries, which give contestants a chance to win a prize and make no guarantee of a winner for a particular drawing. On the opposite end of the spectrum is the guaranteed prize, in which contest sponsors pledge that someone will take home a specific and usually smaller grand prize without fail.

Most of the large-dollar sweepstakes on the Internet are of the contingent prize variety. These sites use a contingent high-dollar grand prize, while offering several smaller secondary prizes in the form of cash, merchandise, coupons, reward points or additional chances to win the grand prize.

To grab headlines and traffic, many Web sites have opted to provide a much larger contingent prize, such as $1 million. This costs contest operators about the same amount as it would for them to offer a guaranteed prize of $25,000.

Offering a contingent prize can be tricky but can be well worth the payoff in publicity and popularity. Even if there is no winner — with contingent prizes, the sponsor has leveraged its promotional budget to provide a much larger prize than otherwise possible. This makes contestants feel they had a chance to win big money, courtesy of the sponsor.

To offer such grand “grand prizes,” the sponsors of these contests obtain a kind of “insurance” called prize coverage. Sponsors pay a relatively small amount to a prize coverage company. Then if there is a million-dollar winner, the prize coverage company must pay out the prize. This allows sponsors to fix their costs for the promotion.

Obtaining prize coverage is crucial in these cases, and most companies offering this service also can help sponsors in other areas. For example, sponsors must ensure they are meeting all state and local regulatory requirements, make sure winners are paid, maintain security and ensure that the contest is fair and impartial.

The cost of contingent prize coverage is based on a number of factors, the most important of which are the odds that a contestant will win. Generally, the higher the odds, the lower the unit cost for coverage. Other factors include regulatory requirements like bonding in certain states, contest security, outside legal fees and other service fees including hosting fees for Internet-based contests.

Contest sponsors ultimately are responsible for making sure that their winners are paid. So when shopping for a prize coverage company, it is crucial that sponsors choose an outfit with a strong track record of making good on prize payments.

If a contestant wins the grand prize, the sponsor has nothing to fear. In fact, most sponsors of contingent contests are eager for someone to hit the jackpot. The company providing contingent prize coverage writes the check to the lucky winner, while the sponsor creates a public relations coup at no additional cost.

Online promotions include contingent prize contests, games and sweepstakes. These can take a number of forms, such as lotteries, bingo games and number match contests. Creating your own Web site promotion is similar to any other marketing tactic. First, you must define your objectives. What are you trying to accomplish with this promotion: increased page views, enhanced stickiness or a database of potential customers? A clear view of your objectives will help guide your subsequent decisions.

Next, you must determine what type of prize you will offer. Now, you have to decide what kind of contest to offer. Will it be a lottery, instant-win or skill game? Virtually any theme can be enhanced with an online promotion. For example, sports-related sites can benefit from a prediction game related to the outcome of an upcoming golf tournament or professional sports championship. Entertainment sites can offer similar promotions that predict winners of high-profile awards, like the Oscars.

In addition, to gain goodwill with all of your site’s visitors, consider offering secondary prizes. All of your visitors can be rewarded with phone cards, coupons or customer rewards programs, such as MyPoints.

Now for the really good news: You can make money from your Web promotion. A carefully thought-out promotion can earn bucks for your company while supplying you with copious page views and the contents of an affinity database. The key to the Web is networking, and other advertisers out there know it. So approach related sites and companies about affiliate marketing programs, advertising, newsletters and sponsorships.

All together, Web promotions will become even more valuable in the future. According to Forrester Research, Cambridge, MA, the overall market for Web promotions was estimated at $1.5 billion to $2 billion in 2000. This number is expected to grow to $6 billion in 2005. And 50 percent to 70 percent of total Internet marketing budgets will be spent on promotions during the next five years, up from just 15 percent in 1998.

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