• Sweepstakes, Contests and Lotteries: Businesses Can Do 2 of the 3 and Need to know which is which
  • March 10, 2009 | Author: Christopher J. Borders
  • Law Firm: Hinshaw & Culbertson LLP - San Francisco Office
  • In certain areas, such as lotteries, governments do not tolerate competition. A lottery involves the giving a prize, based on chance, in exchange for some consideration and may only be conducted by the government. Everyday private marketing efforts in which a company offers to award prizes therefore skirt one or more of the elements of a lottery.

    While promotion marketing laws are perhaps not as strongly enforced by federal and state agencies as other laws affecting consumer companies, class action lawsuits concerning them are on the rise. A significant self-regulatory function by the Better Business Bureau’s National Advertising Division fills the void. Companies conducting marketing should be aware that a "contest" is not a lottery because the prizes are given based on skill and not chance. A "sweepstakes" is also not a lottery because no consideration is paid for the random chance to win a prize. Games and giveaways are not lotteries because of a combination of no payment of consideration and no random selection of winners. The key to staying on the right side of the myriad state and federal laws is the official rules of the promotion - the contract with the public. For example, New York and Florida require sweepstakes registration and bonding where the total value of all prizes exceeds $5,000, with the official rules filed before launch and the winners list filed after the conclusion of the event. When partnering with others or using third parties to run a promotion, thoughtful contracts detailing responsibilities and ensuring the proper handling of entrant data are key. Lastly, those businesses planning on publicizing the winners of the promotion should remember that publicity and liability releases are required. Navigating promotion and marketing laws is not always easy but should not stand in the way of creative and effective marketing programs.