Companies, that actively promote themselves via social media, are usually looking for interesting ways to engage fans and increase brand awareness. A popular tactic is creating a contest or giveaway where entries are given for “likes, shares, and follows.” Unfortunately, most people do not consider the potential legal ramifications of such a contest, and innocent business managers may be unknowingly subjecting themselves to violations of state, federal or even international law. Some of the pitfalls and areas of concern that you need to investigate before starting a contest are discussed below.
Sweepstakes and contests run the risk of crossing over the line from “giveaway” to “lottery.” While marketers have been using similar methods for years, the prevalence and ease of use of electronic and social media have opened the doors for a vast array of people creating and sponsoring these contests. These newer users often offer up a prize without understanding that such contests are still highly regulated by federal and state laws. The regulations apply across the board from small business to non-profits to vast corporations running social media contests, giveaways, or sweepstakes.
Understand the Difference: Sweepstakes, Contest, and Lottery
In order to fully under the differences among sweepstakes, contests, and lotteries, let’s take a look at the individual definitions of each word.
Sweepstakes are prize giveaways where winners are chosen by chance and are not required to make a purchase to participate. An example of a sweepstakes promotion may include filling out a form to be included in a random drawing of prizes.
Contests award prizes to contestants on the basis of a skill or ability (for example, the best drawing or the best idea). Participants in a contest must be evaluated by predetermined criteria by judges who are qualified to determine a winner.
Lotteries are random drawings for prizes wherein participants have to pay to play. While pay usually means money, it can also mean time and effort (i.e. “liking, sharing, commenting, and following”). In order to determine if a giveaway is actually a lottery, we must look at three defining elements: prize, chance, and consideration.
Lottery: Prize, Chance, and Consideration
There are three questions that the law asks in determining if your promotion may be an illegal lottery.
- Prize — is there a prize being given away? (Cash, freebies, trips, swag, etc.)
- Chance — are winners being selected at random?
- Consideration — does something of value (cash, time, effort) have to be given by the entrants in order to participate?
If you answered “yes” to the three questions above, you may be running a lottery instead of a giveaway.
What most business owners do not understand is that requiring someone to “like” you or “share” your content might be viewed as an act of consideration; thereby turning an innocent giveaway into an illegal lottery. Time is exceedingly valuable to people. Make sure that you are following federal and state regulations in order to avoid the potential of legal ramifications.
Including Official Rules is Important
Every sweepstakes, contest or lottery must have “official rules,” and they should be easy to find. While the majority of people will never read the official rules, without them the company highly increases the risk of a liability. Having a link to the rules in an easy to find and conspicuous place not only helps people find them, it also encourages people to read them. It also demonstrates your effort in being compliant.
Official rules should normally include:
- “No purchase necessary.” OR the alternative method of free participation.
- Geographic area of the sweepstakes and/or who is eligible to participate in the sweepstakes (it is vital to limit a sweepstakes to the US and people other the age of 18 to avoid some of the far more stringent regulations).
- Opening date and scheduled termination date of the sweepstakes.
- Complete name and address of the sponsor and promoter of the contest.
- Number of prizes, the accurate description of each prize, the retail value of each prize and the odds of winning each type of prize.
- Whether all prizes offered will be awarded and how the prizes will be awarded.
- Manner of selection of winners and when a determination of winners will be made.
- Where and when a list of winners can be obtained.
There are other disclosures that could be made such as signing of releases and restrictions. One more thing to understand about the official rules is that once they are posted, they must be followed exactly, and cannot be changed except under unusual and extreme circumstances.
As you can see, a fun contest or giveaway can quickly turn into a promotional disaster depending upon the circumstances. If you are thinking about hosting a giveaway or contest, it is imperative that you consider these legal issue. Seeking the advice of an attorney may help you avoid crossing the lines into a lottery.
About the Author
Lisa M. Molsbee, J.D. is an associate attorney at Christensen Law Group, PLLC. She is an expert in appellate practice, employment issues, litigation, subrogation and insurance. You can read more about her and her legal experience here.