Though many companies trimmed their advertising budgets in 2001, spending on sweepstakes, contests and similar promotions continued to grow.
These types of promotions have gained popularity with marketers because they represent a relatively inexpensive way to promote products and to generate excitement among potential customers. Moreover, it’s often easier to measure the effectiveness of a sweepstakes than it is to measure the effectiveness of a particular ad.
Given the advantages of these promotional vehicles, it’s no surprise that many companies that use direct mail to contact customers are including these types of promotions. Marketers who advertise sweepstakes and contests through the mail face several challenges, however. Along with general laws that govern the structures of sweepstakes and contests, the federal government and many states have enacted laws that specifically apply to direct mail promotions.
Overview of sweepstakes and contest laws. Federal and state laws prohibit private parties from running lotteries. A lottery is generally defined as a promotion that includes the elements of (a) a prize (b) that is awarded based on chance (c) to someone who was required to pay consideration. What constitutes consideration varies by state. Requiring a payment or a purchase is clearly consideration. Under some statutes, though, consideration is defined more broadly and can include actions that result in a commercial benefit to sponsor.
In a sweepstakes, prizes are awarded based on chance, such as through random drawings, seeded game pieces or scratch-off devices. Because the elements of prize and chance are present, a sweepstakes sponsor cannot require any consideration as a condition of entry. If a sweepstakes contains consideration, a sponsor may be able to negate that element by adding a free method of entry, such as by allowing people to enter by mailing a postcard.
In a contest, prizes are awarded based on skill, such as in essay or photograph contests. Because the element of chance is missing from a properly designed contest, sponsors often can require a payment or purchase without running afoul of lottery laws. But some states, such as Vermont, prohibit sponsors from requiring any payment or purchase to enter a contest, regardless of how winners are selected. If a contest requires a payment or purchase, it should voided in these states.
Some states may require a sponsor to register or obtain a bond before running a sweepstakes. For example, if the total value of prizes offered in a sweepstakes exceeds $5,000, a sponsor will be required to register and post bonds in Florida and New York. In Rhode Island, any retail establishment offering a sweepstakes in which the value of all prizes exceeds $500 also may have to register with the state. And Arizona requires most contests to be registered with the attorney general’s office.
Laws that apply to direct mail promotions. The federal Deceptive Mail Prevention and Enforcement Act imposes requirements on sweepstakes and contests promoted through the mail. For example, every mailing that includes entry materials for a sweepstakes must include these disclosures in a clear and conspicuous manner:
o A statement that no purchase is necessary.
o A statement that a purchase will not improve a person’s chances of winning.
o The terms and conditions of the promotion, including the name of the sponsor, information about the prizes offered, the approximate retail value of each prize and the estimated odds of winning each prize.
Every mailing that includes entry materials for a contest must include these disclosures in a clear and conspicuous manner:
o The number of rounds in the contest, including the cost to participate in each round, and whether the rounds become increasingly difficult.
o The estimated number of entrants who will correctly solve the puzzle.
o The identity of judges, the criteria that will be used to determine winners and the date(s) on which the winners will be determined.
o A description of each prize, including its approximate retail value.
The deceptive mail act also states that any sponsor that mails any sweepstakes or contest materials, regardless of whether the mailing contains entry materials, must provide recipients a free mechanism through which they can request the removal of their names from the sponsor’s mailing list. Sponsors have 60 days to comply with these removal requests.
Marketers also may face state restrictions on direct mail solicitations. More than 35 states have statutes regulating disclosures that must be made in sweepstakes and contest solicitations. These requirements vary by state, and a solicitation that is lawful in one state may not be lawful in another. Under some of the more common statutes, a sponsor will be required to disclose:
o Any restrictions on eligibility or on receiving a prize.
o The procedures for entering a sweepstakes or contest.
o A description of prizes, including approximate retail value, and odds of winning.
In some cases, these disclosures must be made in a specific font or in a specific location on the solicitation.
Many statutes prohibit sponsors from making certain representations. Under many statutes, sponsors are prohibited from representing or implying that:
o A person’s chances of winning will be improved by purchasing a product.
o A person is a winner, finalist, has been specially selected or is otherwise among a limited group of people with an enhanced likelihood of winning, unless that is true.
o A solicitation is urgent or time-sensitive, unless that is true.
When marketing a sweepstakes or contest through the mail, a sponsor first should ensure that the promotion is properly structured under all relevant statutes. Next, a sponsor should review the official rules and the direct mail pieces to ensure that they contain all of the information required by law. Lastly, a sponsor should set up and maintain a name-removal system as required by the deceptive mail act.