Sweepstakes, Contests, and Giveaways: How Business Lawyers Can Avoid Traps, Pitfalls, and Bad Advice
One of the most important parts of a business lawyer’s job is developing a solid understanding of the work of his clients. Knowing where a client is in their industry, how they got there and where they want to be in the future is crucial to a business lawyer’s ability to guide the client through a difficult situation or to support them in achieving their goals . We need to be familiar with the regular processes, procedures, policies and practices of our customers in order to advise them on the matter and be ready to represent them on the matter that lurks around the corner.
But what if a customer wants to try something different? Not a change of direction or identity, but a new way of promoting a service or connecting with potential customers. A giveaway to arouse enthusiasm for a new product? A raffle to collect donations for a non-profit customer? If Oprah and HGTV can promote sweepstakes to their viewers, why can’t your customer? What exactly is a competition again?
Even amid the craze for sports betting that followed the 2018 Murphy Supreme Court ruling against NCAA, most people – both lawyers and laypeople – have a pretty good feeling that gambling is generally illegal, or at least very heavily regulated is. But a raffle or product gift seems safe and easy, doesn’t it?
Of course, there is no lighter line or bigger obstacle in this area than those describing the concept of gambling. Since most gambling regulations apply at the state level, the legal definitions and exemptions from gambling bans may vary from country to country. Useful, however, these definitions typically boil down to three elements: (1) Consider (2) gamble in order to (3) be given the opportunity to win a prize of monetary value. A suggested activity is usually considered to be gambling (and is usually illegal with no specific exception) if it meets all three of these elements. On the other hand, leaving out any of these elements may mean that the activity in question is not gambling and therefore the activity may be lawful. Therefore, a free entry raffle can be a fun and legally compliant way for a lucky raffle participant to get a bike (although it may not be the most direct way for the raffle sponsor to make money).
Bypassing the pay-to-play (element 1) aspect of an activity isn’t always as easy as it seems. Is it enough if the participants have to pay but do not have to pay, or does the organizer have to prohibit all participants from paying? The distinction can make a significant difference. In a broader sense, the consideration in this context is not limited to money and can occur in the form of a requirement that people deal with or subscribe to with a company’s social media feeds.
Whether the activity in question is an activity the outcome of which depends on abilities or coincidences (element 2) or a certain mixture of both can be represented by a particularly fact-dependent analysis in which different states follow different approaches. Some jurisdictions may define certain popular activities as games of skill or chance for legal purposes. Keep in mind that while some committed or successful participants may claim that the results were due to the player’s aptitude for an activity, those mere claims are unlikely to be a useful counterpoint to any legislative or regulatory decision to the contrary.
Sweepstakes are random competitions that contestants can enter to win a prize, but do not have to pay to enter, and usually cannot increase their chances of winning by paying to enter. They deserve their own discussion because in many countries they are usually the subject of specific regulations or prohibitions. The purpose of this regulation was to promote expressions such as “no purchase required” for input (a reference to “alternate input method”), “self-addressed prepaid envelope” and “universal product code”. In some areas, the well-known sweepstakes from Publishers Clearinghouse, McDonald’s and Pepsi have given way to sweepstakes cafes, salons or game rooms that exist in gray areas with uncertain legal adequacy. While the operators of these conventional and modern sweepstakes are in the context of sweepstakes and not with companies looking to use a sweepstakes to promote an otherwise unrelated consumer product, reviewing their behavior is helpful in understanding how states regulate sweepstakes. The regulations often include requirements that may be found burdensome for a company considering a sweepstakes to provide an additional promotion rather than the main business. For example, government regulations may include obligations to publish detailed rules, provide notices, register with the government, and provide bonds for prices above certain values.
Fantasy sports, which operators and proponents have long argued, are a skill competition that allows consideration and prizes, and deserve discussion too. Several states have passed laws that specifically allow fantasy sports, including Daily Fantasy Sports (“DFS”), while others have found it to be a prohibited form of gambling. Some of these statutes have in turn been subjected to judicial review in accordance with the principles of the state constitution. Increasingly, however, struggles over the legality of DFS are giving way to new political initiatives that include the approval of traditional personal and mobile sports betting.
When examining the law of an applicable jurisdiction over these types of activities, keep in mind that different states have different structural approaches to legislation and regulation in this area. In some states a gambling committee or game board may be the governing governing body, while in other states it may be a lottery agency, finance department, or even an agriculture department. Still others may take a scaled-down or decentralized approach, leaving matters to the state’s penal code and enforcement through a patchwork of law enforcement officers from across the state, county, or local law enforcement agencies.
Sweepstakes, contests, and freebies can be exciting and effective ways for customers to promote their business. While business lawyers do not need to be specialists to identify key legal issues in this area, it is recommended that you get in touch with someone who is familiar with the regulatory specifics of each jurisdiction.