Introduction to Sweepstakes Law

Gambling is again on the forefront of the public conscious as a number of states have recently taken notice to the proliferation of fantasy sports – and daily fantasy sports in particular. Many of the states are staking their position on the lack of skill required to prevail in fantasy sports as the reason for classifying the business as a form of illegal gambling.
Another form of gambling that is lurking in the background of public consciousness are illegal sweepstakes. They have been in and out of the news due to the proliferation of Internet Cafés where a form of illegal sweepstakes is taking place. However, rather than focus on that particular type of illegal sweepstakes, I thought a primer on basic sweepstakes law would be helpful.

What Makes a Sweepstakes Illegal?

Sweepstakes, promotions, and prize contests are a regular occurrence – be it at work, at the market, on the Internet, or on the telephone. They have been used for hundreds of years. However, if used incorrectly, they can be characterized as an unauthorized lottery under federal or state law. The failure to follow statutes and regulations regarding the legal operation of a sweepstakes can lead to government inquiries, civil enforcement actions, and even criminal penalties.
Something is considered a lottery if it has all of the following elements:

  1. Chance.
  2. Prize.
  3. Consideration.

Generally, a sweepstakes beats the lottery classification by eliminating the third element – i.e. they do not charge the participant a fee to enter the sweepstakes. Arguably, the classification can also be avoided if there is no “prize” – i.e. is pinball considered a sweepstakes by providing you with free turns?

What is Consideration?

So, the ultimate question turns on “consideration.” And then that question has to be broken-down into even further elements of analysis to determine whether the sweepstakes meets the consideration burden.
For example, what must the entrant do to enter the contest? If it is pay a fee, then obviously, the entrant has provided consideration. However, what if the entrant must complete a lengthy marketing questionnaire? Or, what if the entrant must follow the contest promoter on social media? Or post something positive about them?

Avoiding Problems through Clearly Written Rules

Additional, case-by-case, state-by-state problems come up all of the time when it comes to sweepstakes. So, there will never be a cure-all for your potential sweepstakes. Rather, you will almost always need to run your potential sweepstakes or promotion through the relevant laws and regulations before putting it on (i.e. for consumer information in the state of California, please visit the Office of the Attorney General or the Department of Consumer Affairs).
That said, below, please find some general pointers in putting together your sweepstakes rules:

  • Include statement, “no purchase is necessary.”
  • Identify all prizes being offered and their approximate retail value.
  • Specify who is responsible for taxes.
  • Detail the step-by-step procedure for all forms of entering the sweepstakes.
  • Specify the maximum number of entries an individual can possess.
  • Identify eligibility restrictions (e.g. age, licensed drivers, etc.).
  • Specify the closing date of the sweepstakes.
  • Describe the process in which a winner will be selected (e.g. random drawing, etc.).
  • Describe how a winners’ list will be compiled, made available, and accessible.
  • Identify the date in which a winner will be selected.
  • The process and date in which a winner will be notified.
  • Approximate numeric odds in winning the prize(s).
  • Identifying geographic restrictions (e.g. where is the sweepstakes void, etc.).
  • Statement concerning the ability or inability to transfer or exchange any of the prize(s).
  • Identification of any and all sponsors of the sweepstakes.
  • Statement regarding affidavits of eligibility, publicity release (if required).